It’s Complicated: Despite mixed signals the shift towards cryptocurrency looks likely
No matter how many cryptocurrency enthusiasts preach the merits of blockchain based payment systems, the governments of the world seem largely uninterested. In a lot of ways, this makes sense. Blockchain is a decentralised payment platform which is designed to remove the need for centralised systems, and of course that’s exactly what governments are. Cryptocurrencies, especially Bitcoin, have also been associated with illegal activities. While many governments are hardly faultless in this regard, this is the image they’re keen to portray. So, for the most part, official governing bodies have kept their distance from digital currencies. Until now. . .
An ironic adoption curve
Despite blockchain’s decentralised nature, central governments and even banks have started to experiment with the technology. In light of estimates that cash accounted for just 15 per cent of Swedish retail transactions in 2016, Sweden’s Riksbank is considering the use of blockchain. The central bank is investigating whether a digital currency called e-kronas could compliment cash payments. Sweden is the second highest ranking country in the 2017 Global Innovation Index, and the capital of Stockholm is well on its way to becoming a smart city. If this pioneering tech hub is debating the possibility of its own cryptocurrency, could the period of government indifference be coming to an end? Similar projects have also taken place across the globe. China, for example, has exhibited what can only be described as a contradictory relationship with digital currencies. At one point, China was responsible for more than 90 per cent of global Bitcoin transactions. This summer, the People’s Bank of China released research papers that detailed the testing of a prototype digital currency. Last month, however, the country suddenly announced that all Bitcoin and cryptocurrency trading on exchanges would be made illegal. On the one hand this looks like a blatant rejection of blockchain tech. But on the other, it could be part of a plan to capitalise on digital transactions and create a central exchange under government control.
How could cryptocurrencies disrupt national payments?
Official attention is clearly a good thing for blockchain, legitimising the technology and helping to dissociate it from possible criminal exploitation. Even so, countries experimenting with cryptocurrencies need to consider the possibility of negative disruption. For example, in the event of financial panic it would be far easier for bank runs to occur, as there would be virtually no waiting period for withdrawing money. A digital payment system would also be difficult to set up, and lead to questions over who should be responsible for verifying transactions. As well as this, some people don’t have the resources or the inclination to use digital currencies, so some form of fiat currency will have to continue either way. In Sweden, for instance, the Swedish Post and Telecom Authority and County Administrative Boards would be responsible for meeting public need for basic payment services. Making the transition from fiat to digital currencies on a national scale is not going to be easy, but there are a number of potential benefits. This includes lowering the cost of financial transactions, therefore making them more available. Governments would have greater oversight of digital transactions and be able to trace them more accurately, helping to combat corruption. Adopting online currencies could also be an important step towards a true sharing economy by replacing umbrella businesses like Uber with distributed applications on the blockchain.
In an ironic about-turn, governments are now tentatively experimenting with a technology that was created to avoid the need for central organisations. Despite heralding a completely different and radical way of controlling finance, cryptocurrencies could be the keystone in the creation of postmodern governments. This is a development that crypto enthusiasts have long anticipated, legitimising a technology that has been burdened by its shadowy past. Although blockchain appears to be a threat to incumbent financial systems, centralised governments and national banks alike could use it to their advantage. And as any legacy business knows, if you can’t beat them, acquire them.
Will more central banks follow in the footsteps of Sweden’s Riksbank? Does this represent a turning point for the adoption of blockchain technologies? How willing will consumers be to abandon fiat currencies? Comment below with your thoughts.