Cryptocurrencies and its challenges
The king of all cryptocurrencies has lost almost half of its market value after getting to an all-time high in April. Other cryptocurrencies have followed suite dipping as a result of many factors including China’s decision to restrict cryptocurrency transactions. The Securities and Exchange Commission has also called on tougher measures to control crypto-related transactions.
Despite all these, many crypto lovers still view crypto as the answer to many of the problems and questions surrounding the future of fiat currencies. The financial world has seen skyrocketing indebtedness and increased government’s balance sheets with the use of conventional currencies.
Crypto enthusiasts still believe that no matter the current challenge, the continuous improvement to financial technology will also support the growth of digital currencies. They also believe that cryptocurrency will become an alternative store of value that will not be under the control of central banks.
Despite this belief, cryptocurrencies still possess some of the characteristics of fiat currencies controlled by the government. Just like traditional currencies crypto has no actual value. Users simply make transactions with the aid of a legal tender or another real asset for a digital currency possessing no intrinsic value. The supply of these digital currencies is controlled artificially by a complicated computer algorithm and they are sold on digital platforms such as british bitcoin profit.
Problems associated with the creation of digital currencies
The creation of these digital currencies has created several problems. Crypto transactions are outside the regulated financial system. This makes them perfect for fraud like hacking, and stealing, tax evasion and money laundering.
Cryptocurrencies are too unstable as a medium of exchange. Early in 2020 you could use bitcoin to purchase a tesla. However, this is no longer the case after Elon Musk assisted the massive rise in the market value of bitcoin due to his announcement that people can buy tesla with bitcoin. The recent dip in bitcoin highlights the issue of using cryptocurrencies as a means of exchange.
Musku U-turn on bitcoin comes as a result of more awareness about the environmental effect of mining cryptocurrencies.
Cryto mining is even worse for the environment compared to conventional mining. Bitcoin mining alone generates a lot of CO2, one of the gas responsible for global warming.
If crypto mining is left unchecked it will continue to lead to even more environmental harm.
Countries banning the use of cryptocurrencies
When it comes to the tech supporting crypto, central banks are continuously trying to include digital technology to support their fiat currencies as they try to deal with crypto transactions. One instance of this is the announcement made by the People’s Bank of China, to introduce more restrictions on crypto transactions. This marks a new wave of crackdown on cryptocurrencies by the Chinese government.
Other countries which include Nepal, Morocco, Algeria, Vietnam, Bolivia and Pakistan have joined China in restricting crypto transactions, sighting the fact that it assists criminals to move easily thereby evading law enforcement agencies.
Jerome Powell, the Federal Reserve Chairman of the United States also announced considerations to introduce a digital type of dollar under the control of the country’s central bank.
According to non-fintech experts, a vital important difference between the current digital currencies and those issued by a central bank is that the issued currencies come with the added benefit of being properly regulated. Not only that it is being issued and monitored by a trustworthy authority. This might just be the change that the financial world needs to answer many questions facing its banking system. However, many crypto enthusiasts disagree. Still the fact remain that cryptocurrencies faces an uphill battle it they are to change the minds of the governments of the world that they can truly answer its financial problems.