Cryptocurrencies have taken the world by storm and it's impact is felt felt in diverse sectors like the economy, technology and traditional banking systems.
Due to the disruptions caused by this digital evolution, many governments around the world have had to step in and take drastic action in response to this innovative trend. Let's look at some of the concerns governments have on the operations of cryptocurrency and how some governments are responding to this.
THE USE OF CRYPTOCURRENCIES IN ILLICIT FINANCIAL OPERATIONS:
A lot of what happens in the cryptocurrency space is not regulated and the nature of the transactions and the transactions done remain anonymous. Most governments feel that it amounts to illegal financial activity and since the government is not getting any revenue from the proceeds of cryptocurrency transactions then cryptocurrency users are liable for tax evasion. Some governments are concerned that since the transactions are decentralized and are not monitored, cryptocurrency will become a tool in financing terrorist activities, illegal arms trade and drug trafficking.
These concerns have made several governments to outrightly ban cryptocurrency operations as in the case of China or to look for ways to allow crypto operations while formulating policies to check its use for this negative activities as it's done in the US and Europe.
TAXING CRYPTOCURRENCY TRANSACTIONS:
The way taxes are collected in almost all the countries will need to change in order to accommodate cryptocurrencies in the tax net. Cryptocurrency operations are mainly decentralized and this poses a huge challenge to revenue collectors on ways to adopt their operations to catch up and align with the cryptocurrency's evolving trends.
So this implies that government's revenue agencies will need to update their tax codes and revenue collection mechanism so as to include cryptocurrency transactions.
DISRUPTIONS IN THE ROLES OF RESERVE/CENTRAL BANKS:
In all countries of the world, the central bank's control and determine the framework of all banking and financial activities that are carried out. Due to the cryptocurrency disruption, the blockchain has taken over this role but with a twist. While central banks mediate in the operations of the banking industry, blockchain technology on the other hand eliminates the need for and reliance on any intermediary. The challenge for most governments now is how to incorporate cryptocurrency operations with traditional financial systems and synergize their operations.
CENTRAL BANK DIGITAL CURRENCIES (CBDC's):
As a way to embrace the use of cryptocurrency and establish a control mechanism over the way financial operations are being carried out, some governments through their countries central banks have launched digital currencies like the e-naira in my country. With this, governments try to check the circumvention of capital controls and tame capital flights.
CRYPTOCURRENCIES IMPACT ON ELECTRICITY CONSUMPTION:
It is a known fact that cryptocurrency mining consumes a lot of electricity because these are done by high powered computer systems.
It is reported that Bitcoin mining alone gulps 91 tetra watts-hour of electricity yearly and this is more than the electricity consumed by the over 5 million population of Finland, no government will be comfortable with this statistic. The huge impact that cryptocurrency mining will have on electricity power grids and the use of other natural resources is giving some governments concern as they come under pressure from nature conservation groups. This is forcing some governments to rethink the use of their territories for cryptocurrency mining operations.
CONCLUSION:
One thing is sure, cryptocurrency has come to stay and governments can only struggle to catch up with its evolving and innovative trends. Banning cryptocurrency operations may not be the solution to tame capital flights but concerted efforts can be made by various governments to embrace and regulate cryptocurrency operations. This to me is the way to go as it will engender a synergy between traditional financial operations and the modern digital financial model that cryptocurrencies are offering.
Posted Using InLeo Alpha
Certainly the cryptocurrencies have come to stay, over time the financial world has increasingly accepted the crypto currencies and laws are being passed every year to have legal backing, there is also the example of XRP that is already used in major banks and if we talk about decentralization Bitcoin is at the center of the gaze at the moment in the highest financial spheres.
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