Goldman Sachs CEO Lloyd Blankfein looks at bitcoin bubble and the cryptocurrency craze in general with a degree of skepticism. In an interview Thursday, he expressed bemusement with the concept, which is based on blockchain technology. There are reservations about the technology’s underpinnings expressed in a white paper from a French academic. All else equal, however, the uses for blockchain technology are likely to expand significantly past cryptocurrencies.
Goldman chief skeptical on bitcoin bubble after analyst predicts move to $7,900
Just days after a Goldman Sachs analyst said bitcoin is likely headed over $7,900, Blankfein expressed reservations.
"I don't like it. I'm not comfortable with it," he told CNBC's Kayla Tausche, saying it might be a “bubble.”
Blankfein joins JPMorgan’s Jamie Dimon, who said bitcoin, up near 600% in price year to date, is a “fraud” and “worse than tulip bulbs,” referencing one of the historic market bubbles of all time. “It won’t end well.”
Blackrock’s Larry Fink had previously called bitcoin bubble an “index of money laundering.” And it is here that common ground is found with Marc Pilkington.
Amid tremendous possibility, issues with blockchain exist
Pilkington is Associate Professor of economics at the University of Burgundy, France. He recently published the white paper, “Blockchain Technology: Principles and Applications.”
In it, he outlines the core of how the technology operates, pointing to significant benefits and a diverse set of user cases. But he also points out “several weaknesses.”
One such issue occurs with using blockchain for land transfers / sales. He notes that “reversibility is a desirable property of the blockchain, as government-uncontrollable registries risk not being recognized at all,” but pointing to the work of other academics on the topic “admits that a public ledger with a smart contract allowing the government to enter the game, nuances this conclusion, without undermining it.”
There is also a technical concern relative to bad players. “The concept of an anonymous 51% attack arising from a collusion of miners taking control of a public decentralized network is widely documented in cryptoeconomics,” Pilkington wrote. “The fundamental blockchain question is ultimately that of trust.”
Police discover $40 million bitcoin bubble scam
Earlier this year, Pennsylvania police, looking for stolen laptops, stumbled onto a $40 million bitcoin scam. When police thought were tracking down a case of stolen laptops, they really found a bitcoin heist. After a circuitous search, police discovered 105 pages of alphanumeric code suspected of being used to pilfer bitcoin from their owners.
Ultimately, however, the blockchain can track individual usage if they are programmed to do so. “Transactions, although traceable, are enabled without disclosing one’s identity; this is a major difference with transactions in fiat currencies that, with the exception of (non-traceable) cash transactions, are related to specific economic agents endowed with legal personality (whether physical or juridical).
The issues are not slowing down usage, particularly as the move towards digital cash increases. The Bank of England is currently considering ways to implement "hybrid systems" involving distributed ledger technology. “This initiative might come as a surprise following the critical report (Ali et al., 2014, p. 6) issued a few months earlier expressing the institution’s skepticism as regards the claimed ability of cryptocurrencies to sustain high levels of decentralization,” Pilkington observed.
While security bugs still need to be addressed, Pilkington has other issues.
Transaction costs processed by public ledgers are higher, higher, he notes, while pointing to “an asymptotic trend bringing long-term costs of public ledgers in line with efficient private ones.” Further he says the connectivity between nodes in public blockchains is lesser than in private ones, slowing transaction times.
Rather than being permanent issues that won’t be overcome, these are speed bumps. Pilkington sees further adoption coming in everyday applications such as art, tourism, voting and even sports.
While many are not fans of the bitcoin bubble, the potential for the technology to transform society remains powerful. “While still in their infancy, one should not underestimate the promising socio-economic benefits of these extraordinary technological changes,” Pilkington wrote. “Blockchain enthusiasts, surfing on a wave of euphoria set in motion by scores of innovative start-ups currently seem to outnumber the sceptics.”