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Investments in Bitcoin [BTC] still remain highly speculative, and total loss is still possible – BaFin President’s speech




Blockchain-mere hype, or disruptive potential? BaFin President
Source: Pixabay

Mr. Felix Hufeld, the President of Federal Financial Supervisory Authority [BaFin], talked about Bitcoin and blockchain and compares this infancy of blockchain with the advent of the internet. He says that even Bill Gates at that time did not pay close attention to that new phenomenon.

Trying to ensure that you do not fall on your nose might mean that you are crawling on your tummy, he said, quoting Heinz Riesenhuber, speaking about how valuable distributed ledger technology can be, yet it has a darker side as well, mainly the security and anonymity issues.

He begins by saying that the most well known blockchain applications are cryptocurrencies like Bitcoin, but he stresses that blockchain extends further. The decentralized nature of this technology lends itself very well to anonymity, making public blockchains vulnerable to abuses such as money laundering or terrorist activities. With countless applications for this technology, there is bound to be issues of this sort.

Estonia, the world’s most digitized country, has already integrated blockchain technology in many public administration services, while Switzerland has had a startup since last July, working on land registry entries.

How does one deal with the tension between innovation and security? Facing the risks of technology, one can not afford to deregulate their opportunities. Nor can regulators or investors be endangered by the risks of blockchain and cryptocurrency volatility, he said.

He reveals that he sees smart contracts as Janus-faced entities, somewhere between hype and success. Yet they have blatant weaknesses that make them inherently susceptible to cyber attacks, an ever-present threat in this digital world. These smart contracts are also not ‘smart’, at least not yet. They are computer codes, with a yes or no output. They can not be expected to retrospectively evaluate their instructions, nor can they ‘judge’ the contract and the principle behind it, making them inflexible.

However these smart contracts enable decentralized computer programs, ‘dApps’, which can be revolutionary. Some even consider this model the real economic alternative to the current centralization tendencies of banks.

The problem of anonymity is also being solved, with traders being required to identify themselves to meet crypto trading platforms’ requirements, to tackle problems like money laundering.

It is indeed a hype, even a bubble, that Bitcoin was priced so high at the end of last year. Investments in Bitcoin still remain highly speculative, and total loss is still possible, he warns.

He remembers the time when outmail was delivered by a mailman, and cable and dial telephones populated posh homes. Compare that to today’s smartphones. Perhaps, he muses, the day is not too far away when people look at blockchains and wonder how money transactions were even possible without this technology.

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A fourth year engineering student at SASTRA, working freelance at AMBCrypto. Writing and football are passions, and cryptos are an avid interest.



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