Crypto Economy - A New Social Model?

The Centre for the Governance of Change del IE has released a report assessing the social value of the Crypto assets, meaning their contribution to the broader economy and society, reaching the conclusion that they do not add substantive social value or benefits to our societies beyond private gains and general benefits to market activity. The report considers that this conclusion does not mean that it cannot do so in the future and advocates for further research in this field.

Main conclusions of the Report:

• Crypto assets are gaining relevance over the last years, reaching a market capitalisation of $3 trillion by the end of 2021.
  
  
• The main supporters of crypto asset’s social value provide the following arguments: 

- Growing interdependence with the real economy and partial replacement of some systems of the financial and economic model has made them irreplaceable and, therefore, their long-term sustainability inevitable.

- By reducing the need for intermediaries, the crypto economy enables financial inclusion and is democratizing the financial sector, while increasing the efficiency of financial markets.

• Critics, on the other hand, consider that: 

- Cryptocurrencies are a speculative bubble driven by those seeking to circumvent the system to finance criminal activities or avoid paying taxes.

- The crypto economy tends to attract less experienced and therefore more vulnerable investors.

- Environmental concerns and the belief that the increasing prevalence of crypto assets will lead to further financialization of the economy.

• The report finds that decentralization is not happening to the extent that crypto advocates argue and, consequently, there is a gap in the democratization discourse around crypto where there has been concentration of power in many areas, for example:

- Only 1% of cryptocurrency users are institutional investors, but that they generate 60% of the operations and own 50% of the assets in circulation.

- In the case of Bitcoin, a study from the National Bureau of Economic Research (NBER) shows that 0.01% of crypto-asset holders control 27% of the Bitcoins in circulation.