Interest in Cryptocurrencies Continues to Grow
- Published | 24 February 2022
A cryptocurrency has been developed as a medium of exchange, which is digital, encrypted as well as decentralized. Unlike the dollar bills and other currencies across the world, there is no centralized authority managing and maintaining the exchanges that happen in cryptocurrency. These managing and operational tasks are instead distributed across cryptocurrency users with the help of the internet. Cryptocurrencies have been gaining a strong ground across the world owing to their capabilities; however, the currencies have equally been despised by BFSI industry experts owing to their restricted regulatory functions. The recent incorporation, as well as recognition of some governments toward cryptocurrencies, has helped the decentralized digital currency to gain more acceptance as well as higher traction.
Even more so, the adoption of Blockchain Technology (the technology responsible for driving cryptocurrency) across some aspects, including but not limited to smart city projects, governmental buildings, aerospace and defense, financial sector, voting, and others have demonstrated the distributed ledger’s capabilities in driving transparency and higher secrecy, which have enabled more opportunities for the understanding the dynamics of cryptocurrencies, leading to higher interest among rising number of users and enterprises across the globe.
Scenario Thus Far
Even though the digital currency is gradually being positioned as the replacement for bank currency notes, cryptocurrency is still far from becoming a legal tender across the globe. The decentralized wallet currency has been witnessing increasing activity/interest across those nations that have demonstrated higher capabilities in monitoring financial transactions, possess a robust financial system, have higher financial stability and consumer-centric governmental regimes. El Salvador is the only country across the globe to have to make cryptocurrency a legal tender, meaning that it could be accepted in exchange for a payment made in the form of debt. The country announced the crypto legalization in September 2021. The question that became evident at that time was, why did a developing country, with no such inclination toward finance showcase their interest in cryptocurrency like Bitcoin.
Bitcoin becomes Legal Tender in El Salvador: Salvadorian President Nayib Bukele indicated that by legalizing Bitcoin, the country could garner a breadth of investments and assist the country in making financial services available to over 70% of its population, who haven’t been able to enjoy such services. The country has also been witnessing one of the highest emigration rates, which became a point of consideration for the President. As a result, he stated that the omission of international fees with the help of Bitcoin could enable a higher remittance to enter the country. The country is holding over 1,800 Bitcoins, which becomes equivalent to more than USD 66 million.
Rise of Central Bank Digital Currency (CBDC): A CBDC happens to be a digital form of Central Bank currency that is made available to the general public. The differentiator for this type of currency is that it cannot be converted into a physical form. Presently, a consumer could go to ATM and convert their electronic ledger into hand-held currencies. Cryptocurrencies have been provided with an alternative that could get centralized as well as monitored in a more comprehensive way, which is CBDC. The major difference between the two is that of authorization; Digital currencies have one, whereas cryptocurrencies don’t. The rising adoption of such digital currencies has provided an opportunity for various government authorities to shift the focus from the decentralized to the centralized side of the equation. The most recent example is that of India launching a statement of Digital Rupee in Budget 2022.
Recent Developments / Announcements in Cryptocurrency
- In February 2022, The United Arab Emirates stated that the country is preparing on issuing federal licenses for the virtual asset service providers by the end of the quarter in its pursuit to garner attraction and investments from the crypto companies. The Securities and Commodities Authority (SCA) stated that they are in the final stage of trials for setting up a prototype enabling Virtual Asset Service Providers (VASPs) to set up their shop across the country. After considering the approach undertaken by the US, UK as well as Singapore, the UAE is anticipated to take a hybrid route. In such a case, the SCA and Central Bank would be responsible for regulatory scenarios and regional financial centers would be provided with a responsibility to determine the day-to-day procedures for licenses. The government has also demonstrated its interest in developing a favorable environment for crypto mining. The government of Dubai, which happens to be one of the seven constituent emirates across the country, stated back in December 2021, that they are anticipating development of a regulated zone for crypto service providers by registering a place in the Dubai World Trade Center. The very next day, Binance announced their interest in signing a cooperation agreement with the trade center.
- In January 2022, Binance, one of the world's largest cryptocurrency exchange in terms of volume, announced their plans on setting up a crypto exchange with the assistance of Thailand's Gulf Energy Development (GULF.BK). Gulf Energy stated in its disclosure to the stock exchange that the agreement with Binance happens to be a response to the accelerating growth of digital asset infrastructure across Thailand. Binance also stated their intentions on establishing crypto exchanges and allied businesses across the country, are aimed at boosting the cryptocurrency environment cross the country.
- In November 2021, Francis Suarez (Mayor of Miami city, Florida, United States) announced via Twitter that the concerned government is planning on providing cryptocurrency funds to its city residents. The funds include the earnings that the city has generated via MiamiCoin, which is a “CityCoin.” Put simply, the return has come from the city that had invested in some of the funds in MiamiCoin, which has earned over USD 21 million in the last three months. As a result, the government decided on becoming the first city across the US to provide a bitcoin yield as a dividend straight out to its residents.
- In October 2021, U.S. Bank announced that the institution is launching cryptocurrency custody services that would now be made available to the Global Fund Services clients. The services have been intended toward the institutional investment managers possessing private funds across the US as well as the Cayman Islands who demonstrated their interest in a safekeeping solution for their Bitcoins. NYDIG (a leading technology as well as financial services company dedicated toward Bitcoin), announced the first crypto sub-custodian across the bank’s network of service providers.
- In July 2021, Cryptocurrency exchanges such as Binance, Coinbase as well as Kraken would be forced to retrieve the details of people transacting in crypto under the new rules that have been proposed by the European Commission. The EU's executive branch has also announced details about the potential change as part of the package including reforms that have been aimed at tackling the financial crime across the European region. The focus of the package is aimed at enhancing the detection capabilities of suspicious transactions, and closing loopholes leveraged by the criminals for laundering illicit revenues with the help of the financial system. The proposed rules are expected to establish cryptocurrency exchanges in collecting customers' information, which may bring about the possibilities of "Know Your Customer" rules that have already been imposed across traditional financial institutions.
Bitcoins, as well as other cryptocurrencies, have been developed via the mining process. Miners leverage considerable computational power for authenticating transactions that have been undertaken across the Bitcoin Blockchain. Once the transactions have been authenticated, the transactions could then be added as blocks onto the Blockchain and the miner gets rewarded with a set number of Bitcoin, which then adds up to the total supply of Bitcoins. The reward after the mining process is the number of Bitcoins that a miner could earn for successful authentication. The process is undertaken every four years, followed by halving the number. So, the first launch of Bitcoin offers the miner 50 Bitcoins. It is followed by first halving, which gets reduced to 25, which gets halved to 12.5 and has been standing at 6.25 as of 2020. The halving provides a push for the cryptocurrencies the following year, which presumably led to all-time high in 2021 and 2017, implying that halving has become a pivotal point of consideration.
The cyclical trend of halving coupled with the growing number of smart city projects incorporating cryptocurrencies and digital currencies for trade and increasing acceptance of cryptocurrencies across the globe, is anticipated to propel the growth of crypto in the coming years. Nevertheless, considering the pace at which new developments are taking place in the cryptocurrency market, what the future may hold for cryptos is anyone’s guess.
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