Eswar Prasad, Cornell University Professor of Economics & “The Future of Money” Author, joins Yahoo Finance Live to discuss hesitations on federal regulations of cryptocurrencies like bitcoin, central bank digital currencies, the falsehoods of anonymous transactions, and financial privacy.
- Well, against that backdrop though, "Cryptocurrency could help governments and businesses spy on us," at least, that's the title of the Op-ed by our next guest, Eswar Prasad, Cornell University's Professor of Economics and "The Future of Money" author. So Eswar, judging by that title then, what's your case there? And also, what could tip it from going on could spy on you to will spy on you? ESWAR PRASAD: So it depends on what form this revolution that Bitcoin and other cryptocurrencies have set off leads us towards. The notion of what Bitcoin set of was being able to use currencies without having to rely on Central Bank money or trusted intermediaries, such as commercial banks or credit card providers. But what we are seeing in fact, is some degree of centralization that has been catalyzed by this cryptocurrency technology. So first of all, we are beginning to see stablecoins, which are issued not on decentralized platforms, but by specific issuers beginning to gain traction. And one can certainly envision a world in which stablecoins that are the Fiat currencies who have stable value because they are backed up by Fiat currencies. Gaining a lot of traction if they're built on top of existing social media platforms or a commercial platform, such as Amazon or PayPal. The second issue is that this technology is leading Central Banks to start thinking about issuing their own digital currencies. And CBDCs, so Central Bank digital currencies could undercut the case for many of these other cryptocurrencies as digital payment platforms. And Central Bank digital currencies might end up giving governments or Central Banks acting as their agents, tools through which to monitor economic as well as financial lives. So we could end up rather than having decentralization and more anonymity somewhat paradoxically being led to a world where big corporations, and perhaps Central Banks have even more visibility into our financial transactions. - But as of now, if you're investing in Bitcoin, if you're investing in Ethereum, how do you lose your anonymity, your privacy, some of the things that crypto was built upon? ESWAR PRASAD: It don't sound that Bitcoin is not anonymous as it initially been assumed. In fact, this is one good thing because it now turns that Bitcoin is being used much less for illicit transactions than in its early somewhat wilder west days. It turns out that if you use Bitcoin extensively or use it to acquire real goods or services, then it is possible, as we've seen from many examples, where the FBI has been able to uncover these transactions to connect digital identities to real identities. There are certainly new cryptocurrencies that are coming up that offer much stronger anonymity, but anonymity is no longer the big selling point of cryptocurrencies. Cryptocurrencies are being used in some cases, as mediums of exchange in the form of stablecoins, like I mentioned. They have become pure speculative financial assets, but anonymity is no longer the big selling point of these digital currencies anymore. - And we certainly see that as part of some research I saw from the 2021 Global State of Crypto by Gemini, they found that while most people plan to hold crypto as a long term investment about 69%, the other reasons for buying it include trading it as a sort of day trading online and in-person purchases, as well as to increase the privacy of their purchases. So how secure should people feel about that right now? And you did mention there are some alternatives, what would they be? ESWAR PRASAD: So it does sound that you've probably heard about the ransomware attacks where the hackers demand payments in Bitcoin. That requires a fair degree of sophistication to run Bitcoin and other cryptocurrencies through protocols that mask your true identity. Now, there are new cryptocurrencies such as Monero and Zcash, which have much stronger anonymity, but that comes with a price and that price is much less ease of use. It's very easy to trade Bitcoin as a speculative asset on many financial exchanges. You can set up your own Coinbase account. You can even set up your own digital wallet, which gives you a little more anonymity than trading on a centralized exchange. But the reality is that ultimately, it's very difficult to keep your identity hidden if you use these cryptocurrencies extensively. Now, this is not to say that illicit finance or anonymity is completely superseded. Certainly, there is an element of anonymity here, which takes some effort by the government or some other agency to unravel compared to using, say traditional bank account or a credit card. So this is not to say that anonymity is completely and very easily compromised. It's just that if you're a really malicious actor trying to use this, say for instance, at a country level to evade sanctions or trying to get your money out of the country, if your country's currency is collapsing, it's possible but just a lot harder than people might think.