In a newly published paper, the Federal Reserve Bank of St. Louis has made a favourable assessment of cryptocurrency markets and Blockchain technology.

The paper, authored by Fabian Schär and Aleksander Berentsen, states that it is likely that bitcoin and other cryptocurrencies will become their own asset class in the future which may be similar to gold, and which could lead to the development of new investment and diversification instruments. The authors then go on to forecast areas in which Blockchain technologies which have what are assessed to be the most effective applications, citing smart contracts, data integrity and 'coloured coins' as areas to watch.

However, the paper also warns of potential negatives associated with Blockchain technology such as potential forks, the impact of energy waste created by mining activities, and the high price volatility of cryptocurrencies. In its conclusion, the paper states that bitcoin and alt-coin based tokens shouldn’t be neglected as a potential asset class, as they could lead to the creation of a new asset which may grow into an important portfolio diversification instrument.

Last year, Janet Yellen, the Federal Reserve chair suggested that the Fed may make use of Blockchain technology to complete international financial transactions.