Cryptocurrencies are a fast-moving industry that keep participants, observers, and regulators on their toes. They attract new investors, and traditional companies look for ways to harness the technology. The sector can be illiquid, and prices fluctuate wildly, sometimes on the basis of nothing more than an Elon Musk tweet.
Crypto proponents argue that cryptocurrencies can democratize finance, wresting power from central banks and Wall Street. Critics say that cryptocurrencies empower criminal groups and terrorists, while stoking inequality and consuming enormous amounts of energy. Mining popular cryptocurrencies requires vast amounts of electricity, and energy use is increasing rapidly. In some cases, cryptocurrency mining consumes more energy than entire countries.
Investors face significant risks with cryptocurrencies, including the risk of fraud, hacking, and bugs. Many users rely on exchanges or other custodians to store their digital assets, and a loss or theft can wipe out a portfolio. Cryptocurrency price volatility is also a concern, with one coin rising to $60,000 in a year and then dropping to half its value in a matter of weeks.
Lawmakers are taking an interest in the sector, with some seeking to regulate cryptocurrencies as securities and others looking at ways to limit the risk of instability through stablecoins. In this edition of Harvard Law Today, Jackson, an expert in financial and securities regulation and former adviser to the Biden White House on digital asset policy, explains the origins of stablecoins and the GENIUS Act, which would regulate some cryptocurrencies in a bank-like way.