Ever since the invention of peer-to-peer networking, no other technological invention has caught the attention of many web users like cryptocurrency. Cryptocurrencies are generally created in an attempt to provide a solution to a problem facing different sectors of an economy. The Bitcoin, for example, which is the first cryptocurrency ever created was created as a solution to problems plaguing the banking industry. There are many people who believe that the banking system which was originally a system based on trust has now been damaged by the greed of the institutions involved in the process of banking.
Cryptocurrencies are virtual currencies used as a medium of exchange because of their security, privacy, and anonymity. Because cryptocurrencies use cryptography for security purposes, they are very secure and almost impossible to hack or counterfeit. Also, they are completely anonymous and private and are generally non-susceptible to government or central bank interference as they are not issued by any central authority. Bans and governments fear cryptocurrencies for the following reasons:
First, it is important to note that the government or central bank of a country can use banks to regulate its money supply and circulation – US Dollar, Euro, Pounds among others – because they issue the currency and as such, hold the power to interfere with and influence the currency as they see fit. Now, because the value of cryptocurrencies is based solely on the law of demand and supply and are generally not issued by a government or central bank, they are generally non-susceptible to interference by the government or some central authority. This makes them look scary to these governments and central banks as they cannot control the amount of Bitcoin in circulation.
Also, cryptocurrencies such as the Bitcoin were created as a solution to the problems created by banks. The normal banking procedure requires that a transaction goes through a central authority such as a bank which verifies and validates it before the transaction can be successful. This process sometimes can take a couple of days and in the process, charges are deducted. Cryptocurrencies have sought to completely remove the role of the banks as middlemen in the transaction process thereby making it possible for someone to perform his/her transactions online without the need for a bank. Transactions can be validated by the millions of users of the decentralized peer-to-peer network which the cryptocurrency uses. As such, the role of the bank is completely eliminated and with this elimination comes the elimination of service charges.
Another reason why cryptocurrencies are feared by banks and governments is that of the issue of privacy and anonymity. Generally, the creation of a crypto-wallet (some sort of cryptocurrency bank account) requires little or no personal and/or bank account information. It is possible for a user of cryptocurrencies to perform his/her financial transactions without any need to enter personal information. Now, what does this mean to banks and governments who use such information to keep an eye on their citizens? Lack of access to information; banks and governments can block someone’s account if they have no access to information regarding transactions.
In addition to the above, cryptocurrencies are very transparent. All transactions on the blockchain can be validated by any member of the blockchain. Transactions can be seen by all even though no information is made available.
Banks and governments fear cryptocurrencies – there is no doubt about that. With the constant research on and development of new cryptocurrencies which seek to solve new financial problems in today’s global economy, it is possible for banks and governments to give way to a more decentralized system of performing transactions. Cryptocurrencies are not only secure but are also fast, anonymous, transparent and non-susceptible to government or central bank interference. There is no reason why banks and governments should not be afraid of them.