Last week, David Andolfatto, St. Louis Federal Reserve Vice President and Director of Research, published an in-depth
presentation on the peer-to-peer decentralized currency bitcoin. This is the
first time that such a high level central banking official has studied the
cryptocurrency and upon his research he has discovered that it could very well
pose a threat to the system – but that’s a good
thing.
The Business Insider was able to sit down with Andolfatto and talk about the presentation entitled
“Bitcoin and Beyond: The Possibilities and Pitfalls of Virtual Currencies,” (PDF) his blog post and bitcoin itself.
He explained that it all began when he attempted to refute that gold
is not superior to fiat money, but because bitcoin was in the news he
acknowledged that the two share a similarity: there is a fixed money supply.
Andolfatto blogged a little bit more and wrote about traditional theories of
money.
After this, he was
approached by Marcela Williams, the St. Louis Fed’s assistant vice president of
strategic communications, to deliver a presentation on bitcoin.
When he first discovered the digital currency, Andolfatto deemed it “silly” and
read a blog post by Keynesian economist Paul Krugman and concurred that this was
an “intensive effort to mine for gold,” something that the world doesn’t need
more of. He performed a little bit more research and then tergiversated.
“I shared in that opinion, but I continued to read about
it, and it struck me that that analogy was incorrect — that in fact what these miners were, was mislabeled,” said Andolfatto.
“They were performing a communal service, a record-keeping service which is
critical to any money system. Mining was a red herring, it’s just one way to
reward record keepers for their service, and that protocol could function even
with constant supply.”
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