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Threats Blockchain Poses to the Financial System and the State


Category: Education

Threats Blockchain Poses to the Financial System and the State

“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown” — H.P. Lovecraft, Supernatural Horror in Literature.

crypto threat to states

When we think of Bitcoin and the initial purpose of its creation, we can clearly see that it was invented as a way of bypassing traditional financial institutions when processing electronic payments. It was also Bitcoin that replaced an abstract concept of trust when it comes to having some kind of evidence of performed transactions.

Right now we are at the stage when it is simply impossible to ignore cryptocurrency and this is exactly what scares central banks and other institutions responsible for the sustainability of unified fiscal policy. Thus, they started to point out various threats that such digital payment systems might bring.

Why are states so afraid of crypto?

Is cryptocurrency dangerous when it comes to the defense mechanism of the country? Is there any chance it can cause some kind of a humanitarian catastrophe or start a national conflict? We do not think so. Firstly, even if such a crypto “attack” happens, it will only affect the “pain points” in the financial control system itself.

The Bureaucracy Risks

However, the use of crypto for money laundering, financing of terrorists and other illegal operations are the main concerns for most of the states. The fact that anonymity is one of the defining features of cryptocurrency exchanges might make it possible for drug dealers to profit and lessen their chances of being caught. Needless to say, the criminal world was only happy to finally be able to conduct crypto money transactions, making it harder for the law enforcement agencies to spot financial crimes and gather the necessary evidence to prove that they were actually committed.

The pitfalls of decentralization

A decentralized system of cryptocurrency exchanges is not considered that big of a threat, however, the governments of countries think otherwise: if crypto gains capitalization it might easily affect the whole economy of the country. As a result, it can possibly mean that the state might become less economically independent.

It is not a secret that the most fraudulent activities can be expected to happen during ICOs. Remember the biggest Modern Tech’s ICO-scam in Vietnam? Its founders stole more than $660 million and, as you probably guess, it is not the easiest thing ever to find them now and turn back the stolen money to all the investors. Thus, now we came to the point where we should search for the ways of protecting ordinary investors from buying obvious scam-tokens. The US Securities and Exchange Commission (SEC) is keeping its eyes on a few scam projects, even such high profile ones like Centra, whose founders are already facing charges.

The next big question is, of course, taxes. It is pretty clear that no state would ever earn money from crypto transactions. Stock exchanges have already earned a fortune on their commissions, as well as traders, miners and all the others who deal with crypto. Thereby, we can see that cryptocurrency has a lot of perks for those who use it but states do not really see it like that.

Catch-22

How can the state then recognize cryptocurrency? You probably think like us, — when they can fully control it. However, this brings us to a very ambiguous situation as the whole point of crypto exchanges is decentralization and anonymity, which are actually the ones to attract crypto communities the most.

As a result, states are facing a big dilemma: should they help the cryptocurrency industry grow or should they try to stop it by all means? If they decide to make it harder for crypto to develop, they might be losers in the end. If they decide to contribute to its development, they will be responsible for the possible loses in case crypto turns out to be a complete failure. The US has already implemented the regulations to fairly manage cryptocurrency. To be or not to be is now only a matter of time.

Blockchain as a Part of a Governmental System

However, is there any way that cryptocurrency and blockchain technologies can actually help the states? Apart from the dangers that it might pose, blockchain technology has also a lot of advantages that various businesses and institutions can implement to improve their growth. Since it works as a ledger, the trust level is much higher than that of banks or any other centralized financial institutions. As a result, people will trust the system and its information without the need to rely on any other individuals.

Blockchain Vs Bureaucracy

Even though blockchain is not absolutely developed right now, once it is, it can become a solid platform for smart contracts. Consequently, governments can use them to operate in a more efficient way. For example, when making audits, the government could simply rely on the records on the blockchain instead of questioning the accuracy of those that companies provide.

The other very important and strong side of blockchain is that it can help the whole global supply chain. Accordingly, the level of bureaucracy will be significantly reduced, which is currently the ultimate goal of most countries in the world. Blockchain can be implemented into the voting, tax, healthcare and energy systems. Can you imagine how it would change the whole governance structure in a positive direction?

Resolving Human Factor Issues

So much time is spent by governments processing different information and so many human resources are involved into doing something that can be easily substituted with blockchain and save a lot of time and, what is the most important, money. What is more, blockchain allows storing all the sensitive data without compromising it. It is a well-known fact that if there is a leakage of any kind of information, it might cost a fortune for a state to cover the damage. Thus, it is hard to object to the fact that blockchain has become a pretty radical way of storing data and it is crucial for the state to take advantage of that. BTW, do you know what’s considered non-sensitive data?

Conclusions

What we see now is just the beginning of all the drastic technological improvements and blockchain is one of them. Even though governmental institutions and enterprises are only starting to dig deeper into the blockchain and crypto world, it will not take long until they realize that despite all the cons, the pros can bring a lot of profit. The better the supply chain system is, the fewer people need to pay for the products and services, which means lower taxes. This way, the society will become stronger and the trust in the government will be much higher than before.

The states can try as hard as they wish to slow down the implementation of crypto services into various spheres of life, including modern companies and organizations, but it is less likely that they will succeed in this. Cryptocurrency has become so popular that trying to make people avoid it will be like tilting at windmills (and we all know how it ended for Don Quixote...) Instead of holding to the past, it is time to become closer to the future — it is time to go crypto!

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Read also

Blockchain for Dummies: A Simple Guide to the Essence of Blockchain Technology

How Blockchain can Help Small and Medium Businesses Challenge Rivals

The Butterfly Effect or how to counter fake volumes and make the crypto industry mature 

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