What Are The Potential Benefits and Risks of Cryptocurrency?
The debate on cryptocurrency has currently been increasing, should we live in a world with only digital currency? What are the harms of cryptocurrency and what are the benefits of it? Is cryptocurrency good?
This is what I will be answering in this article. For those who do public form debate, I will be discussing what is equivalent for this month’s November 2019 motion: On balance, the benefits of cryptocurrency outweigh the harms.
Cryptocurrency is basically digital assets similar to real-life money, only they are untraceable, and are not backed by anyone. The use of cryptocurrencies has seen an increasing rise.
What is crypto mining?
Crypto mining is the only possible way to introduce new bitcoins to the system, it requires many computers to solve a very complex math problem. Not many people can do this because it takes loads of computer energy and time to solve it. And most end up losing money.
Outline of benefits of cryptocurrency:
- Monopoly — this is like when there is one dominant currency and makes the U.S Central Bank think that they can do anything — but cryptocurrency solves that because they force currencies to compete for best stability
- Saves Dollar — alternative currencies prevent the dollar from collapsing the economy and can act as lifeboats
- Financial Inclusion — they allow everyone to be included like those who don’t have bank accounts can easily use this.
Before I discuss the risks of cryptocurrencies, I would like to tell you a little about these digital assets. Currently, there are over 4000 cryptocurrencies in the world since an anonymous man who calls himself Satoshi created Bitcoin. And cryptocurrencies are currently more popular than ever, every single Bitcoin is at least worth 10,000s if not even millions of USD right now. In the past, a Bitcoin was worth literally nothing.
Outline of risks of cryptocurrency:
- Terrorism and Crime (because it is anonymous some people misuse it) — this makes the world more dangerous
- Avoiding Detection — like because the government cannot trace Bitcoin some people might evade tax
Monopoly:
Currency monopoly is what basically lets the Central Bank live in an illusion. The U.S Central Bank thinks that they can print unlimited money, and boost the economy, but that is actually not true. First of all, there would be inflation, but the next thing is that the U.S government just ends up investing all of these in risky investments, for example, in 2008 the U.S bank lent too much money to those who obviously couldn’t pay it, but they did not really care because they knew that they could always print money. The economy was doing good but all of a sudden they realized that they had to get that money back, this resulted in a sudden bust that collapsed the economy. With a currency monopoly, this stagnates a standard of living and creates a cycle of booms and busts that collapse the economy. The current status quo is not acceptable as this may result in the next great depression, and as proven above it already has led to some events.
Cryptocurrency comes in and solves monopoly because the current dominant currencies don’t have any motivation to compete. But with a cryptocurrency, they are forced to compete for the best stability and the retainment of value.
Saves Dollar and Inflation:
Cryptocurrencies provide an alternative currency which is kind of like a lifeboat when the economy collapses. In reality today, the U.S dollar is like the most important thing ever, because the U.S is often the only medium of exchange for many doing businesses. If for some reason the dollar collapses, the cryptocurrency would act like lifeboats who want to avoid the slow decline of the dollar. As these cryptocurrencies are a lot more stable the fiat (paper) money. Also, these cryptocurrencies offer an alternative to unstable government currency. The government can easily abuse their power to print money. However, many means of digital currency do not require a centralized leader, simply putting it without the backing of something. This possibility gives hope to most people because they could be liberated for the instability of government money. Many people in countries with inflation like Venezuela have been using cryptocurrency instead as it works better. This provides a lifeboat to inflation too.
Financial Inclusion :
In reality, there are many without banks out there and many small companies out there. Cryptocurrency can revolutionize financial inclusion. In the world, there are plenty of small companies which simply cannot afford to innovate, in the world, there are plenty of people who simply cannot find a way to open a bank. However cryptocurrencies, in some ways can solve that. In Kenya and China, mobile payment systems have significantly helped people who do not have banks. And in the poorer regions of the world, like Latvia and elsewhere, online lending has helped small companies innovate too.
Terrorism and Crime:
The terrorist has already been cut off from accessing traditional currency, due to the fact that it is traceable and has a central authority. However cryptocurrency is untraceable and anonymous, this make it possible for a terrorist to fund their attacks. A woman named Zoobia in the United States has already done that she transferred Bitcoins to HAMAS. She was only caught because she used real currency. Should a single cryptocurrency emerge that provides better anonymity and high amounts of popularity, more and more illegal activities will occur. Another small thing, I would like to add not that much related to terrorist and crime, is the fact that many countries who are facing U.S sanctions have begun to use cryptocurrencies, because in the future bit by bit U.S sanctions may no longer be feared. This is one of the obvious disadvantages for cryptocurrency, with anonymity, it is just increasing the possibilities of a next major terrorist attack.
Avoids Detection:
Cryptocurrency is making tax evasion more and more easy. As cryptocurrencies are untraceable. Using cryptocurrency almost anyone with little knowledge can evade tax. These currencies are not only decentralized but are invisible, leaving no trace of capital gains. According to fool.com, people conducted a survey and 1/3 of the people said that they weren’t reporting their gains from cryptocurrencies, and were planning to use this technology to commit tax fraud. This does not include those who do not even know they need to pay. This has a large impact as tax evasion reduces the productivity of a business and harms the welfare of an average person. Most of the people who are evading tax are those who are rich, with this in mind poorer people who do not use cryptocurrency have to pay more tax, this first of all it cause an income inequality; and furthermore, people will stop having the motivation to work, knowing that they have to pay so much tax. Another large impact would be the fact that governments will not be able to fund many welfare things. This will even create a government productivity decline, as the use of cryptocurrency rises.
Conclusion:
Now I would like to answer the question I proposed at the start of this article should we live in a society with only cryptocurrency? I certainly do not think so, as there are actually more harms then I have discussed in this article, as to discuss all the harms, links and impacts would be too much. I believe that we should live in a society where both paper money and cryptocurrency should be used. But honestly, it is up to you to answer these questions.
Is cryptocurrency actually good?
Dear reader, this is a question you yourself will have to answer after I have provided you with the basics of my knowledge.
Published at Sat, 16 Nov 2019 15:41:55 +0000
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