Cryptocurrency, a virtual or digital form of currency, has been used in several virtual business scenarios. It is akin to new units of currency being created and used for securing and verifying financial transactions. Cryptography encodes and makes it easy for deciphering with a key. Hence, cryptocurrencies are difficult to create as coins, but transactions are easy as there are established ways of verifying the same.
This kind of digital finance also includes entries that are made in a database called the blockchain. Such entries are difficult to change and become public records that are verified by different nodes. With such a system of recording the different transactions, it is difficult or nearly impossible to create counterfeit coins. Also, an individual or specific record is difficult to trace, given the anonymity of the individual wallets or accounts.
Cryptocurrencies in Global Market
Though these digital alternatives are easy to use and secure, there are several implications when it comes to such currency replacing fiat, traditional versions. In certain countries such as Venezuela, its authoritarian regime has had skyrocketing inflation. This has affected their citizens who have no access to other currencies. In such a country a digital alternative can act as a hedge against inflation since cryptocurrencies have limited circulation. Hence, today many people opt for slots demo play in casinos where such currencies are accepted.
On the other hand, countries where capital controls are strict, and the flow of money restricted, digital coins can circumvent the taxes and capital controls. It can help increase businesses as well as consumerism. In certain cases, however, illegal uses are suspected, such as illegal purchases and tax evasion with such financial instruments.
When it comes to responses of the different financial institutions and central banks, it has been lukewarm. Some organisations are supportive of such financial instruments, while some central banks are cautious since the market for such coins is volatile. The widespread concerns are of capital controls and tax evasions.
- US Federal Reserve
This organisation holds the view that risk management, governance has to be set before it can become part of the mainstream.
- EU Central Bank
Top authorities here are of the opinion that Bitcoin and other cryptocurrencies are akin to a tulip. In other words, it is considered a bubble that was found in the 17th century. Several governing authorities in the EU also have similar sceptical views.
- Bank of China
The People’s Bank feels that the global economy could embrace cryptocurrencies. However, the central bank should have full control. Authorities in China are cracking down on ecosystems that are based on such financial instruments.
- Bank of England
The governor of this bank calls it a revolution in global finance. The central bank of England is for this technology change in global finance.
- Bank of Japan
This institution also does not have much hope or does not see much future for such currencies.
One of the firsts in adopting crypto coins as a formal way to transact is the government of Venezuela. This country launched a cryptocurrency of its own in 2018, known as petro. It is said to be backed by crude oil barrels. Official sources state that the country has raised billions in dollars with cryptocurrencies. However, world analysts are unsure of such facts. Also, countries like the US have made it unlawful to purchase cryptocurrency. Hence, petro is yet to be recognised across the world as a functioning currency.
How Сan It Impact Global Investments?
Cryptocurrencies have several benefits. For instance, it can help control inflation as well as promote frictionless transactions. For such reasons, several investors have added such currencies as assets in their investment portfolios. The market has a non-correlated nature. This makes cryptocurrencies act as a hedge against risks, including precious metals such as gold. There have arisen several exchanges where products are traded with cryptocurrencies.
Some financial experts feel that the volatility of such financial instruments can impact the market adversely, especially on a global scale. They anticipate similar ways how securities backed by mortgages sparked a crisis across the globe. The market capitalisation of the cryptocurrencies in total is less than most public companies like Microsoft. Hence, such a financial instrument cannot have that much of an impact on the global markets. Hence, whether cryptocurrencies act as a hedge against inflationary effects or are speculative vehicles, the market size is not large enough to pose systemic risk as per prevailing economic conditions in 2020.
Benefits That Cryptocurrencies Can Offer
There are ways that such a financial transaction tool can help strengthen the global economy:
Economic Activities Can Increase
Many businesses propose a complete financial ecosystem that can be built around such currencies. The economy could slowly shift to adapt to such trades and see the income sources they bring forth.
Opportunities to Increase Banking Facilities
There are many countries and regions in the world where people cannot access banking services even at a basic level. Encrypted coins and their digital transactions can act as ways for people to have access to loans and be able to trade freely across digital platforms.
Minimal Transaction Costs
There is no need for brick and mortar buildings to exist for recording blockchain transactions or storing encrypted coins. Hence, organisations that would deal or manage such transactions would have low operating costs. These, in turn, would lead to minimal transaction fees for the customers. One can also use one such financial tool and exchange for managing the payment of utility bills, paying rent, employee wages, or for making any overseas transaction.
Those who are for the growth of cryptocurrency across the world feel that it has many ways to bolster the global economy, paves the way for paperless transactions, and make the online or digital flow of money easy and secure. Entrepreneurs can easily set up secure, digital ventures and gain funding for the same. Also, transactions would be transparent and secure, reducing cases of corruption and fraud.