After a thorough explanation of the cryptocurrency concept, the manner in which they are traded and the process of mining, it is time to analyze the tendencies of cryptocurrencies and try to predict where are they heading in the future. The main focus will be set on the anonymity and lack of regulation which is the main problem that keeps cryptocurrencies from becoming mainstream, and on the other hand, the benefit of the lack of mediator, as well as some other perks that come with cryptocurrencies.
The currency of the Dark Web
It is likely that the majority of us have heard of the Dark Web, but most of you are not sure what it actually is. The Dark Web is a huge set of web sites that you cannot access using a mainstream service like Google. They even require a specific browser to access and offer the ability to participate in a number of illegal and immoral transactions like drugs, prostitution, terrorism, money laundering, and so on. Since cryptocurrencies do not answer to any of the official regulators, it makes them a favorite currency for these illegal transactions.
Another feature that makes them a favorite for illegal transactions is that they provide a high level of anonymity for their users. Although al cryptocurrency transactions are kept on a public ledger known as blockchain, the cryptographic keys and digital wallets that are used to store and keep the funds cannot be linked to any real person. This feature makes it almost impossible for law enforcement to use their main method in determining the identity of those who take part in illegal activities, and “follow the money”.
Bear in mind that, even though these features make cryptocurrencies favorable for illegal activities, they are certainly not used only for this kind of purchases. It is safe to say that global companies like Microsoft, Dell, and Expedia, who accept payments in Bitcoin, are not trading in illegal goods and services.
The elimination of mediator
After you saw what makes cryptocurrency favorable for bad guys it is time to speak about the features that make them attractive for everyone. Especially when you compare them to fiat currencies. In short, cryptocurrencies provide the convenience of cash without the need of a mediator to check your accounts and identity, no clearing delays, no commission, no extra charges, no different exchange rates. Those features make cryptocurrencies more efficient when it comes to time-saving and more profitable for obvious reasons.
Christine Lagard, the Managing Director of the IMF (International Monetary Fund), touched on this topic in her speech at a London conference that was held recently. She said that “It’s time for the world’s central banks and regulators to get serious about digital currencies”. According to her words, global financial institutions are taking a risk by not monitoring and trying to understand the ever growing world of cryptocurrencies that are, for some time now, making a huge impact on global payments system.
Ms. Lagarde dismisses the speculation of cryptocurrencies being a fraud or identifying them with Ponzi schemes, saying that there is a lot more in cryptocurrencies than that.
She also points out that it is not impossible for IMF to develop its own cryptocurrency at one point. Where the main focus will be to use the technology to make payment transactions more efficient and reduce the cost of those transactions at the same time.
According to Lagarde’s words at the London conference, development of cryptocurrencies could be the answer for countries with “weak institutions and unstable national currencies”. These economies may experience a growing use of cryptocurrencies since it can prove to be a more efficient and profitable method than adopting a currency of another country like U.S. dollar. She wittily named this process “dollarization 2.0”.
Even though Ms. Lagarde embraces the existence and potential of cryptocurrency, she points out that the official implementation of cryptocurrencies in the global economy is a distant prospect. This is mainly because they are at the time too volatile, risky and energy intensive.
Christine Lagarde is not the only one with the idea of developing a cryptocurrency that is legally regulated. Various banks from different countries are investigating the possibilities of creating their own, personalized cryptocurrencies.
One of them is Mizuho Bank from Japan. Mizuho is hoping to develop a cryptocurrency that is pegged to the Yen, which will be called “J-Coin”. The main goal of this cryptocurrency will be to make payments and transactions via the smartphone app.
This project is still in early stages. There were just study meetings held with the necessary institutions, and they are yet to receive any approval from official regulators. However, people who are leading this project, are hoping that J-Coin would become available in time for the Tokyo Olympics in 2020.
While exploring the cryptocurrency market, Mizuho had shown a particular interest in blockchain technology that serves as a decentralized ledger with a potential to revolutionize the payment and transfer processes in global financial institutions.
This year Mizhuo even attempted and succeeded to complete a trade finance transaction using the blockchain technology. In this process information was sent from Japan to Australia while everything was done on a digital platform based on the mentioned blockchain technology.
At the end, you can not help but notice the raw potential of cryptocurrency. Even though their properties like anonymity make them a favorite for illegal activities, however in my opinion they can potentially offer more good than bad to the global economy. Especially in the terms of effectiveness and cost-reducing. In other words, if a solution is found for the problems of volatility and lack of regulation, cryptocurrencies can really revolutionize the global economy.