Janet Yellen is the highly respected Treasury Secretary and former chair of the Federal Reserve System, the first woman to hold either of these positions.

During an interview with the New York Time’s Andrew Ross Sorkin, Yellen expressed her concerns about cryptocurrencies such as Bitcoin.

“I don’t think that Bitcoin — I’ve said this before — is widely used as a transaction mechanism. To the extent it’s used, I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions. And the amount of energy that’s consumed in processing those transactions is staggering. But it is a highly speculative asset, and I think people should beware. It can be extremely volatile, and I do worry about potential losses that investors in it could suffer.”

There’s a lot packed in that statement and it is worth digging in there.

Yellen first dismantles the myth that these decentralized and unregulated cryptocurrencies are widely used for financial transactions. Despite the insane rocketing price of Bitcoin, the number of transactions has not grown at all.

Yellen also brings up the inefficiencies and energy consumption of Bitcoin transactions.

The process of verifying transactions involves computers solving very complex and difficult problems that consume tremendous amounts of energy. This is by design.

The energy used by Bitcoin alone exceeds all the energy used by the country of Argentina, according to the chart below by the BBC.

Finally, Yellen mentions the highly volatile and speculative nature of Bitcoin, and her concern that people could be hurt financially.

The following chart shows Bitcoin’s price history. The multiple highs and sharp drops from those peaks are evident in the brief history. Perhaps the most devastating drop is foreseeable in the immediate future:

With all these concerns, what should be done?

Should the Federal Reserve should step in and develop its own digital dollar? Yellen was cautiously positive on a centralized and regulated electronic currency:

“It makes sense for central banks to be looking at it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and to banking accounts, and I think this is something that a digital dollar — a central bank digital currency — could help with. I think it could result in faster, safer and cheaper payments.”

Yellen voiced her cautions about digital dollars in clear and specific terms:

“What would be the impact on the banking system? Would it cause a huge movement of deposits out of banks and into the Fed? Would the Fed deal with retail customers or try to do this at a wholesale level? Are there financial stability concerns? How would we manage money laundering and illicit finance issues? There’s a lot to consider here, but it’s absolutely worth looking at.”

Compare this with Yellen’s comments during her Senate confirmation hearings:

“I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system. At the same time, we know they can be used to finance terrorism, facilitate money laundering, and support malign activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems. I think we need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities. If confirmed, I intend to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for these and other fintech innovations.”

Yellen’s focus on the illicit uses of cryptocurrencies has remained rock steady.

What is new in Yellen’s more recent comments, and what is likely to be the increasing focus moving forward, is how to implement a federally controlled and regulated digital dollar.

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Source: https://medium.com/predict/the-feds-versus-bitcoin-69bf5824a6eb?source=rss——-8—————–cryptocurrency