Leon Bendesky: Coins

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the discussion about money and its functions have significantly shifted to the role of cryptocurrencies and, more broadly, decentralized finance.

Cryptocurrencies are defined as digital or virtual currencies backed by cryptographic systems. Initially, they allow for direct online payments, displacing the use of intermediaries (such as banks or credit cards).

Cryptocurrencies are based on a technology called “blockchain,” which consists of blocks of information connected to an online record.

Each of these contains a set of transactions that are validated by a network that verifies the consistency of the rules established for its operation. The market value of some cryptocurrencies is highly volatile and fluctuates rapidly.

The differences with conventional money are significant because their creation is centralized by the government. Cryptocurrencies are decentralized, so transactions are made directly from one party to another, precisely through the blockchain.

A relevant aspect of these currencies has to do with supply, as is the case with Bitcoin, whose availability is limited. Bitcoin was launched in 2009; speculation is one of its notable characteristics.

Just as we talk about supply chains for production, which became prominent after the COVID-19 pandemic, there are also supply chains for capital.

Essentially, this refers to the various sources available to individuals, companies, or even governments to obtain the capital necessary for their operations and projects. One of the phenomena currently affecting this capital chain is linked to the speculative bubbles that tend to spill over from the financial sector to the productive sector.

In the case of speculation, this is evident in cryptocurrencies, which are assets with no underlying basis of value and do not generate cash flows for their holders. In other words, their current value depends on the expectation of selling for a higher price. The higher the price of these currencies, the greater the risk spread throughout the market.

Another type of cryptocurrency is what are known as " stablecoins ." They are designed to have a fixed value determined by other reference assets such as gold, fiat currencies (such as those issued by governments), or even some commodities. They are used for trading and making payments.

Stablecoins are stablecoins because of this link; thus, a stablecoin, the dollar, is backed one-to-one by one unit of that currency. This is what gives them their stability. In this case, for example, they serve as a measure of protection against devaluations.

These innovations in currencies, the value they represent, and the types of transactions they can carry out are undergoing a transformation. This has opened the field of what is known as decentralized finance.

The Bank for International Settlements (BIS) describes it as a series of technological innovations that drive alternatives in the functions of money and finance, thus conceiving it as "the path of a new generation of monetary and financial systems."

It is worth noting the way in which the current transformation environment is described and, above all, reflecting on its possibilities and also its consequences.

The BIS places the concept of tokenization at the heart of this issue, a term already used in Spanish in financial discussions. The technology associated with cryptocurrencies can be applied to other types of assets, such as various financial instruments.

Tokenization, it is said, allows assets to be digitized and expressed as tokens with “different properties.”

A token, for example, represents a piece of ownership or rights to an asset, whatever that may be. Interests in rights to works of art have been tokenized. This technology, it is claimed, will enable new forms of cross-border payments or even trading on stock markets.

In any case, innovations in technology associated with money and finance must meet the basic criteria associated with a secure and functioning financial system.

That is, the uniqueness that ensures all forms of money are valued equally; the elasticity that allows the money supply to expand or contract according to economic needs; and the integrity that protects the system against financial crimes and illicit activities.

Cryptocurrencies are a fertile ground for speculation and value manipulation.