What is the threat of bitcoins for government financial systems
Many people in the world now use bank accounts and cards, visiting banks from time to time to use their services. However, many will agree that customer service at both state and commercial banks is fairly slow. It seems that some advanced service technologies will not be offered here either.
Maintenance processes can last up to half an hour or more, and this is instead of a few minutes. At the same time, people are forced to agree with this state of affairs, since they most often do not have the opportunity to operate their money in a different way, for example, to store large amounts of cash. The funds that governments issue and that we use are called fiat currencies. Such money has value only because the government has decided so.
We use money in order to exchange it for the right product from people and companies that are engaged in trade.
Fiat currencies control
Governments control over fiat currencies through central banks. Governments thus control the money, deciding to whom they can be transferred. Governments and banks choose those who can make good profits from such a movement of money; It also helps them to effectively collect taxes and track any illegal activity.
However, such control over currencies is fraught with many negative consequences and problems. The biggest problem is the transparency of this system. Everything is done away from the public eye, and we do not know whether the taxes that we pay are used correctly; Are those borrowers who are allotted money, etc. worthy of this?
Bitcoin vs Fiat
When bitcoin was introduced to the general public, it began to be used for speculation. However, over time, people began to realize the potential of bitcoins and other cryptocurrencies in the sense that they can help people switch to non-cash mutual payments.
If you compare banking services with bitcoins, you can see how easy it is to manage bitcoins compared to a standard bank account. In order to use bitcoins, the existing banking system is not needed at all! Bitcoins are created in cyberspace with the help of ‘miners’ who use their computers to solve complex tasks related to authenticating transactions with this coin.
The use of bitcoins gives an advantage over the standard banking system, although the use of cryptocurrencies instead of banks is also associated with a number of problems. For example, bank commission fees for remittances help create new jobs.
Another advantage of using bitcoins is that if we want to transfer a large amount, we can do this using our phone and bitcoin wallet. In order to do this at the bank, you need to provide a bunch of personal information, and also pay a decent commission for the transfer of money.
Now all money transfers are transferred to online platforms, and this raises the question of the security of our funds. Banks now provide online banking services, but often encounter problems with the failure of centralized servers.
Bitcoin transactions occur quickly and easily, and they have no “problems with the servers.’ However, people are always afraid of hackers who might try to clear online bank accounts or crypto wallets.
The advantage of bitcoins is that there is a variety of software that helps to store funds offline on a hard drive or USB drive, and keys are used for encryption. You can access your cryptocurrency funds using a key that requires reliable storage. And here there is a risk of accidentally deleting data, for example, if you accidentally erase a disk or lose a key code.
Bitcoin transactions keep confidential
Each time you use a bank account for payments, the information we enter is stored on a remote server and monitored by the bank.
However, bitcoin transactions are not tracked by organizations like banks. Transaction addresses are monitored by the blockchain, however, this does not mean that your name is on the blockchain, and that you do not need to provide any personal information to make payments.
There have been cases where bitcoins were used for various illegal purposes, for example, for tax evasion and money laundering. The inability to track transaction owners is a very big problem for governments, as the lack of control over the transfer of funds can contribute to the growth of criminal economic activity.
Why are central banks important
Despite the growth of digital technology, we all really need central banks, which could finance us in the event of war, and in the case of the launch of peaceful satellites.
In times of crisis, such centralized banks are obliged to help the government and people. If there is a sudden growth of the economy, which leads to a rapid increase in prices for goods and services, then the central bank should raise interest rates, thereby making it difficult for borrowers to access money.
For example, the US Federal Reserve is required to maintain full employment and stable commodity prices. The Fed is needed to stabilize the financial system during a crisis in order to find ways to make payments and ensure the security of the financial system using appropriate monetary policy.
The fight against bitcoins and cryptocurrencies
When the boom of bitcoins and other cryptocurrencies among users occurs, some governments seek to take extreme measures to repulse such coins and save centralized banking systems.
The most active participant in this struggle is the United States. For example, Donald Trump tweeted that cryptocurrencies are “based on nothing.” Other officials say how crypto dangerous are for the US and centralized banking systems. This seems to be why bitcoins and cryptocurrencies are having difficulty creating a stable market in the US and other countries.
Since 2013, the US government has introduced rules for the use of bitcoins, but recently it has opposed digital currencies. After Trump said he was “not a fan of cryptocurrencies,” US Treasury Secretary Stephen Mnuchin also spoke about them.
Mnuchin told reporters that cryptocurrencies such as bitcoins are used to support cyber crime and billions of dollars of money laundering. He also stated that he did not like Facebook’s idea of launching its own Libra cryptocurrency.
Randal Quarles, vice chairman of the Fed for supervision, also said that “so far, digital currencies do not raise significant concerns,” but they can cause significant problems for financial stability “as they become more widely recognized.”
In recent years, many countries have banned the use of cryptocurrencies to protect their citizens and banking systems.
Many people in Canada, Australia, and the EU view bitcoins as an investment and payment method, as their governments have a positive perception of cryptocurrencies.
On the other hand, China, India, Russia and Vietnam are trying to ban the use of bitcoins, considering it the wrong way to invest money for their citizens. Naturally, they also do not want cryptocurrencies to be used for illegal purposes and to conceal income.
“Cashless” is not easy to become!
The idea of not carrying cash is great. However, we must remember that the technologies underlying cryptocurrencies are quite difficult for the average person to understand.
You should also take into account the volatility and riskiness of cryptocurrencies, although for many people such a “game” may be acceptable and even profitable.
The banking sector is always trying to improve its services, and with strict government regulation, the future of cryptocurrencies may seem very bleak and unclear. If centralized banks want to improve their work, they should focus on new technologies, otherwise cryptocurrencies can take the lead.
Digital currencies have aroused people’s interest, but so far few can come to them, since governments provide almost no support for these new assets.
Regardless of what we are talking about crypto, at the moment it is central banks that are the leading structure for each country, as they are used to manage the economy. Perhaps soon they themselves will switch to their own crypto due to the high cost of production and maintenance of fiat money.