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Rogoff’s article discusses whether the use of Bitcoin
and if there is a future in the technology supporting Bitcoin and weighs on
whether Bitcoin’s
value is justified or if it’s a bubble waiting to burst. Bitcoin, a decentralised digital
currency, has become extremely popular with its current price at $14,870 per
BTC (Tradeblock, 2018) which is 10,061% higher than its 2013 value (Coindesk,
2018), however, Rogoff’s
perspective is that although Bitcoin is revolutionary, its future is

      This essay will explore
three different sections found in Rogoff’s article: whether the use of Bitcoin is purely criminal, whether
Bitcoin has any value or if it’s a bubble and if the blockchain technology will be shortlived.

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Bitcoin’s use.

Rogoff (2017) references how the
Japanese government suggested that it’ll force Bitcoin exchanges to lookout for criminal activity
and collect information on deposit holders. Regardless of its use, Bitcoin won’t display the names of the
users in transactions, which has meant it’s been involved in illegal activity,
leading to governments wanting to regulate Bitcoin. This is due to it being a
go-to option for money-laundering for cyber-criminals (Shoshitaishvili et al,
2014), suggesting that its anonymity attracts criminal activity as it’s hard to regulate intermediaries
who offer services for Bitcoin due to transaction anonymisers (Möser et al, 2013). Möser points out that Bitcoin
involved in illegal activity has already started to be rejected by some
regulators and he advises is more effective than tracking accounts, which
Rogoff suggested to do. However, this solution has not stopped illegal activity
happening as Dowd states (2014) that the nature of Bitcoin attracts criminals
because as the hidden economy expands, it’ll increase the demand for Bitcoin to
support its activities. Thus supporting Rogoff’s statement that tax evaders will
still find methods to potentially launder money anonymously through bitcoin via
Japanese accounts.

It’s evident that Bitcoin is not used widely
by the public (Ali R et al, 2014) as Bitcoin is seen as a store of value rather
than an exchange of goods. This can be blamed on the difficulty of Bitcoin
being used in daily life, which has been highlighted by CNBC (2017) in NYC.
Although Bitcoin has started to be accepted in several places, CNBC (2017)
showed that the costs associated with paying by Bitcoin are far higher than
with USD. Therefore, the use of bitcoin is not widely accepted due the costs of
those transactions, and its lack of acceptance as a method of payment. The
transaction costs have arisen due to the volume of people investing in Bitcoin
right now, Lewis (2015) outlines how miners have created fees to add
transactions to the ledger, thus inadvertently pushing the costs of Bitcoin up.

However, Mundell (1998)
uses Gremshaw’s
Law to assess how, historically, more efficient currencies have won out other
currencies, for example, the US dollar won outas an international currency due
to its consistency, stability and high quality (Mundell R, 1998). This same
idea can be applied to Bitcoin as Lewis (2015) highlights how Bitcoin can be
sent from one person to another regardless of location and the payment is
transferred within seconds. Moreover, its security is secure compared to other
methods of payment due to the Blockchain technology supporting bitcoin, which
requires each transaction to be publically authenticated by buyers and sellers
(Alstynne M.V, 2014), therefore preventing users from being exposed to
fraudulent activity.

On the other hand, due to its high
price volatility (Dowd, 2014), and its association with crime, it seems that
the likelihood of it being backed by governments and the public is unlikely.
Meaning that the research above supports Rogoff’s statement in saying that bitcoin’s use is due to its anonymity
rather than the ease of use.


or Valueless?

The key characteristic
that catapulted Bitcoin to fame is its anonymity, Rogoff (2017) argues that
without this, Bitcoin
will crash. This leads to the argument whether Bitcoin has any value at
all or if it’s just a bubble that is waiting to
burst (Rogoff, 2017). Currently, the market value of Bitcoin is estimated at
around $72bn yet Cheah and Fry point out that Bitcoin’s
price has speculative content within it (2015) and that the fundamental value
of Bitcoin is zero. Dowd (2014) supports Cheah’s
work by predicting that if the price of the Bitcoin ‘trends
upward’ it can make it the subject of a
speculative bubble – even if the supply of Bitcoin is predictable (21m BTCs),
Dowd (2014) states that demand is highly unpredictable and Bitcoin has no
system to stabilize it, unlike a central bank. To further support this, Cheung
et al’s study (2014) of Bitcoin has found
that it has been experiencing short-lived bubbles and have found that it has 3
major bubbles that coincide with the major events that have occurred in the
Bitcoin market, such as the Silk Roads and Mt. Gox scandals. In fact, Shiller’s (2014) insight into the characteristic of a bubble supports
the evidence presented as he states speculative bubbles are a ‘fad’ that arises from
the irrational exuberance, the nature of news and information channels. This
links back to Cheung’s and Cheah’s
claim as many investors buy into Bitcoin due to its uncrackable algorithm, its
claims of being completely secure alongside its anonymity. Consequently, the
research supports Rogoff’s statement that
there are bubble components within Bitcoin but they have always been
short-lived rather than crashing to 0.

However, Alstyne (2014) claims that Bitcoin has value
because people accept it as a medium of exchange, shown by the fact that at
least 22,000 sellers accept Bitcoin (Bogle, 2014). Likewise, the promise that
Bitcoin won’t surpass its supply of 21m Bitcoins
shows that there is a stable supply of Bitcoin, which is more stable than what
many central banks have promised regarding their own currency supplies
(Alstyne, 2014). Because of the decentralized nature of Bitcoin, the value of
it can fluctuate a lot as seen in its previous value on Coindesk (2018),
however Alstyne (2014) claims that as more people accept Bitcoin over time, it
will stabilise.  As Bitcoin steadily
becomes backed by more and more governments, such as the Japanese shown in
Rogoff’s article (2017), it can be said
that there is a value within it because it can be transferred from one currency
to another and used as a method payment to get goods and services. This can
disprove the point explored in the previous section as Bitcoin is slowly being
accepted into wider use.


Blockchain – shortlived
or revolutionary?

Although Bitcoin has its drawbacks, the technology supporting it – blockchain, can revolutionise the financial
sector to make it secure and more reliable to adjusting to changes in the
future. Blockchain would allow banks to remove inefficiencies in the paper
manual processes regarding transactions (Macknight, 2016) by making digitalised
transactions more efficient. A Santander report (Belinky, 2015) found that  Blockchains could reduce infrastructure costs
by up to $20bn per annum by 2022, thus showing the potential Blockchain holds
for the financial sector. By allowing to cut out the middle-man due to
security and transparency (Underwood, 2016), the time and cost of settling
transactions would be greatly reduced. Many other firms are starting to accept
Blockchain technology in their operations, such as Deloitte and Nasdaq
(Underwood, 2016) because the technology has started to allow market integrity
and transparency because market activity can be monitored in real time.
However, Macknight (2016) points out that Blockchain may not be able to solve
all problems regarding the financial sectors inefficiencies but will be able to
create a ‘catalyst’ to further cut through the infrastructure
problems within it. Underwood also emphasises how there are still problems
concerning data privacy as factors such as how much information needs to be
shown to verify a transaction in the ledger as every person in the transactions
will have an up-to-date ledger that reflects all the transactions information (Hamm,

it can be agreed with Rogoff that the technology behind Bitcoin can be used to
stabilise the cybersecurity of the financial sector (2017) but it still has its
limitations and would require global collaboration to create a standard that is
accepted by all organisations and protects individuals using the transfers
whilst still maintaining market integrity.


            In conclusion, Rogoff’s argument that Bitcoin’s use is done for criminal activity has been
justified as the research shows that although it’s becoming more accepted to use Bitcoin, the main use of it is
either a store of value or as money-laundering. In addition, the Bitcoin has
shown characteristics of a speculative bubble due to pressures from governments
such as China, however, Rogoff is incorrect in saying that the Bitcoin has no
value as it fulfils the BofE’s requirements to be a medium of exchange (Ali, 2014). Finally,
blockchain can be seen as the next step in Fintech but it still needs major
adjustment and thought into how it would be applied to the financial sector.
Overall, Rogoff’s
claims do hold weight but the performance of Bitcoin is unpredictable due to
its decentralised nature.

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