Although he has reservations about Bitcoin architecture, a finance professor remains optimistic about the direction that digital assets may go in the future.
Bitcoin (BTC) is far from being ideal by design, according to a finance expert at the London School of Economics, but it’s impossible to see a world without digital assets (LSE).
Igor Makarov, a professor of finance at the LSE, thinks that digital assets and money will surely play a role in the future of finance and that the effectiveness of these products will be greatly influenced by their design.
Because Bitcoin has been so unpredictable over the past ten years, according to Makarov, there hasn’t been much proof that it can be used as a store of wealth.
There is no assurance that Bitcoin’s price will become more stable one day because its volatility is still quite high despite its enormous gain in value and increasing liquidity, he added.
“Without any government backing Bitcoin, the cryptocurrency’s value depends on the willingness of the general public to hold it, which in turn depends on changing investor sentiment and its standing against other cryptocurrencies,” Makarov stated.
Additionally, the professor predicted that enabling public entities in the United States to invest in BTC would almost surely cause a “temporary price gain.” Early adopters would, however, profit from this appreciation “at the expense of the wider public” and other repositories of wealth, including fiat currencies, Makarov added.
“Since Bitcoin is an unproductive asset — given its current design — its returns come entirely from price appreciation and in the long run we should not expect them to exceed the growth rate of aggregate output.”
Makarov is well-known for co-authoring a report that said 10,000 Bitcoin investors, or 0.01 percent of all Bitcoin holders, owned 5 million BTC, or 25% of the total 19.1 million bitcoins that have been created and are now in use. The top Bitcoin holders, according to the experts, own a larger percentage of cryptocurrency than the wealthiest Americans do of money.
The analysis, according to Makarov, is based on data from the Bitcoin network as well as open data from blogs, chat forums, and other sources. We also utilize Bitfury Crystal Blockchain data to learn about the identities of significant public businesses, such as exchanges, and online wallets, he added. Makarov added that the majority of wealth is invested in real estate and securities and that very few Americans own significant quantities of cash.
“Cash transactions might be difficult to trace, but, unlike Bitcoin transactions, the cost of cash transactions increases with the transacted amount. Also, storing large amounts of cash is costly.”
Makarov has doubts about Bitcoin’s architecture but remains optimistic about the future of digital assets. Since 2016, he has been engaged in cryptocurrency arbitrage and trading. He developed an interest in the financial uses of blockchain and cryptocurrencies and has worked on several related projects, such as the study of the Terra ecosystem crash.
“I find many developments in crypto space fascinating. They start with Bitcoin and its ingenious design and include many others, including smart contracts, oracles and others,” Makarov said. But in order to benefit from the industry, it is important to properly and timely address issues like governance, regulation and others, the expert emphasized, stating:
“There is little doubt that in the future we will have digital money and digital assets. Their efficiency will depend on their design. Therefore, it is important to get it right.”
Makarov said that he is not currently holding any cryptocurrencies.