HKUST Business School Magazine

Crypto at a Crossroads: An Economic Perspective By Assistant Professor Kohei KAWAGUCHI Department of Economics HKUST Business School “Crypto chains are ready for mass adoption” and “We are entering the Golden Age of crypto” are sentiments echoed by advocates of the crypto economy following Donald TRUMP’s victory in the U.S. presidential election. Since Satoshi NAKAMOTO introduced the concept of blockchain, this community has diligently pursued innovations to address the challenges that accompany it. Many believe that the new presidency will reshape the leadership of the Securities and Exchange Commission (SEC), which has initiated numerous lawsuits against crypto projects. Advocates are hopeful that this shift will foster a more crypto-friendly regulatory environment, allowing the community’s innovative efforts to flourish. Crypto chains: inherently innovative platforms In this article, I review the past, present, and future of the crypto economy from an economist’s perspective, focusing on Ethereum— one of the most successful and innovative blockchain networks. Ethereum revolutionized the blockchain landscape by introducing smart contracts: self-executing agreements with terms encoded directly into the code. This innovation transformed blockchain technology from a mere store of value into a platform for decentralized applications (dApps). In September 2022, Ethereum’s transition from a Proof-of- Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism, known as the Merge, 1 dramatically reduced the system’s electricity costs, paving the way for its long-term viability. With the ever-evolving crypto landscape, Ethereum stands as a leading force in innovation, addressing scalability, decentralization, and monetary policy challenges on its path to mass adoption. Insight Biz@HKUST 42