Tuesday, 04 August 2020
Sovrano

Will national currencies start moving to the blockchain in 2020?

There has been a tremendous amount of interest in cryptocurrencies on the blockchain recently. Given the huge price fluctuations in coins such as Bitcoin, it is easy to see why they appeal to bold investors.
Yet, there is also the feeling that these currencies are too volatile for some people’s tastes. This is why ‘stablecoins’ such as Tether have gained popularity, with a value that is pegged to a national currency. In fact, it has been suggested that some countries will soon start to go a step further and issue digital versions of their national currencies.

What Would the Advantages Be of Doing This?

One of the great advantages of using any type of digital currency based on a blockchain is that these digital ledgers are completely transparent and immutable. The fact that every single transaction is recorded on the ledger means that there is far less chance of anyone carrying out fraud or using counterfeit money.

In the case of digital national currencies, this approach would give central authorities a higher level of control over the money in circulation in their countries. It has been argued that governments could control the flow of money, collect taxes and look out for criminal activity more easily with their own digital money.

Imagine using digital money to pay for basic services, healthcare and everything else. Some countries appear readier for this change than others. For example, Norway may become the world’s first cashless society, with most people only taking out money less than ten times a year. Meanwhile, in Sweden, just 1% of the GDP circulates in cash.

Are There Any Disadvantages?

At the moment, many governments around the world are wary of cryptocurrencies such as Bitcoin and Ethereum, as these seem to take away their control. These are pseudo-anonymous currencies that allow users to move money around the world without revealing their personal details.

It is believed that by moving fiat currencies onto the blockchain, you would lose the freedom that cryptocurrencies currently offer. Indeed, it is likely that governments would have more control over our financial activities than they do right now.

Not everyone sees that as being a good thing. Internet security mogul and blockchain enthusiast John McAfee has been one of the most vocal advocates of cryptocurrencies like Bitcoin. He said that they “free us from control” and that fiat currencies are a form of “financial slavery”.

Is This Necessary?

Not everyone agrees that this move would even be necessary. After all, right now you can use your country’s fiat currency when you need to, or opt for a cryptocurrency if it suits you. Why would you need a virtual coin that combines both of these functions?

Right now, it is possible to use Bitcoin to pay for products and services from several sellers, including the likes of Microsoft, Expedia and Virgin Galactic. Some hotels, bars and restaurants accept this payment method, but it is clear that many more companies would need to accept it before it could replace fiat.

For some people, it is enough to be able to shop for products and services online and then pay using their normal fiat currencies. In fact, the arrival of comprehensive internet comparison sites allows us to make smart choices and complete the transactions using our everyday money. For example, it is possible to look through over 27 million global hotels at Booking.com or search millions of products at Amazon. You can also compare 12,000 deals at online mortgage broker Trussle and choose from dozens of lenders who will provide you with the funds you require without the need for cryptocurrencies. These examples showcase the current overlap between the digital and the ‘real’ world in a way that makes use of the advantages of both and has proven popular with consumers.

This leads to the question of how big the demand for these combination digital/national coins really is. It could be the case that this is something that interests governments more than their citizens, at least at the moment. If that is true, then the authorities will need to work hard to convince people that it suits them to make the switch to virtual money.

What Will Happen Next?

Tunisia has announced that it is launching an e-Dinar, in the process becoming the first country to issue its national currency on the blockchain. They say that it will avoid counterfeiting, while also making it cheaper and easier for them to issue money.

Other countries that has shown a high degree of interest in this sort of project include India, Iceland, North Korea and China. So, it is likely that we see at least a few fiat currencies go virtual in 2020.

It looks like we are set to soon find out whether such moves will prove wise or not. In the meantime, though, we have to admit that our digital age has already changed the way we use money, at least to some extend.


source: bmmagazine.co.uk
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