What happens when governments jump into cryptocurrency?

Naturally, with the recent hype around cryptocurrencies and their potential use in financial contracts, governments are wary of what’s going on in the market and how it will affect their role.

However, to get a better idea of ​​how cryptocurrency can relate to government regulation, we first need to understand how cryptocurrency works. If you want to trade cryptocurrencies, it is important that you know the types of cryptocurrencies.

The identity of the wallet owner is recorded on their blockchain as part of the transaction. While bitcoin addresses (public addresses) and private keys may not be linked in a way that makes it possible to trace an individual or party within your transaction, there is historical information that ties them to you.

The section below discusses what governments regulate when they move into cryptocurrency, how this affects their relationships with businesses and their potential uses, and more importantly, the ethical implications of what these transactions can lead to. Y

You will also learn about the ethical guidelines for cryptocurrency contracts set by international professional organizations such as the International Institute for Strategic Studies (IISS) and Global Financial Integrity (GFI).

What governments are getting into cryptocurrency for

Governments are primarily concerned with four things when getting into cryptocurrency

Preventing fraud and abuse, developing infrastructure that supports cryptocurrencies, protecting national security, and monitoring cross-border trade to make it safer

When governments move into cryptocurrency, they do so to help oversee and regulate industries that impact their economies. In other words, they use cryptocurrency as a means to monitor transactions and keep control over those transactions. They also use cryptocurrency to increase transparency between nations and make cross-border trade safer.

Furthermore, they can also use it to facilitate their cryptocurrency usage. For example, some nations may use their government-issued currency as a substitute for cryptocurrencies and in turn boost their domestic economies. These four main goals illustrate why governments are interested in cryptocurrencies and their future potential.

Encourage innovation and create smart contracts

Governments had helped spur innovations in the financial industry outside of cryptocurrencies, such as the beginnings of derivatives trading and other financial instruments used to make markets more efficient. Cryptocurrencies weren’t one of them, but the idea was the same.

Foreign currencies in particular provide liquidity to the markets, making trading more efficient. Cryptocurrencies offer governments another tool for managing transactions in the financial industry, which can help expand and innovate financial solutions.

Monitoring of cross-border trade and its dangers

Governments monitor business developments in other countries to ensure their economies are functioning properly. However, they do not have the tools or information to study all companies closely. Cryptocurrency gives them another way to keep track of money flows between nations.

Luckily for governments, the use of cryptocurrencies is still evolving and thus new enough to be monitored. However, as technology becomes more sophisticated, governments can learn more about doing business across borders.

Implementation of a digital currency system with regulated cryptocurrencies

Governments are expected to work with the private sector to create and implement a digital money system that is more efficient than the current one. Cryptocurrencies provide an opportunity for this new system to gain traction and acceptance. It can replace local currency in transactions, making it accepted by consumers and businesses worldwide. This will give governments far more control over all financial transactions.

Additionally, this new digital currency system can be used to more efficiently manage and track all global trade between nations. The potential for the amount of money exchanged in this digital money system is astounding and could potentially even completely replace national currencies.

The idea is that in order to support a digital money system that could become the sole currency of choice, governments must have tremendous control over their economies using cryptocurrency and the technology that underlies it. Of course, this is just the tip of the iceberg of what governments are investing in cryptocurrencies for. However, it shows their interest in cryptocurrencies and their future potential.

How government regulation affects cryptocurrency deals

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

The most common policy that governments employ is the so-called antitrust policy, which helps eliminate monopolies in markets, prevent monopolistic pricing practices, promote fair competition, and prevent practices that destroy or restrict competition. It also ensures fair trade by prohibiting unfair or deceptive trading practices and abusing a monopoly position.

Cryptocurrency makes it easier for the government to regulate the financial market and keeps it more transparent. For example, companies looking to raise money through ICOs are 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 related to cryptocurrencies and financial markets, which can significantly impact how governments can implement the technology. Cryptocurrency is not just a currency, but a new type of asset that has value. Governments regulate it like any other asset; Essentially, you own tokens, and it’s not as easy to print more money as fiat currencies.

Some countries even have laws regarding digital currencies, where banks have to follow rules regarding 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 cryptocurrencies as legal tender.

Positive government attitude towards cryptocurrencies:

1. Japan is one of the biggest proponents of cryptocurrencies and was a pioneer in the industry. Many Japanese investors were early Bitcoin’s largest holders, and Japanese banks offer some of the cheapest blockchain banking services in the world. This may be due to their relatively better infrastructure, which has made it easier for them to get involved with blockchain technology.

2. The UK has slowly changed its attitude towards cryptocurrencies and blockchain technology, slowly adopting them for commercial purposes like trading financial instruments on crypto exchanges like Toro or trading cryptocurrencies on any asset exchange like Poloniex. They are also considering legalizing Initial Coin Offerings (ICO).

3. Switzerland has long been a proponent of cryptocurrency and was once home to one of the world’s vast crypto valleys. However, in recent years they have taken a more conservative approach to cryptocurrencies, particularly ICOs.

4. The United States is also turning to blockchain technology and digital currencies like Bitcoin and Ethereum. While the US Securities and Exchange Commission (SEC) warned investors about some of the potential risks of cryptocurrencies, such as their volatility and susceptibility to fraud, it has done little to nothing to fully ban cryptocurrencies and ICOs within its borders.

Government article and permission for publication here provided by Jean Nichols. Originally written for Supply Chain Game Changer and published on November 18th, 2022.

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