It goes without saying that digital currency is trendy nowadays. All the influencers tend to promote it. Elon Musk writes tweets encouraging people to buy or sell Bitcoin, Richard Branson launches tv-series revealing financial scams.
The world economy is eventually moving towards the transition to an electronic ecosystem. Everything is going paperless, from funding to the transfer of funds. Cryptocurrency is the most promising enhancement to the electronic payment industry.
As a matter of fact, digital currencies are decentralized assets. Consequently, they cannot be controlled. Gaining huge popularity, virtual currencies are prone to get strict measures against them. Is it the scenario most likely to happen or just a common assumption? Read further to discover.
What is cryptocurrency?
A digital currency is a form of money similar to traditional currencies like the US dollar, GBP, or EUR, but it is developed for the exchange of digital information. Cryptocurrency is not monitored by any governmental institution. It also has something to do with digital currencies as an exchange medium. Operations on the blockchain can be executed, verified, and recorded in the shared ledger without the involvement of a third party.
What are the most widespread digital currencies?
A huge number of digital currencies are present nowadays on the market. Here is the list of assets that are always in demand.
- Surely, the first place among the most popular digital assets is designated to Bitcoin, the first cryptocurrency that appeared in 2009 due to Satoshi Nakamoto and quickly gained public respect.
- The next virtual currency to compete with the leader appears to be Ethereum. This is the first blockchain platform that offered users smart contracts allowing them to proceed with fast transactions.
- The third place is dedicated to Ripple (XRP). This digital currency XRP is propelled by blockchain, decentralized technology that ensures fast transactions. Digital registers, also known as XRP ledgers, occur once every 3-5 seconds. Ripple, in particular, can provide 1500 money operations per second.
- Unitoken attracted no less attention than the previous virtual currency. UNI works on a Uniswap protocol system. With the use of smart contracts, the protocol enables automated transactions between cryptocurrency coins on the Ethereum blockchain. Uniswap was considered to be the biggest decentralized exchange and the fourth-largest digital currency exchange by daily trading volume as of October 2020.
- As well, we can name Cardano (ADA) as one of the most widespread cryptocurrencies among customers. It sits the 3rd place for most advanced blockchain technology. In other words, Cardano is highly secure.
- One more digital currency to stand out is Tether (USDT). It is known as a stable cryptocurrency attached to the US dollar. USDT is a stable coin because it always keeps a price of $1.00 and is the least susceptible to market fluctuations. USD to BTC exchange will come in handy in case you want to purchase Tether.
Can government control cryptocurrencies?
China has taken the most strident position, shutting down exchanges in-country and escorting miners out through property use legislation. Sure, this has had little influence on the economy of cryptocurrencies or the speculative bubble.
The issue with controlling Bitcoin and other crypto-assets is that they operate on a peer-to-peer system. While authorities have been likely to succeed in monitoring venues such as The Pirate Bay and Silk Road, there is an overwhelming number of digital currencies. The key difference with virtual currencies is that payments can be carried out through exchanges or directly via your cryptocurrency wallet.
Strong points of digital currency
With no government intervention and control, are cryptocurrencies a safe bet or a wildfire? So, let’s take a look at the benefits of decentralized digital currencies.
- Transactions are not likely to be reversed or falsified.
- Users of crypto platforms remain anonymous until they cash out or exchange their tokens.
- Most currencies have a fixed quantity, which will control prices at bay as mining more coins becomes more difficult.
- Smart contracts can be executed by investors without the involvement of third parties.
- Transaction fees are lower than those charged by credit cards or most of the major financial instruments.
Weak points of cryptocurrencies
The most significant problem with current fiscal policy is that market interest prices are calculated randomly, and creditors have no incentive to support the money supply. Sure, virtual currencies are not the miracle cure we seek, at least not yet!
The major issues are as follow:
- Price volatility. Frequent fluctuations have an impact on a token’s ability to operate as a store of value.
- High speculation and artificial pricing.
- Scalability. Numerous virtual currencies continue to struggle with optimization.
Methods for the Government to ‘Impose Sanctions’ on Cryptos
The most obvious way for the government to control digital currencies is to tax any fiat money being used to cash out a virtual token. The main drawback is that it could relate to particular coins, and a cryptocurrency owner could simply switch to another tokens’ cash out. Aside from that, many new users prefer virtual currencies to conventional fiat currencies as means of payment for basic goods and services.
Currently, digital currencies are subject to the SEC’s jurisdiction for investment, the CFTC’s jurisdiction for any crimes related to interstate commerce, and the IRS’s law for revenue or capital gains taxation.
The SEC reportedly seems to have the most strict regulation in the crypto space, which is over ICOs. It previously stopped an ICO after unauthorized purchases were discovered.
In the same fashion, the CFTC recently exonerated major cryptocurrency exchanges Bitfinex and Tether after Tether failed to validate over $2.3 billion in supplies. As a result, Bitcoin prices dropped by 10% for a brief period of time.
Many of the existing reforms being deemed around the world are based on concerns about a hazardous massive bubble that many fear will ruin the economy if virtual currency prices fall.
To sum it up
To date, cryptocurrency is gradually becoming an integral part of our life. More and more services offer us to pay with digital assets, as virtual currency transactions are considered to be more secure than fiat or conventional card payments. However, governments of many countries are not likely to support any financial transactions that are not under their control and apply restricting measures to digital assets.