Bank of England senior economist: speculation disrupts cryptocurrency prices and effects

Peter Zimmerman, senior economist at the Bank of England, said speculation disrupted the price and role of cryptocurrencies.

According to Coindesk, Zimmerman stated in a paper that speculation undermines the effectiveness of cryptocurrencies as a means of payment. Due to the limited processing power of the blockchain, excessive speculative use can make transactions slower and more expensive. Assume that the value of cryptocurrencies stems from their utility as a payment instrument, which reduces their use and therefore their value to holders.

Zimmerman said, "Limited settlement space creates competition among currency users, so speculation will crowd out the use of money. Speculation crowds the blockchain, reduces the currency value of cryptocurrencies, and affects their prices."

He also believes that speculative activities will hinder the mainstream application of cryptocurrencies, and the "digital gold" effect will cause some users to hoard cryptocurrencies that were originally used as payment methods.

In this regard, he suggested that if speculative activities can be implemented using two-tier protocols such as cash-settled crypto derivatives or Lightning Network, then this may have a "deep impact" on the nature of cryptocurrencies, making them more similar to other asset classes .

Zimmerman believes that the main value driver of cryptocurrencies is their function as a means of payment, and any speculative activity will "make it difficult to use the token for its intended purpose." For example, the popular Ethereum trading game CryptoKitties "occupies the blockchain and makes it more difficult for people to use dApps or execute smart contracts."

Image source: Pixabay

By Liang CHE

This article is from Please reprint the source.