What Happens When Governments Get into Cryptocurrency?

Governments

With the recent hype around cryptocurrencies and their potential use in financial contracting, governments are naturally wary of what’s going on in the market and how it will impact their roles.

However, to get a better idea of how cryptocurrency can relate to government regulation, we must first understand how cryptocurrency works. If you are planning to trade cryptocurrency, it is important for you to know the Types Of Cryptocurrency.

The identity of the wallet owner is recorded on its blockchain as part of the transaction. So even though bitcoin addresses (public addresses) and private keys may not be linked together in a way that makes it possible to trace back to an individual or party inside of your transaction, there’s recording information that links it back to you. 

The below-listed portion discusses what governments regulate when they get into cryptocurrency, how it affects their relationships with companies and its potential uses, and, more importantly, the ethical implications of what these transactions may lead to. Y

ou’ll also learn about the Ethical Guidelines for Cryptocurrency Contracting established by international professional organizations such as International Institute for Strategic Studies (IISS) and Global Financial Integrity (GFI)

What Governments Get Into Cryptocurrency For

Governments are concerned with four main things when they get into cryptocurrency

The prevention of fraud and abuse, the development of an infrastructure that supports cryptocurrencies, the protection of national security and the monitoring of cross-border trade as a means to make it safer

When governments get into cryptocurrency, they do so to aid in the oversight and regulation of industries that impact their national economies. In other words, they use cryptocurrency as a means to monitor transactions and maintain control over these transactions. They also use cryptocurrency to increase transparency between nations, making cross-border trade safer.

 In addition, they may also use it to facilitate their use of cryptocurrency. For instance, some nations may use their state-issued currency as a substitute for cryptocurrency and, in turn, boost domestic economies. These four main goals clarify why governments are interested in cryptocurrencies and their future potential.

Encouraging Innovation and Creating Intelligent Contracts

Governments had helped spur innovation in the finance industry outside of cryptocurrencies, such as the beginnings of derivatives trading and other financial tools used to make markets more efficient. Cryptocurrencies were not a part of this, but the idea was the same.

In particular, foreign currencies provide liquidity to the markets, which helps make trading more efficient. Cryptocurrencies give governments another tool for managing transactions in the finance industry that can help expand and innovate financial solutions.

Monitoring Cross-Border Trade and its Perils

Governments monitor business developments in other countries to ensure that their economies are functioning correctly. However, they don’t have the means or intelligence to investigate all businesses closely. Cryptocurrency provides another way for them to keep tabs on money flows between nations.

Luckily for governments, cryptocurrency use is still in its development phase and, therefore, still new enough to monitor. However, as the technology gets more sophisticated, governments can see more about cross-border business activities.

Implementing a Digital Monetary System with Regulated Cryptocurrencies

Governments are expected to work with the private sector to create and implement a digital monetary system that is more efficient than the current one. Cryptocurrencies offer an opportunity for this new system to take root and gain adoption. It can replace national currency in transactions making it more widely accepted by global consumers and businesses. This will give governments far more control over all financial transactions.

Furthermore, this new digital monetary system can be used to manage and track all the global trade between nations more efficiently. The potential for the amount of money exchanging hands in this digital monetary system is mind-boggling and could potentially even replace national currencies altogether. 

The idea is that to support a digital monetary system that could become the sole currency of choice, governments must have tremendous control over their economies using cryptocurrency and its underlying technology. Of course, it is just the tip of the iceberg of what governments get into cryptocurrency for. However, it illustrates their interest in cryptocurrencies and their future potential.

How Government Regulation Impacts Cryptocurrency Contracting

Governments must implement policies to ensure that businesses and consumers have confidence in contracts, trade and other transactions. It includes all types of contracts, including financial contracts such as investments and loans. 

The most common policy that governments use is called Antitrust Policy which helps to eliminate monopolies on markets, prevent monopolistic pricing practices, promote fair competition and prevent practices that destroy or limit competition. It also ensures fair dealing by prohibiting unfair or deceptive trade practices and abusing a monopoly power position.

Cryptocurrency makes it easier for the government to regulate the financial market and keeps it more transparent. For instance, Businesses looking to raise money through ICOs will be subject to securities regulation in some countries and must disclose an element of risk in their offering.

Can the government make cryptocurrencies legal tender?

Most countries have some form of regulation surrounding cryptocurrencies and financial markets that can significantly impact how governments can implement the technology. Cryptocurrency is not just a currency but rather a new type of asset that has value. Governments regulate it like any other asset; in essence, you own tokens, and it’s not as simple as printing more money like fiat currencies. 

Some countries even have laws concerning digital currency in which banks must follow the rules concerning fraud and reporting important data to regulators, which is crucial for any cryptocurrency business to operate within these parameters. Unfortunately, unlike El Salvador, few other nations are willing to accept cryptocurrency as legal tender.

Government’s Positive Stance towards cryptocurrencies:

1. Japan is one of the biggest cryptocurrency supporters and has been a pioneer in the industry. Many Japanese investors were the largest holders of Bitcoin early on, and Japanese banks offer some of the world’s most favourable blockchain banking services. It may be due to their relatively better infrastructure, which made it easier for them to take on blockchain technology.

2. The U.K. has been slowly changing its stance towards cryptocurrencies and blockchain technology, slowly embracing it for commercial purposes such as trading financial instruments on crypto exchanges such as Toro or trading cryptocurrencies on any asset exchange such as Poloniex. They are also considering legalizing initial coin offerings (ICO) 

3. Switzerland has been a longtime supporter of cryptocurrency, at one point being home to one of the enormous Crypto valleys in the world. However, in recent years they have taken a more conservative approach to cryptocurrencies, especially ICOs.

4. The United States is also coming around to blockchain technology and digital currencies such as Bitcoin and Ethereum. However, while the U.S. Securities and Exchange Commission (SEC) warned investors about some potential risks of cryptocurrencies, such as their volatility and susceptibility to fraud, they have done little to nothing in outright banning cryptocurrencies and ICOs within their borders.

Governments article and permission to publish here provided by Jean Nichols. Originally written for Supply Chain Game Changer and published on November 18, 2022.