Cryptocurrency pioneer Nick Szabo has argued that central banks could
soon turn to cryptocurrencies to shore up their
reserves, Finance Magnates reports Jan. 9.
Szabo is a veteran cryptographer, having developed the concept
of "BitGold" — a never-implemented, pre-Bitcoin (BTC) privacy-focused digital currency back in 1998. He is also the
first to have conceptualized smart contracts, in 1996 — well
ahead of their industry-wide traction — and remains a leading
thinker in the crypto sphere.
In remarks following his presentation at the Israel Bitcoin Summit at Tel Aviv University on
Tuesday, Szabo proposed that in 2019 — in a context of mounting
global geopolitical uncertainty — cryptocurrencies may increasingly
be viewed as a sound alternative to existing central bank reserve
denominations, arguing:
“There’s going to be some situations where a central bank can’t
trust a foreign central bank or government with their bonds for
example. One solution that’s been developed is to have the Swiss
government hold it for you – that’s not a trust minimised solution.
The Swiss government itself is subject to political pressures and
so a more trust minimised solution is cryptocurrency.”
Central bank reserves — which may be holdings of national or
foreign fiat currencies, or other international reserve assets,
such as special drawing rights (SDR), government bonds or corporate
equities — are an integral bulwark of the existing financial
system, and are used to back liabilities, provide a mainstay
against economic risk, and to influence monetary policy.
Szabo isolated physical gold in particular as vulnerable, citing
the historical precedent of the Nazis’ looting of Europe's gold
reserves, beginning with Austria's in 1938.
In further remarks, Szabo predicted that crypto adoption would
rise in countries where economic mismanagement has precipitated
ruinous national currency devaluation and/or inflation, as well as in
politically ostracized states bowed by the pressure of international
sanctions.
Turning to the current state of technological development in the
crypto sector, Szabo forecast that 2019 will usher in increased
adoption of second layer solutions such as Lightning Network.
According to Cointelegraph’s correspondent at the scene, Szabo’s
comments were precipitated by a divisive opening speech from Avi
Simhon, head of Israel’s National Economic Council and senior
economic policy advisor to the country’s prime minister.
As reported Tuesday, the economist
had opened the Israel Bitcoin Summit by denouncing Bitcoin as
intrinsically inefficient, predicting the cryptocurrency’s
disappearance.