We’ve looked at the positives and negatives of a cashless society; today we look at an alternative to the bank-approved solutions that have been recommended around the world by institutions like the UN.

Can Cryptocurrencies Offer a Corruption-Free Cashless Alternative?  

Our previous report of cashless societies focused solely on well-established forms of currency that are becoming digital-first products, but cryptocurrencies are, by definition, digital. Do cryptocurrencies have an inherent advantage over their aged counterparts?

Let’s begin by looking at the benefits of cryptocurrencies (we’ll be using Bitcoin as our main example). They’re decentralised, which means no government or central bank can manipulate the currency. Each user is free to send and receive cryptocurrencies to and from anyone with a digital wallet. They’re part of a system called the blockchain, which makes direct fraudulent activity almost impossible (every transaction is recorded on a public ledger that every computer on the system has access to – changing any details on the ledger would require changing those details on every computer). Purchases, like with cash, are anonymous when one uses a cryptocurrency, like Bitcoin, meaning consumer details can’t be sold for marketing purposes. It’s a truly global currency that could severely reduce inequality. The fees for cryptocurrency transactions are significantly lower than the cashless payments we mentioned in part two.   

But what of the negative aspects of cryptocurrencies? Unlike regular currencies, cryptocurrencies are volatile and are forming something of a bubble – your Bitcoin might go up in value by a significant percentage one day, and fall just as much the next, which is not a great basis for any country’s economy. The anonymity built into crypto-transactions (that protects users from the marketing we mentioned earlier) makes tracing illegal financing that much more difficult. Cryptocurrencies avoid the regulations of standard currencies and are controlled exclusively by market forces. The time-value of cryptocurrencies is too unpredictable to invest large amounts; unless Bitcoin stabilises, it will be unsuitable for funding a new business, for example.    

What If… The Bank of England Made a Cryptocurrency?

Another aspect that may shed light on the topic is how our regular banking system works and how a cryptocurrency, whether issued by a government or decentralised, would affect that system. Currently, the only access ordinary consumers have to the money of our country’s central bank (the Bank of England for Brits) is through cash; once we put that money in a bank, it becomes commercial bank money. Sure, high street banks give you access to cash when you want (remember this is dependent on access to local banks and ATMs), but it’s in the interest of commercial banks to encourage deposits, so they can create loans. If the Bank of England were to create a digital currency, commercial banks might not be needed; this would have a significant impact on the economy, with commercial loans potentially ending, and a considerable amount of money would be wiped from the economy. On the other hand, if the Bank of England employed commercial banks as a middleman for holding consumer and business money, we would be in much the same position we are now, where commercial banks have huge impacts on the economy (see 2008’s financial crisis). 

What About Cryptocurrencies in the Developing World?

In part one we explained how the biggest winners of a cashless society appear to be those from developing countries. It turns out that citizens of the aforementioned countries might also stand to gain the most from a cashless cryptocurrency economy. In places where political corruption, crime and inflation are the norm, decentralised currencies can offer hope that money finds its way into the pockets of those across the earning spectrum. 

One benefit that would have a positive impact from day one would be a significant reduction in remittance costs that immigrants incur when sending money to family in their home countries. As reported by the Mission Daily, “the recorded remittance to developing countries in 2016 was about $441 billion… global remittance fee for Sub-Saharan was an average of $20 per $200”. Blockchain technologies and cryptocurrencies offer citizens and former citizens a way to make sure most if not all of their money goes where they intended.   

Our next point comes directly from “Cashless Future Part One”, but it’s worth repeating. Cryptocurrencies would offer those without access to a physical bank the ability to save, invest and pay for the things they need. All that’s required is a mobile phone; although, as previously mentioned, currency stability is required before this becomes a truly viable option. 

Lastly, corruption (a significant problem in developing countries), while not unavoidable, would be much more difficult in a country that pays government employees and government contracts using a cryptocurrency. Although anonymous, all payments would be visible via the public ledger, making tracking a matter of matching government transactions with the information on the ledger. 

Cryptocurrencies in their current form would be unsuitable as a currency for a country; however, the technology is extremely new (cash has had a few millennia head-start), and there are already elements within cryptocurrencies that would benefit citizens from around the globe. Is it merely a matter of time before a cryptocurrency becomes refined enough to be a viable alternative to the various currencies around the world? Tell us your thoughts below in the comments.  

Are you fascinated by the blockchain and its potential effects on business? As part of our undergraduate courses in business, students can choose a research topic like cryptocurrencies or blockchain technology. Contact UKCBC today if you want to combine your passion with academic success. 

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