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Former Goldman Sachs CEO Gary Cohn told CNBC he believes there will one day be a global cryptocurrency. It won’t, however, be bitcoin or use a proof-of-work consensus algorithm, per Cohn.
The ‘Blockchain, Not Bitcoin’ Mantra Makes Another Appearance
Cohn, who is a former investment banker at Goldman Sachs and was the chief economic advisor to the Trump administration until March of this year, told CNBC’s Bob Pisani that:
“I do think we will have a global cryptocurrency at some point where the world understands it and it’s not based on mining costs or cost of electricity or things like that.”
While it may surprise some that a figure like Cohn can see a future with a crypto-based financial system, there is a caveat: no bitcoin please.
“I’m not a big believer in bitcoin,” Cohn said. “I am a believer in blockchain technology.”
He further added: “It will be a more easily understood cryptocurrency. It will probably have some blockchain technology behind it, but it will be much more easily understood how it’s created, how it moves and how people can use it.”
Cohn’s comments echo many other financial titans, such as Jamie Dimon of JP Morgan, who appreciate blockchain technology but eschew the original project that created it: bitcoin. It’s not difficult to understand the “blockchain, not bitcoin” phenomenon. Bitcoin, as a peer-to-peer digital currency, is highly resistant to censorship by governments or anyone else. In the eyes of centralized authorities, Bitcoin is dangerous because it is beyond their control. It’s censorship resistance, however, does make it a favored payment method for those who want to keep their financial dealings secret from law enforcement.
A Global Cryptocurrency Based on Proof-of-Stake?
It’s notable that Cohn brought up electricity and mining costs in his comments. Bitcoin relies on a proof-of-work (PoW) algorithm, which relies upon independently run nodes who secure the network by participating in a mathematical competition to win bitcoin rewards and fees. The process is highly energy-intensive, but has the benefits of being very effective at securing the network and making attacks against it very costly. The bitcoin network has been running continuously for more than nine years without having its core protocol compromised.
An alternative to proof-of-work is proof-of-stake (PoS), which does away with the mining process in favor of a deterministic method of choosing the node who gets to add the next block to the chain. While it is much more efficient from an energy use perspective, there are several drawbacks to PoS. First, it hasn’t been used successfully for extended periods of time, so it’s unclear whether a PoS blockchain would be able to fend off determined efforts by participants to disrupt or hack the network. There is also issues of coin distribution which could lead to some network participants colluding among themselves to the detriment of other users.
With his comments about electricity usage, it seems like Cohn would favor PoS over PoW for his new global cryptocurrency. In addition to environmental concerns, part of this could be because the security of a PoS blockchain is entrusted to parties who hold the largest percentages (stakes) of the coins in it. And, in the hypothetical currency that Cohn envisages, large financial institutions such as Wall Street banks would likely be among the largest bag holders. Thus, they would be able to influence how the currency is used and by whom.
Whether that’s a good outcome or not depends on your perspective.