In a world where digital currencies like Bitcoin and Ethereum dominate financial headlines, skepticism remains high among experts. David Enns, a retired economics professor from Cornwall, Ontario, recently shared his thoughts on the shortcomings of cryptocurrencies in The Globe and Mail.
Enns critiques the functionality of cryptocurrencies, pointing out that they fail to meet the three fundamental purposes of fiat money: a store of value, a medium of exchange, and a unit of account. “They are not a good store of value because of their extreme volatility,” Enns states. With over 8,000 cryptocurrencies in existence, only a handful are used as legitimate mediums of exchange. Enns questions their practicality, asking, “Who gets paid for anything using Dogecoin?”
Furthermore, he notes that cryptocurrencies have yet to establish themselves as a standard unit of account. Unlike fiat currencies such as the U.S. dollar, which are used to price goods and services globally, cryptos are still valued in terms of dollars. “All cryptos are priced in dollars and not the reverse,” Enns emphasizes, underscoring their dependency on traditional financial systems.
Despite their widespread appeal, Enns argues that cryptocurrencies function more as speculative assets than as legitimate forms of currency. Their digital nature—devoid of physical coinage or tangible value—has captivated investors seeking quick profits. However, this speculative nature is fraught with risks. “If we ignore any Ponzi scheme or outright fraud, as was the case with FTX, it’s my prediction that at some point speculators will come to the realization there’s nothing there, and eventually the bubble will burst,” he warns.
The collapse of FTX, a cryptocurrency exchange that filed for bankruptcy amidst allegations of fraud, serves as a stark reminder of the potential pitfalls in the unregulated crypto market. For skeptics like Enns, incidents like these highlight the vulnerability of digital assets, raising questions about their long-term viability.
While advocates of blockchain technology and digital currencies argue that they represent the future of finance, Enns’s critique suggests that much work remains to ensure their legitimacy and stability. His analysis invites policymakers and investors alike to reconsider the role of cryptocurrencies in Canada’s financial landscape.
As debates around crypto and blockchain continue, one thing remains clear: without addressing their inherent shortcomings, the promise of digital currencies risks being overshadowed by their speculative allure.
A Cautious Path Forward
David Enns’s commentary underscores the critical need for Canada to approach cryptocurrencies with caution and foresight. With the global crypto market at a crossroads, the challenge lies in balancing innovation with practicality to ensure a stable financial future.
