Government and Cryptocurrencies
11.08.2019 | 10:30
As governments around the world are getting more involved with cryptocurrencies from regulation to issuing their own, the discussion of the role of governments have since been a prominent fixture in discussions around cryptocurrencies.
A common complaint heard in the cryptocurrency space is one of how the government is too involved in the cryptocurrency space and that they should keep their hands off, commonly paired with wishes of going back to the early days when things were underground. However, as the cryptocurrency space grows, we can only expect greater involvement, especially with other large organizations encouraging the government to take action. As Andreas Antonopoulos, a prominent speaker who has been promoting Bitcoin around the world since 2012, stated, “You don't go and poke a $20 trillion industry and go, ‘Hey, we're going to disrupt you!’ You can't just wait for it to roll over.”
Regulations: Though normally associated with negativity, some regulations can prove to be helpful for the growth of the adoption of Bitcoin and other cryptocurrencies, especially as a form of payment, assuming of course that it does not restrict its use. A key benefit of such regulations would be that registered businesses would be better-able to accept them as a form of payment and enter them into the books of the company. This would also apply to charities and non-profit organizations looking to receive cryptocurrencies as a form of donation, such as what the BitGive Foundation has been doing since 2013. However, this is not always the case, and some argue that many of the regulations brought forth impedes the adoption of the technology. Some are quite blatant, with countries like Ecuador, Nepal, and Egypt, issuing explicit statements that Bitcoin or virtual currencies in general is illegal. Regulating applications on blockchains or other distributed ledger technologies however tend to be even more complex as it goes well-beyond the areas of payments. There’s a lot of areas to consider which previous regulations have not necessarily have to deal with in the past at a great extent coupled with direct financial transactions occurring. Unfortunately, this means that we will likely see more that may not necessarily be the best for both the industry and the intended effect of the regulations.
Issuing Their Own: In 2018, the Marshall Islands announced their intention to create their own cryptocurrency. Earlier that same year, Venezuela announced that it would release its own cryptocurrency called the Petro, backed by the country’s oil reserves. Both announcements and others like it resulted in further discussions in the cryptocurrency space, with some asking if countries should even be allowed to do so. However, the question of whether they are allowed to do so or not is moot. If users get the ability to interact with each other and various systems directly with no middleman, then the same can be done by governments, irrespective of the desires of the other users. Though entities that take an active role in the processing of data on the network, such as the miners on Bitcoin, could theoretically censor that entity’s transactions if they all agree on it, this is highly unlikely to occur. Instead, the strong questions should be placed on the reasoning of the countries for the creation of them, as well as whether they are able to hold their claimed value. In the case of the Petro, the accuracy of the reserves should be in question as the value of the Petro is heavily determined by the oil reserves themselves.
Utilizing the Network: One underexposed relationship with regards to governments and cryptocurrencies however, is that a few countries and cities around the world have started looking into using public distributed ledger technology networks for utility purposes. One notable example is with the city of Zug in Switzerland, home of many cryptocurrency startups, where the city utilizes the Ethereum public network as a proof-of-identity system for its citizens, on top of allowing some payments for government fees in cryptocurrencies directly. The proof-of-identity system has recently been integrated with bike sharing services as well, allowing for use of the bikes based on their proven identities on Ethereum. However, most governments are currently looking to use the technology as a private implementation, usually not involving cryptocurrencies in any way as it avoids the use of the public networks, though they may use the same technology. As most systems are using an open source license, governments and organizations are easily able to do this, as would individuals. This may not always be the case, however, as the benefits of the public network may become more attractive as things progress.
The future of the relationship between governments and cryptocurrencies is quite complex, especially since different coins and tokens do different things. The path forward will definitely have its challenges, but it is the hope and, more importantly, a goal of many that the systems of peer-to-peer digital cash and interactions will remain accessible for the general public.