Five Myths About Cryptocurrency
Source type: Op-ed / article Author: Eswar Prasad Publisher: Brookings Institution (originally Washington Post) Date: 2021-05-24 URL: https://www.brookings.edu/articles/five-myths-about-cryptocurrency/
Overview
Cornell economist and Brookings senior fellow eswar-prasad rebuts five widespread beliefs about cryptocurrency, arguing that while current coins largely fail as practical money and carry enormous speculative risk, the underlying blockchain technology will fundamentally reshape money and finance — through stablecoins, central bank digital currencies (CBDCs), and smart contracts.
The Five Myths
Myth 1 — Cryptocurrency is real money usable for payments
Reality: bitcoin transactions take ~10 minutes and cost ~$20 in fees (as of 2021). Wild price swings (Dogecoin tripling then halving in weeks; Bitcoin dropping one-third in a day on Chinese crackdowns) make crypto impractical as a medium of exchange. Tesla reversed its Bitcoin payment acceptance mid-year as a direct result of this instability.
Myth 2 — Cryptocurrencies are a good investment
Reality: Value rests entirely on demand — there is no intrinsic use case. Supply caps (21 million Bitcoin maximum) create scarcity but scarcity alone doesn’t create value. If investor belief collapses, value could drop to zero. Prasad warns against conflating past speculative returns with investment merit.
Myth 3 — Bitcoin is fading; meme coins are the future
Reality: bitcoin remains ~50% of total crypto market cap. Meme coins like dogecoin have no supply constraints and no pretence of utility — their valuations rest entirely on the “greater fool” theory. Bitcoin’s tech is outdated but dominant; newer coins offer faster processing and anonymity features but haven’t displaced it.
Myth 4 — Cryptocurrencies will displace the dollar
Reality: Crypto is backed only by collective belief; the US dollar is backed by government and institutional trust. Stablecoins (e.g., Facebook’s Diem) derive their stability from dollar backing — so even digital payment gains won’t undermine the dollar as a store of value. Dollar primacy is not threatened.
Myth 5 — Cryptocurrencies are just a fad
Reality: The technology will persist and transform. Stablecoins will accelerate digital payments, paper currency will phase out. CBDCs are already live (Bahamas) or in trials (China, Japan, Sweden). Smart contracts on crypto platforms could automate real estate, lending, and legal settlements — potentially displacing lawyers, accountants, and banks as intermediaries.
Key Claims
- Total crypto market ~$2 trillion (2021); thousands of currencies exist
- Bitcoin’s 21 million cap is set by software, not policy
- The blockchain’s “trustless” distributed ledger is the genuinely revolutionary innovation
- Stablecoins and CBDCs are the practical future of digital money
Entities Mentioned
- eswar-prasad — Author; Cornell professor, Brookings senior fellow
- bitcoin — Central example throughout
- dogecoin — Used to illustrate meme-coin volatility and greater-fool dynamics
- brookings-institution — Publisher