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Authored by Omid Malekan, Co-Authored with Ulrich Bindseil, Director General of the European Central Bank

Cryptocurrencies like Bitcoin have always been polarizing, even within the world of economics and finance. This divisiveness, which often pits the crypto faithful against skeptical experts from traditional finance, is unfortunate. Both sides can learn a great deal from each other.

One of us is a Director General at the European Central Bank with a focus on payment systems and market infrastructure.

This past February Ulrich and a colleague published a viral blog post on the ECB website questioning whether Bitcoin had any fundamental value and listing other reasons to be skeptical of its promise as currency. The blog post was a follow-up to an initial critique on the same blog written by Ulrich and his colleague back in 2022.

The other one of us clearly disagrees.

Omid has been working in the crypto industry for years and teaches it at Columbia Business School. As argued on his own blog and in his books, he believes Bitcoin has unique and appealing properties that will eventually make it a backup reserve currency.

And yet: we consider each other friends, colleagues at a distance, and are conducting research together.

We first connected shortly after Ulrich’s initial blog post. Omid presented a list of rebuttals to Ulrich’s arguments — which to his credit Ulrich wanted to hear. Ulrich asked thoughtful questions and volunteered to read Omid’s book. He then invited Omid to present to his colleagues on digital currencies and cited Omid’s writing in his own research. Along the way we learned that we share a passion for the plumbing of finance and the likelihood of it being revolutionized by modern technology.

Unlike Ulrich, other experts in finance often dismiss all blockchain-based innovation, on account of the speculative nature of crypto assets, not to mention the combative nature of crypto believers.

Unlike Omid, many crypto professionals dismiss the most important lessons from the history of finance, dooming themselves to repeat them.

We’ve learned a lot from each other by putting our differences aside. We’ve even discovered that there’s a lot we agree on when it comes to the power of decentralized settlement networks, smart contracts, and tokenization.

We agree that Bitcoin is a novel invention created by a genius, and that it will lead to lasting innovation.

We also think that decentralization comes with major tradeoffs, one of which is a difficulty to evolve.

The next few halvings are going to test Bitcoin’s economic security.

Bitcoin has an illicit use problem. The illicit use of it needs to be addressed — as it needs to be addressed for every other payment solution. Its unique properties require new tools for combating illicit use, but society has to manage the tradeoffs between catching bad actors and censoring good ones. Where to fall on this spectrum is a political decision.

We agree that the energy impact of Bitcoin is significant and must be acknowledged, even as it trends towards renewables. Whether the environmental impact is worth it will ultimately depend on its utility beyond pure speculation. We both think the appeal of Bitcoin is greater in places with high inflation, political oppression, or a lack of basic financial services.

That said, we both think stablecoins might be even more useful to such people for day-to-day use. They might also be disruptive in developed markets as a more sophisticated and programmable payment instrument, one that can be coupled with other tokenized assets to improve capital markets and invent new instruments. [BU1]

Lastly, we both think the high volatility and lack of generally accepted valuation framework of Bitcoin add to the controversy surrounding it. Omid believes that one of his students (or even Ulrich) might someday make a name for themselves by proposing one. Ulrich believes he already found the answer but will try hard to come with a different solution.

Most of all, we both consider ourselves better off for challenging each other’s views and would encourage others to try the same.

Author’s note: This piece was originally written as a back-and-forth debate about Bitcoin before it morphed into the post above. Below is Omid’s rebuttal to Ulrich’s post on the ECB blog as well as Ulrich’s response to the rebuttal. We share this in the spirit of provoking further debate.

Omid Malekan: (emphasis ours)

Ulrich Bindseil: (emphasis ours)

The worlds of crypto and finance were always going to merge, so we might as well open our minds and learn from each other.