Cryptocurrencies have started one of the most heated debates in history when it comes to finance and technology. Some people are quick to hail cryptocurrencies as a revolutionary tool for decentralisation, financial inclusion and innovation. Other people are quick to point out how they can be used for illegal activities, their potential environmental impact and the potential to undermine traditional monetary systems.
As Bitcoin, Ethereum and various other altcoins become more and more mainstream, the question being asked of governments all across the world is no longer if they will respond, more how they are going to respond. Should crypto be embraced and integrated into our current financial systems, or should they be clamping down on crypto to protect economic stability?
In todays blog, we are going to look at both sides of the argument.
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Why should crypto be embraced?
- Economic growth: Cryptocurrencies and everything associated with the crypto space represents a significant leap in digital innovation. Governments willing to adapt to cryptocurrency and everything that comes with it may find they have an easier time attracting investments. Countries such as Switzerland, Singapore and the United Arab Emirates are already benefitting from their support of crypto, helping them be labelled as global crypto hubs.
- Financial inclusion: There are still many parts of the world,, mainly in developing nations that do not have an easily accessible banking service. Cryptocurrency offers a potential fix for this. Anyone who has access to a smartphone or computer and an internet connection can now be included in the global economy. This would allow people to send, receive and even access loans or insurance plans that would have been out of reach for them before cryptocurrency.
- Transparency and security: Blockchain technology has proven, on many occasion that it can increase transparency in financial transactions, while reducing the risk of fraud greatly. In many public sectors, this could become an invaluable tool. By embracing crypto, governments can build the expertise needed to regulate it effectively and minimise any risks involved.
Why should crypto be banned?
- Volatility and consumer risk: Since the beginning of crypto, the market prices have been well documented for how volatile they can be. Such dramatic swings in pricing can wipe out a persons savings in a matter of minutes, let alone the damage that can be caused over a number of days or months. This makes crypto, in its current form a dangerous option of businesses and investors alike.
For the average user, in countries that have lesser regulatory protections it would be easier for people to fall victim to scams, pump-and-dump schemes or poorly managed exchanges. - Criminal activities: One of the biggest current arguments against cryptocurrency is its potential role in enabling illegal activities. The pseudo-anonymous nature of many cryptocurrencies makes them attractive for people looking to launder money and for those involved in cybercrime.
Governments that are concerned with protecting the everyday person may view crypto as a threat unless much stricter money laundering rules are introduced along with the removal of the anonymous side of cryptocurrency. - Protecting traditional currencies: Cryptocurrencies are challenging the role of our traditional banks and financial institutions. If a large enough amount of the general population decided to start using decentralised currencies instead of traditional currencies, it could weaken a governments control over any monetary polices, change exchange rates and even cause inflation to skyrocket.
The bank of England are beginning to explore Central Bank Digital Currencies (CBDCs) to help counter the rise of crypto while being able to keep state control.
Why neither of the above are the right way forward.
Totally embracing or totally banning crypto is not the best move. It is not going to help either side achieve what they hope, as there are currently too many downsides to either approach. Then what is the answer? Regulate cryptocurrency.
Banning cryptocurrency entirely is likely to lead to an “underground” movement, making the anonymous side of crypto even worse than it already is. Due to cryptos decentralised and borderless nature, there is no clear and easy way to ban it entirely.
Strong, totally transparent regulation can protect consumers, prevent any criminal misuse and offer the general public, businesses and investors a clear framework to build and grow cryptocurrency. The success of this would rely on clear rules being set out, robust enforcement and punishments for anyone found abusing the crypto space and more than anything else, international cooperation.
Crypto Analyst‘s Final Thoughts.
The answer to whether embrace or ban crypto is not a simple one, in fact it is a question that cannot be answered with a simple yes or no.
While the risks of crypto are very real, ranging from cybercrime to economic instability, there are just too many potential upsides to it for it to be ignored. We believe that governments across the world realise this too, hence why no major government has moved to flat-out ban cryptocurrency.
For those of you old enough to remember, when the internet came about the same kind of questions were asked. Given enough time and enough people working towards a common goal, I believe you will see the outcome be very similar within the crypto space.