Cryptocurrency is amidst a revolution. Blockchain technology is rapidly changing things as we see. Since their introduction in 2008, cryptocurrencies have received mixed reviews while some are all for personal sovereignty and decentralizing the financial system, some people have voiced concern on how it all is too good to be true.
Is this a case of fearing the unknown? Are our countries not ready to ‘break away from their conventional systems just because they don’t fully yet understand the future potential of cryptocurrencies? Or is this fear grounded in some other realities?
Few countries don’t see cryptocurrencies in a favorable light, authorities believe they can’t be regulated, aren’t centralized, and will likely be a cause for trouble for government financial bodies.
Countries have mixed stances over cryptocurrencies. Some countries have completely banned any activity related to cryptocurrencies, the citizen cannot invest nor participate in crypto activities outside its jurisdiction, and these are to name a few: Nepal, Pakistan, Bolivia, and Vietnam. While other countries such as Qatar and Bahrain don’t mind their citizens using cryptos outside their borders. While some countries like China, Thailand, Bangladesh, Iran, and Colombia have indirect regulation on their financial institutions stopping them from facilitating citizens with cryptocurrency transactions, hence completely discouraging it. Saudi Arabia declared cryptocurrency illegal on religious grounds. Iceland forbade crypto for the threat of too much money leaving the country’s coffers.
Whatever a country’s stance is on crypto, the consensus is that they just don’t want their traditional banking systems to suffer.
Are cryptocurrencies truly a threat to the central banks?
Central banks are every country’s sacred financial institution that holds up its economy. They put value in the fiat currencies which they can control. These banks have monopolistic power and obviously won’t cater to any ‘outside interest’. Though cryptocurrencies throughout the world have garnered a lot of interest, their adoption is still not substantial to constitute a mainstream financial option against fiat currencies.
Governments regulate fiat currencies, track, observe and quite literally trace where the money is coming from and going where. They can collect taxes on them and trace every activity. The fact that fiat currencies are ‘trackable’ against cryptocurrencies which are known for anonymity makes them more preferred by governments. Countries' control over their currency has its effects felt in its nation’s fiscal policy, business opportunities, and ways to decrease crime.
Why do banks and governments fear cryptocurrency? If virtual currencies have so much potential, what are the risks involved? The financial experts always come to these points when discussing the danger cryptocurrencies pose:
Due to these characteristics financial consultants, forensic accountancy experts, and police have cited increased use of cryptocurrency for money laundering, ways to finance terrorism activities, and drug trafficking. The threat of money laundering is real. Crypto can be used for across the border criminal activities, their no traceability makes it harder for the authorities to crack down on criminals and people involved.
If crypto is posing such a threat to national interest the next question naturally should be, what will measures for regulating or legitimizing these virtual currencies get us?
Is it worth it? Why are some countries accepting cryptocurrencies as a normal part of life, what is the untapped potential here?
Some of the benefits of legalizing cryptos are as follows:
Crypto currently is a rapidly changing scene. Currently, it’s hard to fit it neatly into laws and protocols. We are still learning as we go through trial and error. Once legalized and regulated, it will give the industry more stability and certainty. Boost confidence for users who are debating moving to cryptos. Regulations lay the ground for order so that a system can function more reliably, securely, and be somewhat predictable. In a more controllable environment, cryptocurrencies will be a normal, less volatile risk that can be managed with advanced technology and have better security.
2. Direct Transactions
Cryptocurrency if legalized will help cut the middle man out. Traditionally transactions between two people go through many intermediaries in between like escrow, a brokerage which results in commissions, brokerage fees, etc. Cryptos rely on peer-to-peer connection, a sender and receiver will be directly connected for transactions to take place. Easier audit trails and less money going through intermediaries.
3. Fewer chances of identity theft
Identity theft is more common in a traditional financial transaction where all your information is laid transparent. Cryptocurrency protects privacy and gives more financial anonymity.
4. Transaction Fees (Or less of)
Is your bank bill full of umpteen types of transactional services and cut-offs? Most definitely yes! Banks these days have all sorts of transactional fees involved, which means more of your money is being used to ‘use your money'. On the other hand with cryptocurrency mining is a transactional activity that usually comes from the blockchain network involved. There will be some transactional fees of platforms or crypto wallets if you use third-party apps/platforms.
5. Easier access
Even in this day and age with 2.2 billion people using the internet or mobile phone regularly, access to the traditional banking system is still limited. With cryptos, all you need is a good internet connection, a platform, and a crypto wallet to make your transactions. Once regulated cryptos will make it easier for people to access financial services as physical involvement of money will not be needed.
6. Non-existent exchange rates
Cross border transactions traditionally involve exchange rates and other duties levied by countries. Cryptos are not subjected to interest or exchange rates which makes it less complicated for international trades.
7. Sole Ownership
The biggest advantage of cryptocurrencies is sole ownership. You OWN your money. With traditional banking, you pass on the management of your funds essential to the financial services involved. They can close your account on no activity, infringement, or suspected case of fraud immediately. In crypto when you own your private-public keys you essentially hold your money, until and unless you delegate your funds to be managed by a third party.
The world still seems to be divided on this. Should we take the risk and see cryptocurrencies to their potential or should we ban and not jeopardize a system that seems to be working alright currently?
Technology has always scared people first until it has proven its advantage. The same will be the case for blockchain technology. Its adoption will slowly creep into our daily lives once its advantage becomes clear.
Still much needs to be done, cryptocurrencies will have to become more transparent, traceable, and stable, and regulated. Regulation will give it the structure the mass population needs for them to be certain about its future.
For mass adoption that will truly disrupt the global economy, change the current traditional ways of doing business, and level the playing field for all countries cryptocurrencies must be legalized and regulated. Investors and financial institutions seek stability and controlled environments to work in, regulation shouldn’t become an antithesis of the whole problem. It should lay the ground for the future.