In five years from now at the latest the first central bank will have issued a currency based on blockchain
In this interview, researcher Dr. Ingo Fiedler from Universität Hamburg talks about cryptocurrency, its importance for society and its future potential.
Do you think Bitcoins are unique? Far from it – there are now hundreds of cryptocurrencies world-wide. The time has come to address this matter. We spoke to Dr. Ingo Fiedler who conducts research into cryptocurrencies at Universität Hamburg and we wanted to know: Do we have to take Bitcoins & Co. seriously?
Dr. Ingo Fiedler, Post Doc Researcher at Universität Hamburg
Cryptocurrencies and their future potential
Dr. Fiedler, Ethereum, Ripple, OmiseGo, Qtum, Stellar Lumens – it’s enough to make anyone dizzy. Today, there are hundreds of cryptocurrencies and most people are unaware of them. Did we miss something?
Dr. Fiedler: There are several aspects to this topic. If you asked me about the overall social importance of cryptocurrencies, I would say that they are not that important. But, this would all suddenly change if a central bank were to issue a cryptocurrency.
Do you foresee this development in the near future?
Dr. Fiedler: Yes, certainly. I consider it to be very realistic in the next five years. Some countries, like the UK, are already experimenting with it. This would make cryptocurrency a new form of distributing valid currency, i.e. the British pound. It would have the same value as the pound and would exist parallel to cash and scriptural money. This would virtually be a blockchain-based pound.
What would be the advantage of this kind of virtual currency?
Dr. Fiedler: This kind of blockchain-based cryptocurrency has outstanding properties and in many ways would be much better than a centrally handled digital currency. A bank transfer with a cryptocurrency would be much faster than a conventional SEPA transfer. The fight against money laundering would also be much easier thanks to complete transparency. Online gambling providers, for instance, would then only accept this – legal – cryptocurrency based on white/black listings. There could be a shift in money creation in the real economy: citizens could each have their own account with the central bank. This would simplify the control of money supply, making it more efficient, direct and transparent.
Why are there so many cryptocurrencies?
Dr. Fiedler: They are brought onto the market for different purposes. Bitcoins, for instance, are not so much a currency as a value-storing function, similar to gold. They are rarely used to pay for goods because the transaction costs are so high, just like with gold. There are also strong fluctuations in value which are due to the low maturity of Bitcoins and the low number of shareholders in comparison to gold, for instance. Other cryptocurrencies act more as ‘utility tokens’ for certain services, such as ‘smart contracts’ – so-called self-executing contracts – or for making phone calls in African countries.
Can you make money with cryptocurrencies?
Dr. Fiedler: Yes, especially when you issue a cryptocurrency. The market is currently marked by a high level of willingness to pay on the part of investors who have become very wealthy. They are willing to spend money freely and that’s why a lot of money can be currently made by issuing new cryptocurrencies or blockchain-based tokens.
Which cryptocurrency do you consider to be the most important?
Dr. Fiedler: In the future, all cryptocurrencies issued by central banks will become increasingly important. But we haven’t come to that stage yet. I believe that only three of the cryptocurrencies available today will develop further. First of all, there are Bitcoins, which may be technologically quite inferior, but they do have the greatest network effect, then there is Ethereum which will become relevant, for instance, in company financing and which offers options for ‘smart contracting’.
And the third crypto-blockbuster?
Dr. Fiedler: That is a currency based on a Directed Acyclic Graph (DAG) – in other words, a multi-dimensional blockchain – which is highly scalable. The first DAG-based currency that we should name is IOTA, which unlike ‘normal’ blockchain, improves in performance the more transactions are made.
What else is so special about IOTA?
Dr. Fiedler: IOTA has no transaction costs and is therefore extremely interesting for micropayments and nanopayments. Transactions can be carried out offline and this makes it a very exciting proposition for the logistics market. This brand new cryptocurrency has not yet reached the end of its development. It is an experiment that could also very well fail. But I do see considerable potential in this technology.
Mr Fiedler, thank you very much for talking to us.
Dr. Ingo Fiedler
Ingo Fiedler (34) is a visiting lecturer at Concordia University in Montreal/Canada and a Post Doc Researcher at Universität Hamburg. He studied both business administration and economics at Universität Hamburg and received his Ph. D with distinction. Dr. Fielder was a visiting scholar at the University of California in Berkeley/USA and the Concordia University in Montreal. He is the author of six reference books and around 40 scientific articles. His expertise is regularly sought by political decision-makers in Germany and abroad, for instance, by ministries at federal and federal-state level, the German Bundestag or the European Parliament. His main areas of research include gambling, blockchain, cryptocurrencies and money laundering. He and his team at Universität Hamburg are currently campaigning for research funds from the Federal Ministry of Economics for a project on decentralized, blockchain-based energy markets.
Cryptocurrencies are a digital means of payment that can be purchased on the Internet. There are currently (2017) more than 3,000 different cryptocurrencies. They are created by private individuals and are not controlled by a sovereign organisation. They are based on blockchain technology. Bitcoins, which have been traded since 2009, are the most famous cryptocurrency. Cryptocurrencies are susceptible to strong fluctuations. Cryptomoney can be used for direct online payments without the need for a bank. It is not legal tender. Germany's Federal Financial Supervisory Authority (BaFin) has classed the Bitcoin cryptocurrency as a unit of value comparable to that of a foreign currency.