- New report states that cryptocurrencies aren’t a fad and that they are here to stay.
- “Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast,” reads the report published by Marek Dabrowski and Lukasz Janikowski.
- By accepting and regulating cryptos rather than banning them, the crypto world can continue to evolve and improve.
In a report released this morning, the EU’s Policy Department for Economic, Scientific, and Quality of Life Policies warned officials not to ignore cryptocurrencies. While the report highlighted some concerns the EU has with virtual currencies (VCs), it also highlighted some major advantages of VC use. Unlike the report a Swiss bank produced back in June, this EU report in some ways supports the crypto sphere, comparing VCs to early iterations of modern fiat currencies.
VCs Aren’t Going Anywhere Anytime Soon
Given the unique properties of VCs and the issues they can potentially solve, the report concludes that they are here to stay – at least for the time being. The report also urges economists not to downplay or underestimate the disruptive potential of this new technology, inferring it has the ability to help society develop and evolve.
“The economists who attempt to dismiss the justifications for and importance of VCs, considering them as the inventions of ‘quacks and cranks’, a new incarnation of monetary utopia or mania, fraud, or simply as a convenient instrument for money laundering, are mistaken,” the report states. The report goes on to warn economists and officials not to try and ban cryptocurrencies, but to accept and regulate them. “Policy makers and regulators should not ignore VCs, nor should they attempt to ban them.”
The authors – Marek Dabrowski and Lukasz Janikowski – believe that VCs should be treated by regulators just like any other financial instrument. The authors also admit that given the “global, trans-border character” of VCs, any attempts to ban them would result in certain failure. Instead, they recommend taxation on VCs similar to other financial assets and “harmonize regulations across jurisdictions.”
An Unbiased Report
The report plays the devil’s advocate in many ways, highlighting the various strengths and weaknesses of VCs – while still examining them from a potential asset class standpoint. The report begins by comparing VCs to a contemporary form of private money, which is inherently clear given the fact so many companies are implementing crypto payment gateways.
However, as private money, they “have no intrinsic value in the sense that they are not linked to any underlying commodity or sovereign currency.” This being said, the report does go on to admit that “in this respect, they do not differ from most contemporary sovereign currencies.”
“Potential Economic Advantages and Disadvantages of VCs”
Included within the report is a brief overview of the top three cryptocurrencies by market capitalization – Bitcoin, Ether, and Ripple. This is on top of detailing the increasing trend of merchants accepting VCs. The authors mention the common rallying cry of crypto enthusiasts – that the cryptos allow for low-fee, transnational, fast, and near-anonymous transactions. With this being key proponents for VCs to be used in developing or impoverished states. Often where the traditional financial system is either failing or is inaccessible by the larger portion of the country’s population.
Interestingly, the authors provide counterarguments for the crypto enthusiasts vocal positivity. Once mining fees become a thing of the past, low transaction fees and fast transaction times could flip. Eventually such could escalate beyond control, becoming more expensive and much slower as miners see less reward for running a mining operation.
While the anonymity of crypto is applauded by crypto enthusiast, the authors are quick to point out a key disadvantage of this from a governmental stance. “This feature of VCs may be exploited by those involved in illegal and criminal activities such as terrorism, drug dealing, illegal weapons trade, tax avoidance, and others. Hypothetically, VCs could also help entire jurisdictions to circumvent financial sanctions and therefore undermine the effectiveness of foreign policy.” If stringent Know Your Customer (KYC) regulations are put in place, it can mitigate the anonymity risks as transactions can be traced to a certain extent.
It is important to note that the authors don’t state that VCs should be avoided totally, they bring an even argument to the table. This argument offsets any downfalls with positives and vice versa. This equally balanced and unbiased report feels like it brings a certain level of legitimacy to cryptocurrencies, where previous reports had shunned the blossoming crypto world.
Dabrowski and Janikowski seek to reassure investors and officials that whilst cryptocurrencies aren’t going anywhere anytime soon, they don’t pose any significant threat to the current central bank status quo. If anything, the report suggests that central banks stand to gain from partnering with select technology providers and utilize the blockchain technology.
Finally, the report suggests that it is unlikely for cryptocurrencies to replace standard currencies. However, two weeks ago, Jeremy Allaire – Circle CEO – suggested that all fiat currencies would be replaced by tokenized versions of themselves at some point in the future. Although the authors do admit that in times of economic hardship, social unrest, war, or hyperinflation – such as in Venezuela – that cryptos could be used as a safe haven or a temporary replacement currency.
“Despite their technological advances and global reach, VCs are far from being able to challenge the dominant position of sovereign currencies and the monetary policies of central banks, especially in major currency areas. However, in extreme cases, such as during periods of hyperinflation, financial crisis, political turmoil, or war, they can become a means of currency substitution in individual economies,” the report reads.
If officials and governments spend as much time regulating the crypto world as they do imposing bans and fines, the crypto industry could become something incomprehensible that truly changes lives. Global regulation would make the crypto world safer and easier to use. How this report will be received is yet to be seen, but if taken at face value we have a feeling that the future for crypto is green.