Grym tries to illustrate why a digital currency is a questionable idea using crypto currencies as an example. Because of its pioneering role and its distribution, Bitcoin has to serve as a whipping boy.
It even goes so far as to deny the blockchain its decentralized character:
“For all purposes and intentions [the blockchain] is a centralized ledger. The fact that there are several copies of it, synchronized and distributed over a network, is irrelevant because they all have the same data.
A sentence that can only come from a central banker. Grym generously overlooks the fact that the advantages of decentralization only really come to bear when someone tries to change something in his copy of the ledger. Admittedly, as a central banker you have little desire to speak out in favour of decentralising the banking system. That’s why it’s hard to blame Grym for not wanting to saw the branch he’s sitting on.
“No advantages over traditional banking”
The fact that blockchain-based transactions take place (pseudo-)anonymously is also not a strong argument for Grym:
“The Bitcoin system was only built in a decentralized way to ensure anonymity. However, this is at the expense of efficiency, so the Bitcoin system is much slower and more expensive to maintain than any other existing payment system.”
Of course Visa, PayPal & Co. play in a completely different league when it comes to the maximum possible number of transactions per second. Security, decentralization and transparency come at a price. It’s a classic straw man for the central banks when they talk about scalability and efficiency instead of the actual motivation.
In addition, a Bitcoin user at least has the opportunity to see his transactions processed more quickly. All he has to do is promise the miners a higher transaction fee. The customers of centralized payment service providers do not have this option and are at the mercy of their conditions. The question of scaling is as old as Bitcoin itself. Numerous alternative crypto currencies have already addressed the problem and the number of possible transactions per second (tx/s) is constantly increasing. A payment channel in Ripple can theoretically be scaled up to more than 50,000 tx/s and would thus be at eye level with visas. The Lightning Network developed for the Bitcoin could even exceed this value many times over.
Reading the analysis is nevertheless worthwhile
Grym concludes with the thesis that crypto currencies in their essence are nothing more than accounting systems for non-existent deposits. He justifies this with the fact that money must always be available in two forms: as coins or banknotes and as institutionally covered book money. If this money is only digitised, there will only be one unit of account in the end. Now we can only talk about institutional cover as long as citizens and investors trust these institutions – in other words: states and central banks. The cover consists of the supposed guarantee of price level stability. The United States and Europe have struggled more with hyperinflation for longer. However, this does not mean that confidence in central banks can be fully justified. Greek citizens, for example, who had only limited access to their accounts in the wake of the financial crisis in 2010, will confirm this.
First, Grym criticises that it is misleading to talk about “digital coins” because there is nothing in the Bitcoin system that resembles a coin. Instead, transactions form the core of the Bitcoin ecosystem. Since transactions have to be confirmed by miners, contrary to Satoshi Nakamoto’s assertion, they cannot do without a middleman.
Grym forgets that it is theoretically possible to mine his own transactions. In addition, the issue of new Bitcoins – unlike that of new banknotes – is subject to a decentralized consensus. Finally, the role of full nodes – also a role that any participant can have in principle – is completely ignored by him.
Grym is also not impressed by the blockchain as a transaction history:
“The underlying mechanism of recording […] does not differ from the general ledgers that have been used for hundreds of years.
Nevertheless, it is worth reading the study from Finland – even if only to question his understanding of money and to understand the thinking of Bitcoin opponents.