“We are at a pivotal moment in the evolution of cryptocurrencies“–Paul Ebeling
Fiat money has a centralized issuer who must be trusted to ensure the currency it issues maintains value. Decentralized private cryptocurrencies, like Bitcoin, KNIGHTS and CROWNS, are designed to operate without trust via a combination of cryptography, the blockchain and consensus mechanisms.
Their design also makes them borderless and virtually unbannable.
So, cryptocurrencies give the populations of those affected countries options to preserve wealth and/or make international transfers that never existed before. Indeed, since the Russian insurrection trading volumes between Bitcoin, the Russian rouble and the Ukrainian hryvnia have risen sharply. This is an early indication that what cryptocurrencies offered in theory is being put into practice.
It must be acknowledged that the design features which make cryptocurrencies valuable to the general public in such times also mean they are likely to be used as sanction avoidance tools.
Russia produces goods and services that other countries want, and Russia wants goods and services from other countries.
If any trade barriers remain in place for a considerable length of time workarounds will be found and cryptocurrencies could be utilized. To what extent this undermines economic sanctions is unclear.
What is clear is that workarounds will not be viewed positively by sanctioning governments in the rest of the world.
The Ukrainian government has asked for Russians’ access to crypto exchanges to be blocked. Both the CEOs of Binance and Kraken have rebuffed such calls.
Given the Key motivation for creating Bitcoin was to take back control of money from governments, increasing regulation does not sit comfortably with crypto fans, the reality is very nuanced.
The public acceptability of cryptocurrencies has risen steadily over the past 10yrs. They are no longer the playthings of tech geeks. Over 100-M people are estimated to own Bitcoin alone. Hedge funds and other institutional investors are either already investing or considering investing in them.
These are steps in the right direction, remember the internet was scary at the start but is now ubiquitous. If, as the early indications suggest, cryptocurrencies pass the test they are being put to as a result of the crisis it provides real-world validation of their usefulness. This applies not only to individuals but governments.
Introducing a CBDC on the blockchain would reduce Russia’s reliance on traditional financial infrastructures. Recent events make it more likely they will be widely introduced over the next several years.
A consequence of their introduction is the broader public will naturally become more familiar with the infrastructure of digital currencies. In combination with the other things, this could be the catalyst for mainstream adoption, a necessary condition for them to thrive.
Again, we are at a pivotal moment in the evolution of cryptocurrencies. Stay tuned…
Have a happy, prosperous week, Keep the Faith!