Ever since the world’s first cryptocurrency, Bitcoin, came into existence, critics have time and again cast aspersions on these digital assets. Many people would agree with the notion that the growing clamour around the world by governments for an outright ban on cryptocurrencies bears ample testimony to their fear of digital currencies taking over and disrupting their hold over our society. In many countries, banks and other financial institutions have toed their government’s line and have refused to lend their services to people and organizations dealing in cryptocurrencies. However, deeply rooted within this fear of cryptocurrencies are several concerns that stem from a lack of understanding and security threats that they believe cryptocurrencies pose to the sovereignty of a nation’s financial sector. As we delve into these complexities, let’s try to declutter the reasons behind the government apprehensions over cryptocurrencies.
1. Lack of Understanding
The entire concept of digital currency seems like a far-fetched idea to most people despite the availability of a plethora of options. People find it difficult to grasp that they can indeed carry out transactions through virtual money. Others, who have an inquisitive nature, question the validity of such transactions when these currencies are not backed by any government. While most developed countries have formulated laws to regulate cryptocurrencies even if they have not embraced them with open arms, a majority of the developing countries are still finding it difficult to come to terms with this technology. That is where the root of the problem lies as the developing countries consist of a significant percentage of the global population. If cryptocurrencies are to make a more substantial impact, they will have to find traction in these developing and under-developed nations.
How can this issue be tackled?
Educating people on blockchain and cryptocurrencies can go a long way in creating a higher degree of awareness. It will ultimately lead to less confusion and reduced uncertainties. Also, better knowledge will help allay many of these fears and lead to increased adoption of cryptocurrencies and blockchain on the whole.
2. No Legal Tender
Central banks don’t issue cryptocurrencies, which is why they aren’t recognized as legal tenders. As cryptocurrencies have no legal backing, governments are often sceptical about their failure, which might lead to the downfall of major economies. What aggravates the issue is that in such an event, the final accountability can not be put on an individual or a group. Others fear that the lack of any legal tender would encourage criminals to use cryptocurrencies to engage in illegal activities like money laundering, fraudulent deals, and terrorism. If you have been following cryptocurrency regulation news, you would know that there has been a spike in crypto-related scams and crimes over the last few years.
How can this issue be tackled?
The only way this issue can be dealt with is by disrupting or preventing the financial flows to anti-social elements. The lack of any perfect method to mitigate this issue requires the formulation and deployment of certain regulatory measures that can bring cryptocurrencies under the ambit of anti-money laundering laws. Also, introducing counter-terrorist financing legislation can help in putting curbs on illicit transactions.
3. Volatile Nature
Nothing spurs the fear of cryptocurrencies amongst governmental institutions as its volatile nature. The crypto prices are often highly volatile, which acts as a major deterrent for investors to put their money into these digital assets. The volatility was evident from how Bitcoin prices skyrocketed in late 2017 only to plummet throughout the following year. However, the high volatility associated with cryptocurrencies is also what makes it a highly lucrative industry for people who have a knack for taking risks.
How can this issue be tackled?
The volatility of the crypto sector isn’t as bad as many belief. This very feature has helped many in getting valuable returns from their crypto investments. However, it is vital that you understand the risks and the market before you invest in any of the cryptocurrencies. After you have acquired a deep understanding of the market, you can consider investing an amount that you can afford to lose.
4. Security Threats
The availability of digital currencies online makes them highly vulnerable to hackers. People who don’t know how to use their crypto wallets can have a hard time keeping their digital assets safe and secure. Although every cryptocurrency wallet and exchange nowadays go the extra mile to secure their funds, hackers still find loopholes with the existing system to fleece people of their hard-earned money.
How can this issue be tackled?
The security threat is mainly up to the crypto owners to deal with. Owners should secure the private key for their crypto assets by backing up their crypto wallets. If they lose their private key, there is no way they can retrieve their funds. Also, special attention should be paid to the choice of crypto exchange that offers robust security features, thereby addressing all the key security challenges.
Key Takeaways
In this article, we have discussed the core issues that have, over the years, played a critical role in aggravating the fear of cryptocurrencies amongst governmental institutions. Lack of understanding, lack of any legal tender, high volatility, and innumerable security threats have all contributed to making governments averse to crypto legalization in many countries. However, as people come up with ways to deal with these issues, we can expect regulatory bodies to soften up on digital currencies.
Author- Sujit Kumar Pathak
Hi, This is Sujit. I am a passionate writer and crypto enthusiast. I’ve been working for Cryptoknowmics which is there for the latest bitcoin news and let you know about the future of ICO. I like to share new tips, tricks, and trends related to Bitcoin, Cryptocurrency, and Blockchain.
