We cannot blame top bank officials for ignoring this technology for so many years. With the massive amounts of money passing through their hands on a daily basis, they could not realistically envision that, one day, they would face competition from an unstable, digital currency that relies on some "geeky," distributed ledger technology.
Unfortunately for banks and other centralized control systems, cryptocurrencies are here to stay. While early adopters of Bitcoin and blockchain enthusiasts raise millions of dollars, those who have shown up late to the party can only talk about the shortcomings of cryptocurrency and how blockchain jeopardizes the system. Yet, even they cannot overlook the obvious benefits.
Perhaps the biggest threat blockchain-powered digital currencies pose for governments and traditional financial systems is the undermining of their authority and deprivation of their long-entrenched "control and enforce" mentality. Fiat money remains valuable largely because it is backed by the state and is controlled in terms of price and availability by the central banks. Meanwhile, cryptocurrency rides on the shoulders of the supposedly impregnable blockchain to circumvent the traditional banking process in its entirety.
Seen in that light, it seems counterproductive to ignore cryptocurrencies and all that they entail and promise. Governments and communities should be looking for new ways of adopting cryptocurrencies and blockchain to benefit the global economy and humanity as a whole. Here's why.
1. Most governments do not care about cryptotechnology
Many countries are still averse to the idea of using at least some elements of blockchain technology. Obviously, they are not interested in supporting cryptocurrencies, either. However, China, Russia and the Netherlands appear to be approaching the new technology more proactively.
For instance, China's Central Bank, the People's Bank Of China, is testing out a prototype cryptocurrency. While the results of their efforts are pretty much unknown, China could become the world's first country with a full scale, government-approved cryptocurrency on board. Given all of China's digital currency efforts, this does not sound entirely unrealistic.
The Netherlands, meanwhile, have created their own cryptocurrency for internal circulation, for the purpose of critically studying the technology and how it functions in the real world. Russia has launched an Ethereum-based blockchain pilot program. The Central Banks of Europe and Japan are following the same path, but seem to be more interested in the potential benefits of blockchain technology as a means of bettering their market infrastructure.
We do not yet know how governments will utilize the power of blockchain and reform their policies to address the dangers of cryptocurrencies, but one thing is sure: If they continue to ignore these cutting-edge technologies instead of putting well-defined rules of their usage in place, they will lose control over the world's money supply.
2. Cryptocurrencies may suffer from policy-related issues . . . for a while
Central banks still often doubt the overall stability of digital money and in the areas of value, privacy, susceptibility to cyber attacks and fraud. In March, Federal Reserve Governor Jerome Powell voiced these policy concerns and called for them to be exhaustively reviewed.
Yet, cryptocurrencies do not cease to develop. According to Coinmarketcap, cryptocurrencies account for up to $150 billion worth of digital money, with Bitcoin alone having risen more than 380 percent since the turn of the year. The exceptional growth ofInitial Coin Offering (ICO) investments in 2017 have only helped to bolster this explosion.
There is no doubt that, at some point, governments will have to come up with clear policies to address the use of cryptocurrencies and blockchain.
3. Blockchain is good news for small business
Although cryptocurrencies and blockchain technology are pretty much in their infancy, they have the potential to become the greatest technological advances since the internet. This is good news for small and medium-sized companies who suffer intense competition from corporations.
Blockchain favors small businesses by fostering a fair-field climate for every player on the market. Specifically, these benefits come into play with Ethereum blockchain. By introducing the so-called Digital Autonomous Organization (DAO), blockchain allows for smart contracts that are drawn up and executed by decentralized, self-governed communities of small-business owners. Blockchain technology cuts middlemen (e.g. courts, lawyers, insurance agents) out of the picture and allows for a considerable reduction in operational and frictional costs, dramatically simplifying business processes.
While this may seem unrealistic to some, small businesses can already start using blockchain for their benefit. Startups like Opporty, Snov.io and BlockCAT have already made inroads into the technology.
Opporty, for instance, is a service marketplace on the blockchain that implements strong smart contracts and the world's first decentralized Escrow. By binding Ethereum blockchain and its own cryptocurrency, OPP token, to the on-demand business model, it allows businesses, service providers and ordinary users to enjoy the benefits of a fair-field-and-no-favor environment, wherein independent communities of experts standardize and establish rules of doing business, draw up smart contracts and protect all parties through decentralized escrow procedure.
Blockchain and cryptocurrency technology can be of immense benefit to the global economy. A prime example is the trajectory on which Japan, the world's third largest economy, has travelled since the spectacular financial tragedy of Mt. Gox back in 2014. Bitcoin is now accepted as a legal method of payment in Japan. Its largest banks have also put down money on Bitcoin exchanges and Bitcoin and blockchain related small-cap stocks, as the currency begins to garner favor among retailers within the country and globally.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors