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The Bitcoin Fountainhead

While it is clear that cryptocurrencies are here to stay, it remains to be seen what economic role they will – or should – play. In the case of Bitcoin, the technology's success lies entirely in what it promises, rather than in what it can actually deliver.

CAMBRIDGE – With the price of Bitcoin reaching new highs, and El Salvador and Cuba deciding to accept it as legal tender, cryptocurrencies are here to stay. What implications will this have for money and politics?

Money depends on trust. It is accepted in exchange for goods and services only because people can confidently assume that others will accept it in the future. This is as true for the US dollar as it is for gold. To argue that cryptocurrencies like Bitcoin are merely a confidence game – or a speculative bubble, as many economists have emphasized – is to ignore their popularity.

And yet, cryptocurrencies lack the stable institutional foundations needed to bolster the public’s trust in them. Trust thus ebbs and flows, making them fragile and volatile, as Bitcoin’s wild gyrations have amply demonstrated.

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