First off, shouldn’t the two of us agree upon what cryptocurrency is? Then we start on the same page and make that our starting point.
Cryptocurrency is a digitally manufactured currency started in 2009 by Satoshi Nakamoto. The first on the market was called Bitcoin, but has since been followed by a myriad of others. Including Ethereum, Altcoin and Ripple. It can be traded and sold on the same terms as all other goods, but is not bound by banks, governments or other authorities. They are based on blockchains and thus have a much higher degree of transparency than any other currency.
Having said all that, it is a currency that is more unstable than anything else when it comes to exchange rates. There are many who have earned huge sums on speculation in these currencies and correspondingly many who have lost. The fact is, however, that they have become so valuable that in 2018 a G20 meeting was held for finance ministers and the top brass from national banks of the world’s 20 largest economies. No agreement came to pass on anything other than a calling for regulatory units. The cryptocurrencies and their possible risks had to be monitored closely.
When the Danish National Treasury issues the good Danish kroner, they vouch for their product and has to issue guarantees due to their monopoly. This is not the case with digital currencies and this is one of the main reasons for the sharp fluctuations. When the warning bells chime and speculation about possible dives in the prices are indicated, the speculators run to the keyboards and starts to sell. And the same is true the other way around.
The way it works is that for every transaction in a blockchain network, the transactions must be verified by over half of the rest of the network by storing the information about the transfer. New transactions are sent at certain times to a block consisting of other transactions; hence the name blockchain. A blockchain thus consists of a series of transactions that are witnessed by the majority of the network.
More and more countries are going with the idea of creating its own national cryptocurrency. Even in Denmark, there are companies that have started designing the eKronen. The idea is that they will try to tie it up to the Danish exchange rate to ensure stability. However, the Danish National Treasury has not yet fully bought into the idea. That even despite the many benefits that could come from it. For example, you could automatically lock part of the transactions to pay tax with. And the possibilities for money laundering, undeclared work and the financing of undeclared work could be limited to a much greater extent.
However, there are also some challenges for the national cryptocurrency. The immediate one, of course, is the possibility that people will make much more use of the digital money than having an account in the commercial banks. This means that the Danish National Treasury will be the guarantor of the currency, and if this happens too quickly, it will create a shock in liquidity. In other words, the banks would go bankrupt, one after the other.
The other, probably more unpleasant, problem is the lack of consumer protection, both in terms of lack of compensation and liability for losses. Not to mention the disadvantage of the transparent blockchain system, which provides a direct insight into the consumption and behavior of private citizens. But it is not a green and sustainable currency even though it is digital. The long verification process makes the power consumption energy-intensive and a single transaction emits 416 kg of CO2. This is the same as 500,000 VISA transfers.
More regulations, please
The news of the cryptocurrencies is no longer the hottest topic, but nonetheless, they have come to stay. Yes, the prices have become somewhat more stable than they were just a few years ago and they are being bought and sold on a daily basis. There are even stores that accept them as a means of payment – also here in Denmark. But the big breakthrough still awaits.
This is probably partly due to the lack of regulations. In the FinTech industry, consumer and investor protection are increasingly in demand. But there are indications that once it is in place, the good old banks will be taken over by the innovative and innovative FinTechs. In the meantime, the Danish Financial Supervisory Authority has set up sandboxes where fintech companies can test new financial services and develop best practice.
Is it good enough without?
It is always nice to have multiple choices. At Yourpay, we offer a wide range of services at small prices, but would it be possible if we also offered cryptocurrency trading? We certainly believe so. But so far, there are a lot of really nice alternatives, such as MobilePay, GooglePay, ApplePay and more, if you don’t want to take out your card from your back pocket.