Humility requires us not to claim certainty about the answer to the first question, but to answer the second question with a resounding no. Although cryptographic innovations have some valuable capabilities, the proliferation of private digital assets has also widened the gap between private and societal benefits.
Bitcoin is the prototype of an unbacked cryptocurrency with no intrinsic value. That valuation represents what economists call a pure bubble. But not all bubbles burst right away. For thousands of years, gold has traded at a price far above its “fundamental” value. Is it possible that Bitcoin will become the new gold? probably. At best, we can be sure that of the hundreds of thousands of cryptocurrencies that have emerged, only a few will survive.
The social damage caused by unbacked virtual currencies is even more obvious. One of the costs is seigniorage diversion. In traditional systems, profits from currency creation flow through the state to the community. In the case of cryptocurrencies, that privilege is either privatized or wasted. Another problem is crime. Bitcoin and similar assets are notorious for facilitating tax evasion, money laundering, and illicit finance.
Second, there are also implications for macroeconomic policy-making. Central banks can only stabilize the economy and prevent financial contagion if they manage liquidity in times of crisis. And unbacked cryptocurrencies have no form of investor protection at all.
