Daron Acemoglu in Project Syndicate:
With the price of Bitcoin reaching new highs, and El Salvador and Cuba deciding to accept it as legal tender, cryptocurrencies are here to stay. What implications will this have for money and politics?
Money depends on trust. It is accepted in exchange for goods and services only because people can confidently assume that others will accept it in the future. This is as true for the US dollar as it is for gold. To argue that cryptocurrencies like Bitcoin are merely a confidence game – or a speculative bubble, as many economists have emphasized – is to ignore their popularity.
And yet, cryptocurrencies lack the stable institutional foundations needed to bolster the public’s trust in them. Trust thus ebbs and flows, making them fragile and volatile, as Bitcoin’s wild gyrations have amply demonstrated.
Moreover, with Bitcoin and other cryptocurrencies that rely on “proof-of-work” mechanisms, transactions must be continuously verified and logged in a decentralized ledger (in this instance based on blockchain).
More here.