Unless you have been living under a rock for the last few years, you will know cryptocurrencies are dominating the financial news. Even law firms are taking an avid interest in them, and they are a hot topic for an ambitious law student to show off their commercial awareness with.
But what is cryptocurrency?
Cryptocurrency (such as Bitcoin, Ripple, Ethereum and Litecoin) is a form of digital money which is currently not tied to any centrally regulatory body. Its global influence cannot be ignored and soon a decision must be made as to whether it is to be banned or incorporated.
The biggest advantage of cryptocurrency is that it is utilised on a decentralised system. This means they are exchanged more efficiently and free from institutional influence. There can be no monopoly because no-one is able to control it, no matter how much money or power they have. In addition, money can be transferred within seconds in some cases whereas international bank transfers can take several days to settle.
However, with these advantages also come risks. The efficiency and liquidity of cryptocurrency allows terrorists and drug dealers to fund illegal activity. The fact it is decentralised and unregulated also means it carries high risks, which could be devastating to hopeful investors.
Should cryptocurrencies be a recognised currency?
It is argued these threats can be mitigated through regulation. For example, BitLicence was launched in 2015 in the US to introduce regulation. However, the qualifications for the applications were too strict they became burdensome. Many entrepreneurs were on the verge to launch cryptocurrency companies but couldn’t afford it and claimed the strict regulations were restricting freedom and innovation.
However, given its nature, cryptocurrency will never completely be removed from society, no matter how hard the governments may try to fend it off. It is therefore wiser for the world to embrace it. In the UK, regulation is forecasted in the near future.
We will have to see whether the government is able to find a good balance between consumer protection and encouraging innovation.
Catherine Howell – OULS Reporter