The Future of Crypto Is Bright, But Governments Must Help Manage the Risks

Asia's Tech News Daily

Bitcoin seemed to be on a roll. El Salvador in early September declared the cryptocurrency to be legal tender, allowing it to be used for payments. There is talk of Bitcoin becoming a medium of exchange in Afghanistan, enabling financial transactions in a society where the issuance of conventional money has broken down. The cryptocurrency is even entering mainstream finance with this week’s introduction of a Bitcoin exchange traded fund on the New York Stock Exchange, allowing U.S. investors to speculate on Bitcoin prices without actually owning it. And of course early investors in Bitcoin have minted fortunes.

The Future of Crypto Is Bright, But Governments Must Help Manage the Risks
© Marvin Recinos/AFP/Getty Images A woman visits a store that accepts bitcoins in El Zonte, La Libertad, El Salvador, on Sept. 4, 2021.

Amid all this hype, financial regulators in Washington have started to express increasing concerns about Bitcoin and other cryptocurrencies. Then last month, China brought down the hammer—banning all cryptocurrencies.

As Bitcoin continues to elicit both enthusiastic and fearful responses, does the cryptocurrency have a future? The answer is complicated. Bitcoin will hardly topple the dollar or other major central bank-issued currencies, but its technology will change how we conduct payments, banking and other financial transactions. These changes will bring many benefits although there are significant downsides as well. Governments will have to play a key role in getting this balance right.

Bitcoin’s main attraction was that it would enable users to conduct financial transactions using only their digital identities, and to complete those transactions without using fiat currency issued by a national central bank or relying on a trusted intermediary such as a commercial bank or credit card provider. The technology that enables this feat, called blockchain, is truly innovative. All transaction information and Bitcoin digital account balances are recorded on public digital ledgers, visible to anyone with an internet connection, that are maintained on multiple computers worldwide. Remarkably, it is this extreme transparency that makes the blockchain secure and tamper-proof.

For all its technological razzle dazzle, however, Bitcoin suffers from fundamental weaknesses that stand in its way of becoming a viable medium of exchange for financial transactions.

Bitcoin transactions are slow and expensive, and its network cannot process large transaction volumes. A bigger problem for an aspiring medium of exchange is unstable value. Bitcoin’s wild price fluctuations, from month to month and even from day to day, make it unreliable for day-to-day transactions.

In its early days, Bitcoin acquired an unsavory reputation for facilitating illicit commerce. It has been used recently by hackers who demanded ransomware payments in bitcoins but criminals have mostly moved on to other cryptocurrencies that offer stronger anonymity than Bitcoin. Still, governments look askance at all such cryptocurrencies for fear that they can facilitate illegal activities such as money laundering, drug trafficking and terrorism financing.

That is not all. Because there is no centralized authority that manages Bitcoin, transactions cannot be reversed and mistakes cannot be rectified. Bitcoin balances that are stored in digital wallets can be lost forever if users forget or misplace their passwords. Moreover, the process by which transactions on the Bitcoin blockchain are validated requires enormous computing power and energy, with terrible environmental consequences.

Oddly, even while it has largely failed in its original purpose of facilitating transactions, Bitcoin has become a financial asset. Many investors seem to believe that it is a secure investment because of its scarcity. Unlike fiat currencies such as the dollar that can be printed at will by central banks, the computer algorithm that manages Bitcoin limits its total issuance to 21 million bitcoins (about 18.5 million have been created so far). To base the value of an asset, which has no intrinsic use, just on scarcity seems a dubious proposition. But that has not stopped investors from pouring money in, creating a massive speculative bubble. The total market value of all cryptocurrencies is now a stunning $2 trillion.

For all Bitcoin’s flaws, the blockchain technology itself is maturing. Some new cryptocurrencies, called stablecoins, have better potential to serve as mediums of exchange. They have stable value because they are backed by stores of fiat currencies. With this modification, the technology has the potential to make low-cost digital payments widely accessible. Many low-income households, including in the U.S. lack access to digital payments because they do not have a credit card or bank account. International payments, which are beset by even more impediments, could also be made cheaper, quicker, and easier to track. These changes will be a boon to consumers, businesses, as well as exporters and importers.

Blockchain-based finance, which sidesteps conventional financial institutions, is viewed by proponents as a way to democratize finance, enabling broader and easier access to a wide array of financial products and services. For instance, variants of the original technology are making it easier to connect savers and borrowers directly, bypassing banks. The prospect of easy access to digital payments and basic banking products for savings and credit is one that could be beneficial not just in developing countries but even in a rich country like the U.S., where about 5% of the adult population is cut out of the formal financial system.

But technology cannot solve all problems and even creates new ones. Financial regulators face particular challenges in updating rules to cover cryptocurrencies and related financial products that often fall between the regulatory cracks. Investor protection is a serious concern as naïve, retail investors might end up taking on more risk than they realize when they get dazzled by the promise of a quick pathway to riches from the new technologies.

Facebook plans to issue its own stablecoin, raising questions about privacy and how such corporations will exploit users’ data and, perhaps one day, their power to issue their own currencies that directly compete with fiat money. Here, too, the government has to play a role in setting up guardrails for the use of consumer data and to avoid the use of such unregulated cryptocurrencies for illicit commerce.

Finally, there is the unsettling prospect that, rather than the new technologies leading to a more equal society, inequities in digital access and financial literacy could end up worsening socioeconomic disparities. The proliferation of digital finance could disenfranchise households that lack reliable digital connectivity. Moreover, the risks embedded in crypto assets might end up largely falling in the laps of uneducated investors who get swept up at the tail end of speculative frenzies.

The future promised by the technological revolution Bitcoin has spawned is a bright one. While embracing the transformative potential of blockchain technology to benefit their citizens, governments will still have to play an active role in managing the technological, financial and social risks.

Internet Explorer Channel Network
Asia's Tech News Daily
News Related

OTHER NEWS

Russen-Offroader soll die USA erobern - Bremach 4x4 SUV / UAZ Patriot

Eine US-Firma will Geländewagen von UAZ in den USA vertreiben. Für unter 30.000 Dollar gibt es handfeste Technik und urwüchsiges Design. © UAZ Eingefleischten Offroad-Fans ist die Marke Bremach ein ... Read more »

Dani Dyer sends fans wild as she finally goes Instagram official with West Ham boyfriend Jarrod Bowen

DANI Dyer sends fans wild as she finally goes Instagram official with her West Ham boyfriend Jarrod Bowen. The 25-year-old and the Premier League ace, 24, posted a loved-up snap ... Read more »

School ‘shooter' Ethan Crumbley and parents James and Jennifer on suicide watch after attack left four dead

ETHAN Crumbley and his parents, Jennifer and James, are all in isolation and on suicide watch at the Oakland County Jail. Ethan is accused of the Oxford High School shooting ... Read more »

I'm A Celebrity viewers baffled as mystery mark appears on Naughty Boy's face – did you spot it?

I'M A Celebrity fans were left baffled after a mystery mark appeared on Naughty Boy's face – but did you spot it? During tonight's instalment of the ITV show viewers ... Read more »

Strictly fans 'crying' as 'agonising' exit result is leaked online ahead of semi-final

Strictly fans were left in tears this evening as the “agonising” exit result was leaked online. It comes after a tense night as the couples went head-to-head to secure a ... Read more »

'Not acceptable' - Hasenhuttl criticises McCarthy's professionalism

© Associated Press Southampton goalkeeper Alex McCarthy has played every game in the Premier League this season Ralph Hasenhuttl has blasted Alex McCarthy’s lack of professionalism for failing to admit ... Read more »

Sandra Bullock ADMITS almost killing Michael Caine on the set of Miss Congeniality: He 'could've sued us'

© Provided by Pinkvilla   “Miss Congeniality” was almost the end of Michael Caine. Sandra Bullock confessed how she was nearly responsible for the death of the iconic British actor ... Read more »

James and Jennifer Crumbley locked up in same jail as accused Michigan school shooter son Ethan

Jennifer and James Crumbley are being held in the same jail as their son, accused school shooter Ethan Crumbley. via REUTERS The parents of accused Michigan school gunman Ethan Crumbley ... Read more »

AboitizPower to start construction of solar farm in Pangasinan

© The STAR / File photo AboitizPower to start construction of solar farm in Pangasinan MANILA, Philippines — Aboitiz Power Corp. is eyeing to start construction of its latest solar ... Read more »

Texas A&M-CC routs Southwestern University 111-60

CORPUS CHRISTI, Texas (AP) — Jordan Roberts came off the bench to tally 15 points to lift Texas A&M-Corpus Christi to a 111-60 win over Southwestern University on Saturday. Trevian ... Read more »

Call for Tory peer Michelle Mone to resign as accuser speaks out in alleged racism row

Photograph: WPA/Getty Images Exclusive: Lord Strasburger says conduct rules need to be strengthened after no action taken against peer following complaint The Liberal Democrat peer Lord Strasburger has called for ... Read more »

Why were Clay County Sheriff Jeff Lyde's accusers arrested? Here's what we know

Clay County Sheriff Jeffrey Lyde spoke during a press conference as shown in this Aug. 19 file photo. The chain of events that led to charges of official oppression against ... Read more »

Australia's medicine regulator approves Pfizer vaccine for children 5-11

FILE PHOTO: FILE PHOTO: The Pfizer COVID-19 vaccine is prepared by a healthcare worker in Melbourne By Lidia Kelly MELBOURNE (Reuters) – Australia's medicine regulator provisionally approved on Sunday the ... Read more »

Three students suspended in string of threats against Blue Springs South High School

Three students have been suspended, including one who was arrested, in connection to a series of threats scrawled across bathroom walls at Blue Springs South High School over the past ... Read more »

London Covid: 4 things you need to know about the new Omicron variant

Omicron is fast spreading through the country as 160 cases of the new Covid strain have now been identified, with the most recent figures suggesting 15 of those are in ... Read more »

Withnail star Richard E. Grant feels 'punished' after quarantine

© Provided by Daily Mail MailOnline logo Actor Richard E. Grant has said he feels ‘punished’ after being forced to quarantine for Covid in a hotel that charges more than ... Read more »

Princess Margaret: The life-threatening medical condition which plagued the Queen's sister

Indeed, Princess Margaret passed away in 2002, aged 71. Princess Margaret was the first member of the Royal Family to be born in Scotland for more than 300 years, and ... Read more »

'He knows what he's doing' - Liverpool legend backs Manchester United to hit Ralf Rangnick's target

Liverpool great Mark Lawrenson believes Ralf Rangnick will guide Manchester United to Champions League qualification during his time as interim manager. The 63-year-old German is set to take charge his ... Read more »

Zlatan Ibrahimovic recalls bizarre fruit juice incident that led Manchester United to dock £1 from wages

Former Manchester United fan-favourite Zlatan Ibrahimovic has revealed how he was left baffled after the club took £1 off his wage bill after drinking a fruit juice from a hotel ... Read more »

Ben Roethlisberger expects this to be final season with Steelers

There are indications that this could be it for Ben Roethlisberger. The Steelers quarterback is expected to end his time with the franchise after this season, ESPN is reporting, and ... Read more »

Jets cut Matt Ammendola, add Alex Kessman in inevitable kicking change

The Jets made a change at kicker on Saturday, something that has felt inevitable for a few weeks. The team released Matt Ammendola, who missed three field goals in the ... Read more »

Mom shows what it's like to have a night doula for your baby

A mother has garnered backlash and support on Twitter after posting about her overnight doula. Twitter American mom Brittany Bright shared a video about her night routine with her baby, ... Read more »

Strictly Come Dancing fans rage as spoiler leaks – fuming the ‘wrong person' has been axed

STRICTLY Come Dancing fans were left fuming as the spoiler claiming to reveal who has left leaked online. The name of the person thought to have been eliminated from the ... Read more »

Paris Hilton Congratulates Lindsay Lohan on Engagement, Opens Up About 'Holy Trinity' Photo

© ET Paris Hilton is breaking her silence on Lindsay Lohan‘s engagement, and the hotel heiress couldn’t be happier for the Mean Girls star. Hilton, currently on week two of her tropical ... Read more »

BBC star Amol Rajan failed to host two Radio 4 Today programmes as controversy raged over his royal TV documentary

AMOL Rajan failed to host two Radio 4 Today programmes as controversy raged over his royal TV documentary. And the presenter’s two-part series has “severely jeopardised” plans to line him ... Read more »

CNN fires Chris Cuomo over help he gave to governor brother

© Angela WEISS CNN’s termination of Chris Cuomo comes after documents surfaced showing that Cuomo, who anchored the 9 pm news slot, offered advice to his politician brother that was ... Read more »

CNN fires Chris Cuomo for helping brother deal with scandal

Chris Cuomo suspended by CNN as new details emerge from brother’s investigation The news anchor was suspended after details surfaced about how he helped the former New York governor as ... Read more »

Mount Semeru volcano eruption spews ash cloud 50,000ft into the sky as dozens burned and thousands flee their homes

ONE person has died and dozens are injured after a volcano erupted in Indonesia, forcing thousands to flee their homes. Smoke and ash were sent spewing 50,000ft in the air ... Read more »

Pitre began as lone recruit for No. 9 Baylor after scandal

Jalen Pitre stuck with his long-time commitment to Baylor while every other recruit bailed in the wake of a horrendous scandal. He was in a class all by himself when ... Read more »

Harrison scores 25 to lead ULM over Northwestern St. 84-71

MONROE, La. (AP) — Russell Harrison had a career-high 25 points as ULM got past Northwestern State 84-71 on Saturday. Koreem Ozier had 17 points and seven rebounds for ULM ... Read more »

Sir Keir Starmer scorns 'dreadful' Peppa Pig World that PM praised

© Provided by Daily Mail MailOnline logo Sir Keir Starmer sought to open up clear blue water with Boris Johnson yesterday…by taking a swipe at Peppa Pig World. The Labour ... Read more »

Liverpool University issues trigger warning for course about the North

© Provided by Daily Mail MailOnline logo Northerners are rightly famous for plain-speaking, friendliness to strangers, a sense of community and the sort of humour that made Morecambe and Wise ... Read more »

CNN fires host Chris Cuomo after helping brother in sexual harassment scandal

CNN announced Saturday that its popular TV host Chris Cuomo has been terminated following revelations that he had aided his brother, former New York governor Andrew Cuomo, after he was ... Read more »

3rd worker at federal prison charged with sexual misconduct

Federal Prisons Sexual Misconduct (AP2006) A federal correctional officer at a women’s prison in California was charged Friday with sexually abusing an inmate, just months after the prison’s warden was ... Read more »

CNN terminates anchor Chris Cuomo after aiding brother Andrew amid sexual harassment allegations

CNN fired Chris Cuomo several days after suspending the anchor for intimately helping his brother, former New York Gov. Andrew Cuomo, wade through sexual harassment scandals. The cable news network ... Read more »

Adverts claiming cryptocurrencies will make you rich are everywhere

© Provided by This Is Money MailOnline logo Financial experts are calling for the Government to grant the City regulator powers to control the alarming growth in adverts for high-risk ... Read more »

Time to Revamp Your Go-To Gingerbread Cookie Recipe With Martha Stewart's Molasses & Ginger Cookies

© Charles SYkes/AP. Design: Ashley Britton/SheKnows. Instead of your typical gingerbread houses, time to spice things up with one of Martha Stewart’s classic recipes: her Molasses-Ginger Crisps. Made with three ... Read more »

Hurry — Sephora Finally Revealed All the Must-Have Skincare Gift Sets & Our Top Picks Are All Less Than $40

© Glow Recipe. Whether it be an Amazon Daily Deal or the random sale from Rue La La, we can’t get enough of all the sales that come with the ... Read more »

Chris Cuomo officially terminated from CNN following investigation

Chris Cuomo was officially terminated by CNN after an investigation into his involvement with the misconduct case against his brother, former governor of New York Andrew Cuomo. (Photo by Dimitrios ... Read more »

Hall of Fame pass rusher Claude Humphrey dies at age 77

ATLANTA (AP) — Pro Football Hall of Famer Claude Humphrey, one of the NFL’s most fearsome pass rushers during the 1970s with the Atlanta Falcons but long overlooked on mostly ... Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic