Are cryptocurrencies past, present and future?

The popularity of the so-called ‘cryptocoins’ is rapidly increasing, but there are not only advantages associated with it. Inexperienced investors can lose their entire investment due to the typically highly fluctuating prices. In addition, the current economic crisis is eating up the value of many coins. What are crypto coins? Are there rules in the digital wild west? And why are some governments more reluctant to accept this development but others are not? Cryptocurrencies versus ‘real money’ Cryptocurrencies are not very different from the ‘real…

The popularity of the so-called ‘cryptocoins’ is rapidly increasing, but there are not only advantages associated with it. Inexperienced investors can lose their entire investment due to the typically highly fluctuating prices. In addition, the current economic crisis is eating up the value of many coins. What are crypto coins? Are there rules in the digital wild west? And why are some governments more reluctant to accept this development but others are not?

Cryptocurrencies vs. ‘real money’

Cryptocurrencies are actually not very different from ‘real money’. By this I mean the money that you and I have been using for years: coins, notes and, for example, a current account in KBC. Like these traditional means of payment, they change in value and an investor can choose to invest in them.

It is currently not entirely clear what exactly determines the rates of crypto coins. We know that, due to their decentralized structure, they are not dependent on political and economic interests that affect traditional currencies (eg the ECB’s interest rate policy that affects the value of the euro; ed.). There are a number of factors that significantly affect the movement of crypto markets, for example, demand, supply and market capitalization (the value of all existing coins and their development).

The big difference with traditional payment methods is that cryptocurrencies are not subject to supervision by governments and financial institutions. They therefore constitute the ‘wild west’ of the financial world. The digital coins come in countless sizes and types, but most of them do not have a significant value. A few do, including the well-known Bitcoin, Ether or Dash.

Wild West

Crypto markets (the place where the digital coins are traded, stored or exchanged) are ‘decentralised’. That is, they run through a complex network of computers, and are therefore neither regulated nor published by the government. Also in the European Union, its trade is currently largely unregulated.

However, the Union has already issued a limited directive on coin exchanges and for providers of “wallets‘ (the place where the purchased coins go), but a European directive must be implemented individually by each EU member state to have legal consequences. This process is usually slow, which reduces the efficiency and directive in this sector given the global impact and widespread network of digital currencies.

Problems

Cryptocurrencies are extremely popular in the criminal network because transactions are more difficult to trace due to the decentralized structure of the network. But the ordinary citizen, and especially the young, eagerly jumps on the train. They primarily use digital coins as an alternative to traditional payment methods or as an investment instrument, but there are still a number of problems for ‘ordinary consumers’.

First, Belgium and several other European countries do not yet recognize crypto as an “official” means of payment. Furthermore, coins are on the rise, but not nearly so widespread that any user is sufficiently aware of the operation and risks associated with these new payment methods. Because the cryptosystem is decentralized, there is no ‘European Central Bank’ that – as with the Euro – can absorb or control exchange rate fluctuations and value changes of a digital currency.

Finally, there is uncertainty about the impact this growing market has on the banking market. Suppose that the demand for payment options via crypto coins increases, more and more companies will accept payment with these coins. If the cryptos then become so popular that they become the primary means of payment, the banks will hold less ‘traditional money’, which means the banks can invest less and then go bankrupt.

The MiCA regulation

This wild west worries the head of the European Union, so it issued recently Regulation of markets in cryptoassetsregulation (MiCa regulation), the first regulation to bring structure to the unrestrained crypto world. it is expected to enter into force by the end of 2023.

According to the Union, the main purpose of the new rules is to protect the market and consumers, but the MiCa regulation must also ensure greater transparency with regard to the functioning of the coins and the financial position of the providers in the sector. The rules also include anti-money laundering measures and, under the current proposal, providers must have a license to operate in the EU.

Finally, the MiCa regulation implements the well-known ‘trip Rule‘ from the world of banking for cryptocurrency transactions. This rule ensures that payment information, such as the identity of the payer and payee, is included in the transaction. This information must then be made available to the authorities, who in turn can carry out investigations into, for example, money laundering.

Digital only

Unlike traditional means of payment, crypto-coins exist only digitally, as a shared proof of ownership. It is therefore impossible to take a ‘cryptocoin’ out of your pocket and with it e.g Groundbreaking magazine buying. You could do that with your mobile. The title deed for a particular coin is kept in a so-called ‘blockchain‘.

That blockchain forms the transaction history of each unit of the crypto so that it remains clear which owners the cryptos have had. ONE blockchain file is always stored on different computers on a network, and everyone on that network can usually see that file. This makes the system transparent and very difficult to hack.

Not everyone is reluctant

One thing is certain: the importance of cryptocurrencies is increasing, and so is competition and government interference. Although the Belgian government – ​​and the rest of the EU – is rather reluctant to, for example, Bitcoin (the most valuable cryptocurrency at the moment) as a legal tender, this does not apply to e.g. .

Due to the decentralized structure, government interference in Bitcoin is not actually possible. But India and its people are big investors in the currency. Politicians are therefore forced to allow their free movement. Should the Indian government decide to block that traffic anyway, it will have major negative consequences for its population. That is why she recently decided to postpone a ban on Bitcoin trading in India.

The European Union takes a different path and chooses to introduce rules. A European digital currency is even being worked on.

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