What the rise of digital currency means for cryptocurrency
The decentralized nature of cryptocurrency — which allows users to directly transact without having to go through a bank — has caused it to see a meteoric rise in popularity ever since its invention. Ironically, however, this has caused cryptocurrency to become a threat to fiat currency and for central banks, world governments, and other traditional financial institutions to view it with a suspicious eye. It doesn’t help either that the lack of a central authority in governing cryptocurrency transactions has caused it to be taken advantage of by some to deal on the black market, launder money, etc.
As a counter, many central banks are releasing their own digital currencies. For example, China has recently released its own digital currency, giving away USD$1.5 million worth of currency in what is so far the country’s biggest experiment on the new medium. Even the Bank of England has confirmed that they are considering launching a digital currency of their own.
With more and more countries than floating the idea of releasing their own digital currencies, it’s worth asking how this might affect crypto.
The difference between the two
Unlike popular cryptocurrencies such as Bitcoin, these digital currencies will be centralized and regulated by the governments that release them. This means a designated governing body can cancel or freeze transactions as they see fit, whereas cryptocurrency transactions mostly happen without outside interference.
To ensure compliance with AML/CFT regulations, digital currencies will also require user identification, such as asking potential wallet holders to upload government-issued IDs before opening an account. However, the European Central Bank explores anonymity for the bank digital currencies when processing low-value amount transactions.
All in all, the core difference between the two is restrictions will be much tighter for patrons of government-backed digital currencies. Of course, the tradeoff here is that transactions will have the protection of a governing body, and there will be somewhere to run should an issue arise. On the other hand, cryptocurrency works on the base assumption that users should be free to transact as they see fit.
Digital currencies gaining ground
As of writing, China has so far released its own digital currencies for testing. Yet the European Union, Japan, Russia, Palestine, and Sweden look to be next.
With national currencies clearly becoming a trend, this poses stiff competition even for popular currencies such as Bitcoin and Ethereum. After all, there are members of the cryptocurrency community that have long called for further regulatory oversight and the rollout of digital currencies could strengthen calls to place restrictions on the use of cryptocurrency.
Still, Bitcoin and Ethereum are likely to be safe in countries where they are already recognized as legal tender, such as Japan. Furthermore, private companies are working to actively bring cryptocurrency into the mainstream.
As we have released point-of-sale machines, the XPOS, that allow brick-and-mortar retailers to transact with cryptocurrency. One of DApps in XWallet, the Crypto Zoo, even offers ordinary people a risk-free way to grow the amount of crypto by offering users their principal back under certain conditions.
With pockets of legislation cropping up showing governments’ willingness to legitimize cryptocurrency (South Korea has recently passed a bill that regulates cryptocurrency in line with strict industry standards) and the work of companies like us in bringing cryptocurrency to the mainstream, the rollout of government-backed digital currencies may not necessarily be the nail in the coffin for cryptocurrencies. Instead, what may happen is they will exist side by side, both helping in society’s push towards a paperless economy.
With Bitcoin alone registering 7.1 million active users, it’s unlikely that cryptocurrencies will go away just like that. Though it will be hard to accurately predict what exactly the future will hold, cryptocurrency is almost sure to play a part in it.