A wild west world: why the benefits of cryptocurrencies for society are non-existent

Julian Dixon

September 11, 2018

The cryptocurrency buzz is ringing as loud as ever. This is mainly because the value of bitcoin, the most well known cryptocurrency, has surged almost 2,500% over the past two years; a handsome return for those who already had their fingers in the crypto pot.

At the time of writing, one bitcoin sets you back around £4840.00 or $6266.00 (9 September 2018); although these values can change very dramatically and quickly.

Many people have heard of bitcoin and yet, the general knowledge of cryptocurrencies amongst regulators, law enforcement and the general public is still fairly low. Are they criminal, are they profitable or are they a bubble soon to pop? Do they really have the potential to disrupt global economies?

With most people grappling to understand how cryptocurrencies work, I’m often asked what’s my view.

A wild west currency

First and foremost, the cryptocurrency world is one I liken to the wild west. While the new 5th Anti-Money Laundering Directive is set to dramatically reduce cryptocurrency anonymity, cryptocurrency is widely associated with money laundering and tax evasion. And whether you like them or not, cryptocurrencies, although still very much in their infancy, are here to stay. That said, I think the benefits for society as a whole are non-existent.

Bitcoin and other cryptocurrencies are decentralised, largely unregulated and independent. This makes them extremely difficult to control. Unlike fiat currencies, they are not controlled by watchful central banks and governments. And their value is based on the simple mechanics of supply and demand.

Offering a safe, anonymous haven, transactions and accounts are currently not connected to real-world identities. What’s more, they are made direct and cannot be hindered, restricted, frozen, stopped, confiscated or reversed. Anyone can invest in cryptocurrencies by downloading the appropriate free software.

Countries like Russia, North Korea and Venezuela have even considered creating state-owned cryptocurrencies in an attempt to get out of tough economic sanctions.

Mysterious origins

Perhaps what’s most fascinating, is that no one knows who invented bitcoin.

There have been countless fruitless investigations into who is behind its mysterious inventor pseudonym “Satoshi Nakamoto”. But a decade after Nakamoto, supposedly Japanese, introduced bitcoin to the world with a white paper, his, her or even their identity remains anonymous.

Compounding this mystery is the fact that with a holding of 980,000 bitcoins, Satoshi Nakamoto is one of the world’s richest people. At bitcoin’s peak in December 2017, the holding was worth over $19 billion. And yet, the funds have stayed untouched.

Money that grows on the internet?

Aside from money laundering and tax evasion, one of the biggest concerns with cryptocurrencies is that a virtual money supply is created using the internet out of nothing – and not by centrally controlled policies.

Unlimited amounts of cryptocurrency can be issued.

While some people argue this is a good thing because it takes away the control from banks and governments, it means cryptocurrencies have the potential to have a huge inflationary impact on economies and erode the ability of Governments to control fiscal policy. In simple terms, greater money supply will increase demand for goods and prices will rise as a result.

Looking ahead

The global impact of cryptocurrencies is currently very small because they are still in their infancy and dwarfed by fiat currencies. However, if we are to look to a global currency, and one that potentially revolutionises the concept of money, then a regulated cryptocurrency is able to offer a solution. One would guess we are many years away from this.

Regulation is essential for sustainability and stability, not to mention effectiveness in helping to detect and prevent illicit activities. I think the 5th Anti-Money Laundering Directive is a great step forward.

In my opinion, bitcoin owners should be required to exchange their bitcoins into fiat currency before spending. And it’s at the point of conversion (both on the way in and on the way out) that the regulation should come into force, to not only reveal the identity of traders but to identify suspicious transactions and more.

While cryptocurrency values are highly volatile and unpredictable, this isn’t a bubble that’s going to burst and disappear. The question is how will cryptocurrencies change over the next decade and by how much will they disrupt our global economy?

Right now, they are a law unto themselves.


References:

https://medium.com/the-mission/how-cryptocurrency-is-disrupting-the-global-economy-89347581aa93

Read more about 5AMLD:

https://www.fortytwodata.com/post/5amld-implications-and-requirements-you-must-understand

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