Why do banks and governments fear cryptocurrency?
Since the invention of the internet, no other invention has caught on or has created as much ruckus as cryptocurrency. This new age money seems more like a religion than technology with users scrambling to buy more and more coins. This particular factor among others have got financial institutions and governments in a tizzy!
A solution to the problem
The first cryptocurrency that was invented, Bitcoin came on the scene as a remedy to current problems plaguing the banking industry. Being a decentralized, digital mode of payment offering security and anonymity, it quickly became popular as a mode of payment. Currently, the different sectors of economy face some serious issues and cryptocurrencies were introduced as a solution to those issues.
Most importantly, cryptocurrencies are secured using cryptographic methods which ensure that they are quite difficult to breach and corrupt. Neither can they be counterfeited as they do not have a physical form. Since they aren’t issued by any central authority, they’re mostly not susceptible to interference from the government or central banks. With the middle-man or intermediaries like central banks eliminated, transactions using these cryptocurrencies become cheaper and faster as well.
With all these advantages that they offer, you’d think everybody would see it as a great solution to the current problems. But that’s not so. Banks and governments across the world are sceptical of this new kind of money. And several governments have even banned the use of them outright, while several others are re-thinking their laws and regulations.
But why exactly are these institutions fearful of something that could prove to be an advantage? What about cryptocurrencies has got them all so worried?
In the past year, we’ve seen several nations issuing bans against cryptocurrency or restricting cryptocurrency trading. And several others have formed teams to look into existing regulations and rework them for cryptocurrency. Along with all this, there’s also the fear, uncertainty and doubts spread by banks and people against cryptocurrency. While this hasn’t really curbed the mass hysteria surrounding the topic, it has got people rethinking about investing in cryptocurrencies.
The banking system, when it was initially introduced, was a system of trust and faith. But the current system is far from that, several institutions seem greedy almost bordering on criminal now. Cryptocurrencies might pave the way for us to wave goodbye to these profit-minded institutions leaving them with nothing.
To transact using traditional money at banks, people have to wait for several days and pay exorbitant charges. The transactions have to be verified and validated before being completed. Moreover, to open an account with a bank a person will have to provide a lot of details. But with cryptocurrencies, very little or no information is needed to create a cryptocurrency wallet. And transactions using cryptocurrencies are secure and pseudonymous. Your Bitcoin wallet address doesn’t mean your personal address or physical location.
Cryptocurrency transactions are verified online by millions of users on a peer-to-peer network. Blockchain which forms the basis for cryptocurrency cannot be altered or hacked. This makes transactions more secure, so wouldn’t people opt for something that is cheaper and better than the existing one? All these advantages definitely make cryptocurrency a winner. Banks fear this as it’s almost like cryptocurrency is taking away their golden goose!
Cryptocurrency which came to be as a result of the banks’ greed will disrupt the traditional banking system when it’s adopted by the masses. This means no more financial crisis’s like the one in 2008 because of banks or financial institutions. Here is a newer and better payment method which might bring about your downfall. Wouldn’t you be afraid?
Cryptocurrencies and Governments have had a rough relationship this past year with several of them banning them outright. As we see it, this fear for cryptocurrency could be for two different reasons. The connection between fiat money and governments cannot be ignored and this might be a reason for this fear. Another reason is the usage of cryptocurrency in illegal activities.
Governments and Fiat Money
Fiat currency is the currency issued by the government. These currency have a value because government deems it to be so. The government has a vested interest in the success of fiat money. With fiat currency being the only mode of payment it can retain its hold on the financial world. When the money is issued by them, they hold the power to influence and control it. Take for example the British Government, using their quantitative easing programme they have made £435 billion.
With cryptocurrencies, Governments cannot generally manipulate their value by exerting their control. Sure they can cause the market to dip and fluctuate wildly, or influence the citizens against trading with cryptocurrencies. But this cannot last forever, it’ll pass by like a temporary blip.
Moreover, they can control inflation or deflation by manipulating the supply of money. They can simply make more of it or reduce the supply as and when they want. Cryptocurrency on the other hand has a finite supply and their value is influenced based on the demand and supply. With the rising popularity of cryptocurrencies, their market value is at $345 billion right now.
Privacy and usage
The fact that cryptocurrencies afford their users greater privacy and anonymity is one that the governments do not like very much. Some coins like DeepOnion allow its users to remain completely anonymous if they wish to be.
This privacy and anonymity could be as dangerous as it is beneficial. All those who indulge in illegal practices like funding terrorism or money laundering could use this to their advantage. Moreover, this anonymity also ensures that crypto earnings cannot be taxed. Take for example the Indian Government, they have issued a statement that cryptocurrency will not be accepted as legal tender. Moreover, the Reserve Bank of India has given a time of 3 months to banks to remove any ties to cryptocurrencies.
In a bid to put a stop to these illegal activities and malpractices governments are issuing more and more regulations against cryptocurrencies. With fiat currency, the government can track your transactions. And if a citizen’s actions aren’t to the government’s liking they can simply freeze their assets. With cryptocurrency though, it’s not possible. This puts the governments on a back foot which is why they fear cryptocurrencies.
John McAfee, founder of McAfee Associates believes that cryptocurrency earnings cannot be tracked by governments and tax agencies. He says that it’s technically impossible for these institutions to track all of the profits properly and tax them accordingly. The decentralized nature of cryptocurrencies means there is no intermediary. So it cannot be proved that a person owns a certain amount of coins in their wallet.
In a recent interview with CalvinAyre.com, technology pioneer John McAfee said,
“Our income taxes are the greatest source of revenue, but if everybody’s using Bitcoin, the government doesn’t know what your income is. They can’t tax it, and if you choose to say I didn’t have anything, they cannot prove otherwise. It will eventually frighten every nation state, but it doesn’t matter what they do, there’s no way you can create a law or to legislate something that will stop Bitcoin or any cryptocurrency because technically, you cannot.”
He also said that self-regulation in the sector will help prevent fraudulent activities. The cryptocurrency sector is still nascent and is trying to fix a lot of issues in security, education, governments etc. Self-regulation is something that it still has to delve into.
So in conclusion, we know why banks and governments fear cryptocurrency.
- They inability to exert control over cryptocurrency and its earnings, and
- It offers a safer, cheaper and more transparent method of payment.
It’s definitely going to bring about a great change in the current economy. The predicted rise of cryptocurrency cannot be stopped by anyone, not the governments or the banks.
The main reason behind this fear is the threat that cryptocurrencies pose for the existence of these institutions. So all the fear and doubts that they spread just to protect their metaphorical golden goose! Cryptocurrency is here to stay, and the quicker the banks and governments accept and implement it, it’ll be better for everyone involved.
Image via Crypto Kronos
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