Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
Summary of European Parliament report on virtual currencies
The current active trend on the cryptomarket is the development of rules and regulation by governments in various countries, including the members of the European Union. One of the initiatives led to a report âVirtual currencies and central banks monetary policy: challenges aheadâ issued in July 2018, commissioned by the EU Economic and Monetary Affairs Committee.
It defines the concept of âcryptocurrencyâ, the general state of the cryptocurrency market, designates its place in the current financial system and outlines development prospects.
Cryptocurrency will not replace fiat money in the near future
The report defines cryptocurrency as a contemporary form of private money. The authors estimate that its ability to displace traditional currency in the near future is extremely low. However, the probability of cryptocurrency concept survival and the appearance of a special niche for its use is quite high due to such characteristics as their digital form, the possibility for cross-border circulation, network transparency, and a predetermined algorithm of issuing currency units.
At the moment, digital currencies face a mistrust of the mass consumer and an attempt by governments to develop their own rules for the use in their countries. The likelihood of a universal âlegal tenderâ status at the moment is extremely low.
Cryptocurrency domination at the moment is impossible
In April 2018, the total market capitalization of all cryptocurrencies was below $ 300 billion, while broad money in the US approached $ 14 trillion at the end of 2017. Differences in the number of transactions is even more strikingly in favor of sovereign currencies.
Despite the statements about the replacement of cash by cryptocurrencies, statistics say the opposite: since the beginning of the global financial crisis in 2008, the share of the central bankâs money (called reserve money or monetary base) is increasing in broad money in the major currency areas as the result of crisis-related financial disintermediation, tighter post-crisis financial regulation, currency substitution in favor of major currencies (mostly in the form of cash), low inflation and low interest rates.
Cryptocurrencies can not challenge the dominant position of sovereign currencies
However, in extreme cases, such as during periods of hyperinflation, financial crisis, political turmoil, or war, they can substitute currencies in individual economies.
In case of serious macroeconomic shocks in the country (such as hyperinflation), there may be a need to move away from the state currency. But will it be the cryptocurrency? The example of Venezuela shows that this is quite possible. However, it is too much to draw full-fledged conclusions without data on the circulation of bitcoin and the dollar in this country.
Transparency as the main advantage
The main advantage of cryptocurrency is that issuers are able to ensure a transparent global network for circulation, a credible algorithm for the creation of the VC, and a transaction mechanism that is relatively safe, fast, and inexpensive.
The main obstacleâââinsufficient volume of transactions
Assuming that the cryptocurrency will somehow compete with the dollar, another problem arises: a sufficiently large volume of transactions would have to be developed first. At the moment, this scenario is out of question. To dominate the market the cryptocurrency will need a large-scale crisis, which will shake not only the dollar but other currencies as well.
Policy makers and regulators should not ignore or ban cryptocurrencies
They should treat them as a financial instrument proportionally to their market importance, complexity, and associated risks. Taking into consideration the principle of cross-border transactions and decentralization, it will be better that the regulations are approximately the same in different countries to provide comfortable conditions for the market development.
Where is it all going?
The report represents a loyal view of the cryptocurrency, which demonstrates that the Economic and Monetary Affairs Committee is aware of the importance of technology and its possible usefulness, but sensibly notes that in order to occupy a significant market share, cryptocurrencies will have to go a long way of technical and legal development.
The fact that the authors persistently do not recommend to impose a complete ban on cryptocurrency in the current economic situation also indicates that the countries of the European Union will develop state rules from the standpoint of loyalty and acceptance, and not from the position of negation and prohibition.
Summary of European Parliament report on virtual currencies was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.