Cryptocurrencies here to stay – Expert Reaction

New Zealand should get on board with blockchain, including cryptocurrency, according to a report funded by the Law Foundation.

University of Auckland’s Associate Professor Alex Sims, who led the research, says New Zealand has “fallen behind countries we like to compare ourselves with, including Australia, the United Kingdom and Japan”.

The report makes a range of recommendations, including the Government continuing to allow cryptocurrencies to be traded and spent within New Zealand alongside greater advice and protection for consumers. It also recommends GST be removed from cryptocurrencies that are used to pay for goods and services.

The Science Media Centre gathered expert commentary on the report. 

Professor Steve Reeves, Associate Dean of Software Engineering, University of Waikato, comments:

“This is a timely and very thorough report that I hope NZ will take note of.

“There are some things, however, which the report barely touches on which are currently very hot topics within the blockchain research community:

  1. The governance of blockchains … for all their vaunted transparency and immutability, issues around governance (basically: who gets to say what the rules are) are still very much up in the air. When things go wrong, who gets to decide what the repair should be and who gets to do it?
  2. The correctness of the programming (both the management of the chains themselves, and also the correctness of contracts) has, in the white heat of progress (and, to a large extent, hype) been largely ignored. Certainly, the techniques and knowledge of the last 60 years of software engineering have, until very recently, apparently been ignored when it comes to building and running blockchains. Recent work, for example, has found that, in the contracts sampled and due to errors in programming on the Ethereum blockchain: 6239 Ether locked inside contracts which have ‘died’, i.e. they are no longer running and the Ether is lost forever; and nearly 4905 Ether might have been stolen from other contracts. (See “Finding The Greedy, Prodigal, and Suicidal Contracts at Scale“.)

“None of this, however, means that using blockchains for currency, or anything else, should be ignored by the New Zealand government. If nothing else, we should follow the recommendations of this report in order that we have home-grown expertise, both on the law and financial side, so that we can be involved in the on-going work for point 1 above, but also in the computer science that is being developed and used to deal with the comments in point 2.

“To do otherwise will certainly leave us at the mercy of the very forces that government and officials seem so scared of.”

Conflict of interest statement: Prof Reeves is on the panel that represents New Zealand at the International Standards Organisation along with one of the report authors, Alex Sims, but they have not collaborated on this or any other work.

Dr John Williams, Senior Lecturer, Otago Business School, University of Otago, comments:

“I am extremely pleased to see this report, and very impressed with the level of technical detail regarding how these technologies actually work, which is so often lacking at the policy level. I am also impressed with the relatively impartial treatment of both the pro and con arguments.

“Quite simply, there are so many lies and half-truths in the public sphere that the only way to sort out the hype from the truth is to understand the technical details as well as valid arguments from both sides of the debate. I have read many similar documents over the last few years and have been frustrated with outright errors as well as sloppy and obviously biased thinking, so I was expecting to be disappointed. I am happy to report I was not! I went looking for something to criticise (I’m an academic, after all) and found nothing of any great import.

“But I can’t resist making one point: people who hold cryptocurrencies have a lot to gain from promoting adoption of this technology. The value of their holdings grows as demand for the currency grows, and they are able to realise value from their holdings by spending it within the cryptocurrency system. As the report notes, difficulties, delays, uncertainties and financial transaction costs arise when transferring currency to and from the established ‘normal’ currency system. So I like this report, and I invested about $10,000 in several cryptocurrencies in early 2017.

“The potential upsides for individual citizens and society as a whole from adoption of cryptocurrency are quite large, not least emancipation from an entrenched power system that many consumers distrust and dislike. However significant barriers remain, notably recourse if something goes wrong, in particular losing one’s keys. Cryptocurrencies are the ultimate demonstration of the network effect: the value of the technology rises exponentially with the number of adopters. Until the serious challenges of a typical consumer using cryptocurrency alongside ‘normal’ currency are addressed, mass adoption is unlikely. The simple truth is that no-one knows what will happen in the future. We can but try.”

Conflict of interest statement: I hold some cryptocurrency (less than $10,000 invested in early 2017). I’ve never worked with or cited any of the authors.  

Dr Stephen C Wingreen, Associate Professor of Information Systems and Decision Sciences, University of Canterbury; Lead Investigator of the Emerging Technologies and 21st Century Commerce Research Group, comments:

“New Zealand enjoys and deserves its status as one of the most free and business-friendly economies in the world.

“Yet, as Dr. Sims, Kariyawasam, and Mayes observe, the New Zealand regulatory agencies seem to have adopted an unnecessarily cautious position with regard to cryptocurrencies, which must be taken into consideration by the banks, related financial institutions, and commercial interests as they seek to grow New Zealand’s economy.

“Free trade requires rational, flexible, and reasonable regulatory frameworks whose primary purpose is to encourage trade and commerce rather than stifle or impede it.

“The field of cryptocurrency is moving so quickly that New Zealand risks being left behind in what may become the greatest and most transformative technological innovation since the internet, unless the regulatory agencies quickly create a friendly, open, and efficient framework to support New Zealand-based cryptocurrencies.

“Blockchain, the technological platform that underlies all cryptocurrencies, was originally developed as a distributed ledger designed to solve the ‘double-spending’ problem, which is the cornerstone of accountability and transparency in business worldwide.

“People are by their nature rational economic beings, which means that accurate, secure, immutable, and transparent ledgers are absolutely foundational for an open and free society.  As such, every day that is lost is another lost opportunity both for the people of New Zealand and New Zealand’s status as one of the most free and friendly economic environments in the world.”

Conflict of interest statement: I have met Dr. Sims, though I have no conflicts of interest with her. I am currently serving on the advisory board of a New Zealand-based cryptocurrency, which some may perceive to be a conflict of interest, however I do not believe I have a conflict in this case, because after reading the report of Drs Sims, Kariyawasam, and Mayes, they and I appear to be in agreement about New Zealand-based cryptocurrencies.