2017 and Beyond The Future of Cryptocurrency and Government Financial Regulations

Governments, banks and other large entities have all been murmuring, talking and hinting what the future of cryptocurrency could be or specifically the block chain. They all agree “blockchain” is good, there is no one against it but there has been a lot of confusion about the internet thinking this is equates to government and corporate backing of decentralized cryptocurrencies. I believe this couldn’t be the truth, in fact there have been lots of issues for companies exchanging cyrptocurrency for cold hard cash being unable to wire etc.

The excuse you hear from the big players are concern over fraud, money laundering, etc.. all of which happens in the current fiat monetary system. The true issue behind all the fuss is simply that these decentralized cryptocurrencies allow unhindered free trade around the world regardless of which country you are citizen of and where you are, no one can sanction you or freeze your assets in cryptocurrency. Further, it is of course a huge threat to the current financial system and governments around the world who depend on third party “reserve” banks to print their money. It’s bad news for their monopoly on finance and business transactions worldwide.

Bitcoin Exchanges in China are being shutdown: https://www.usatoday.com/story/money/2017/09/14/china-orders-bitcoin-exchanges-shut-down-report-says/665209001/
Russia says Bitcoin is illegal: https://www.reuters.com/article/us-russia-bitcoin/russian-authorities-say-bitcoin-illegal-idUSBREA1806620140209
Bitfinex sued Wells Fargo for blocking their wires: https://bravenewcoin.com/news/wells-fargo-sued-for-suspending-bitfinex-wire-transfers/
US SEC says they want to regulate coins: https://themerkle.com/sec-may-be-looking-for-ways-to-regulate-the-cryptocurrency-ico-market/
JP Morgan’s CEO Jamie Dimon calls Bitcoin a fraud: https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-s-ceo-says-he-d-fire-traders-who-bet-on-fraud-bitcoin

The part in China is most significant because the action in China has coincided with drops in value of the major currencies, as well as Chinese users doing a lot of mining and trading in crytocurrency.

When we take some examples above, this is the general consensus among bankers and government worldwide. They all like blockchain and want to make their own currencies that they control and centralize, but they are certainly against the decentralized ones and as new banking, taxation and other government intervention roles out surrounding cryptocurrency it will be very interesting to see where things head.

I personally think the decentralized currency will always exist and it can and will coincide with other mainstream offerings from banks and governments. There will be a place for both just as cash from other countries is traded for other items whether gold, silver or even electronics and oil. Trade will continue but through a different method of settlement and transfer.

One thing is for sure until we see how things break in terms of government regulations and how their own cryptocurrency’s play out, the value of the original decentralized currencies like Bitcoin, Litecoin, Etherum et al will have wild fluctuations as people react to news that threatens these currencies the same way people would read the news about Greece’s debt and haircut on the bonds they sold. In fact many watch the crypto market including the ICO (Initial Coin Offerings) and note they do seem to function as any other traditional market would in terms of news and advancements.

I believe we are seeing a financial revolution, all currency will soon be crypto and physical cash before we know it may all be stop being used.
The only question is how fast does it all happen and how does the difference between centralized banks and decentralized crypto users play out?

Bitcoin’s Hard Fork of BCH Bitcoin Cash a milestone for cryptocurrency

The hard fork occurred on August 1st, 2017 with some nodes of the Bitcoin network implementing the “Segwit update”.  Although a lot of potential chaos could have happened, many in the industry called it correct that the most probable scenario is that the split would occur with the creation of BCH and Bitcoin users would not lose any coins and would be rewarded with an equal amount of BCH.  However, most exchanges and users were advised to backup their wallets and not do any transactions in the meantime.

Beyond this a lot of questions and issues need to be sorted out in the cryptocurrency world for things to stabilize and be universally accepted by businesses and individuals.  The key issues in my mind are “volatility”, “stability”, “security” and “regulation”. Really a serious issue with either of my three cores issues puts people and businesses at big risk although new updates and coins keep coming out with some promising the solution to these various issues.

Volatility

This is in reference to the extremely unpredictable nature of many currencies and Bitcoin is a core example with rapid swings.  Now people have often been warned that “don’t store your coins for the long-term” and this comes from the Bitcoin team itself as no one can be certain of the future of any coin at this moment.

Some have lamented that cash is the same, this is true but with the caveat that cash is backed by a government and central bank (all of who which do not really like cryptocurrency unless it is managed or under their control-more on regulations later).  Cash of course has had its issues whether run on banks, robberies, theft, fraud and other misuses of currency however cash is what most of us know and there is some safety and security in the “right cash” and at least often some predictability.

Take for example a record high of Bitcoin at the time in 2013 of approximately $1300 USD but sometime in 2015 trading was just at $267 USD.  The point here is that at this time cryptocurrency can be very volatile and unpredictable.  It can create chaos in everyday life for both business and individuals.  A risk that many businesses echo is the above scenario what if you accept payment based on USD in a cryptocurrency and the value plummets by 80% or some other high number suddenly?  It creates huge issues to say the least and time should address them but until there are more coins that have some consistency in their valuation without rapid descents there will be some reluctance.

Stability

There have been many instances on both the networks and exchanges for Bitcoin and Etherum where there are a ton of unconfirmed transactions.   I still have trouble understanding this but there are various numbers of “confirmations” before once can be comfortable they really have the currency that has been sent.  What if the network stops working or slows down creating massive fraud or inability to process transactions?

Fortunately there are new coins coming out which are instant that solve this issue but still there are many in the wild, common and highly valued that do not have these features.

There is also of course the concern that massive DDOS attacks could take out the network of a cryptocurrency or effectively shutting it down.

Security

The biggest threat is that there is the assumption that blockchain is secure and irreversible and it is impossible to play around in ways you shouldn’t.  However, this also relies on someone not finding a weakness or exploit against the blockchain, and what is more probable going forward is that an organization with massive computing power ultimately finds this and exploits this in various ways.

There are also other considerations such as people losing their coins to viruses or hackers, this has even happened to exchanges such as Coinbase executives.  One thing for sure is that it is not wise to leave your coins in an exchange if not for the risk that in the recent Bitcoin Fork the exchange refuses to give you the split/new currency.

Regulation

This is the biggest uncharted territory but governments and large financial institutions have made their position clear and my interpretation is that “we love blockchain” but “we hate that it is not under our control yet”.  This will have significant repercussions worldwide on how individuals and businesses deal with cryptocurrency.  Significant regulation and the introduction of state-run/central cryptocurrencies could potentially wipe out or make worthless some coins overnight. On another note it appears to be increasingly difficult to buy or sell out of the cryptocurrency markets with banks making it increasingly difficult for the coin exchanges to operate.

Conclusion

Bitcoin and other cryptocurrencies have made it far beyond the naysayers and through many difficult and unpredictable times.  Ultimately I believe cryptocurrency will continue to evolve and improve but as with any tool there are always going to be some pitfalls and bottlenecks.