Implications Of Mainstream Adoption
This article is going to explore the implications of a possible mainstream adoption of cryptocurrency. I am not going to focus on any specific project but a general movement from fiat currencies (USD/GBP/EUR etc.) to the usage of cryptocurrency.
Political and Economical Changes
Governments have been wary of cryptocurrency for the most part and perhaps for good reason. This threatens their current economic models and wide adoption would mean big changes for how the government influences our trade and use of money.
- Quantitative easing more affectionately known as printing money would be impossible cutting off a huge “revenue stream” or method of balancing the books. Without being able to create more value from thin air many governments would be in a worse position than they already are with regards to deficits. The UK is currently creating £435 billion GBP ($590b USD) of new digital money (https://www.bankofengland.co.uk/monetary-policy/quantitative-easing). To give some perspective the NHS annual budget is somewhere around £120 billion GBP. Governments around the world are going to need a major fiscal reformation.
- Hyper-Inflation this could potentially be the seed which causes cryptocurrency to really take over. If people stop using a government backed currency then the perceived value will go down and inflation will increase. As inflation increases anyone with savings will see the value of their holdings drop significantly month on month which will lead to a vicious circle of people rejecting fiat in favour of cryptocurrency.
There is a benefit to hyper-inflation that the government will already be aware of. Many leading governments have got themselves in a debt situation that appears impossible to rectify. In the UK for example we are simply unable to generate enough tax revenues to cover government spending and are taking on more and more debt at an alarming pace. Hyper-inflation would wipe out the value of this fiat based debt essentially resetting the countries books. The negative side of this is that government bonds would become near valueless and their holders, banks, funds, pensions etc would all suffer a great deal.
Traditional investors who hold funds in cash or bonds would suffer greatly. Warren Buffet is someone I respect greatly but his negative comments towards Bitcoin are understandable because he potentially has more than any other individual to lose. Berkshire Hathaway along with many Silicon Valley giants are cash rich and the value of that cash could crash greatly.
- Taxation of cryptocurrencies is something that governments need to get up to speed with very quickly. No one likes tax but it is essential to maintain the living standards that we currently have. Some cryptocurrencies actively hide and mask the transactions. If individuals and corporations can get away with transferring funds without paying tax then you can only expect them to take advantage of this. Fair regulation and technology to implement efficient taxation and monitoring of funds is essential. Governments will hopefully start with the low hanging fruit of big businesses and some kind of auditing method before moving down the ecosystem to individuals. It’s hard to see a positive long-term impact for “privacy-coins” that are designed to hide their holders identities.
If government currencies fail on a mass scale, which could be caused by a single large government creating a knock on effect, there will be severe social implications.
Storage of funds
Banks will be replaced by online wallets and hardware wallets perhaps built into mobile phones. There’s very little value a bank actually adds that isn’t built in to cryptocurrency. One of the largest business sectors will be disrupted on an unprecedented scale.
Transfer of funds
The cryptocurrency dream is to walk into a coffee shop and scan a QR code with your phone to pay for your coffee in seconds. Some societies such as Sweden already operate almost entirely without cash, cryptocurrency technology could potentially start with crypto-cards such as the TenX and Monaco projects and eventually move to new standards yet to be invented which will make crypto-payments efficient and secure.
Lending of funds
Blockchain technology is perfect for open, transparent lending of funds. This could be one of the biggest sectors and opportunities in the next 20 years.
14% of the circulating supply of the top cryptocurrencies has been lost to fraud and theft. This is not just individuals but the largest exchanges, corporations and 3rd party tokens that have been compromised. If hackers can break the security of these organisations then it is likely that new measures must be taken to protect individual accounts that are not in the slightest bit security conscious. Cryptocurrency hacking and theft is now a huge industry with well funded professional teams and this is something that needs addressing if cryptocurrency is going to go mainstream.
It seems likely that governments will not sit back and rest while this happens. If the economy goes into recession and something like hyper-inflation causes crypto markets to boom then the politicians will most likely blame cryptocurrency for the situation. People will lose jobs, interest rates will rise, spending power will dwindle and some form of social unrest seems likely. Years of government overspending and poor fiscal decisions will be the real reason but it’ll be politically more acceptable to blame cryptocurrency or bankers or anyone else they can point a finger at.
It’s at this point where the mass adoption of cryptocurrencies will hang in the balance. Will governments work against the technology and ban/block/outlaw it’s usage? Or will they have the foresight to look forwards to a future where the main transfer and storage of value is not government controlled? Certainly the governments that embrace digital currencies sooner rather than later and figure out how to work with them rather than against them will be hurt the worse in the long run.
Governments that make crypto illegal for example will only be delaying their adoption. It is the populations of these countries who will inevitably be worse off for it. Eventually every nation that wants to trade internationally will have to embrace cryptocurrency as it will be the currency of choice for merchants and buyers, just like the US dollar is now.
Since 2008 Bitcoin has opened the door to the possibility of a cryptocurrency that could one day replace government backed fiat currencies. While there will be challenges, controversies and difficulties along the road it seems ever more likely, in my biased opinion, that a new generation of cryptocurrencies will one day become the default transfer and store of value internationally.