|Demand of the question |
Introduction. Write about cryptocurrency.
Body. Various issues of cryptocurrency.
Conclusion. Way forward.
Facebook announced new global digital currency, Libra. Monetary policymakers should be worried, as they may find it much harder to control unemployment and inflation in a Libra world. In the first quarter of 2019, Facebook had 2.38 billion monthly active users. Libra could, therefore, become a dominant global currency—but one run by a corporation, not a central bank.
Cryptocurrency is a user-friendly technology and have a transaction cost of virtually zero.
- Privacy Concerns- The privacy of users’ data is at stake. There is concern regarding privacy of users data in using cryptocurrencies as all the transaction information is stored in distributed ledger (called blockchain), which is publicly visible. Thus Hacker can easily observe how the money flows.
- High Volatility- The price of Bitcoin suddenly rose to almost $20,000 and then dropped to $6,000. Due to such incidents, it is complicated for the investors to trust the ecosystem.
- Cybersecurity Concerns– Cryptocurrencies are prone to cybersecurity breaches and hacks. Various attacks are common, even companies and governments are not full proof to them. For example, the Swiss blockchain company, Trade.io, has recently reported that crypto tokens worth almost $8 million have been stolen from their cold wallet.
- Dark activities – The possibility that the new money will nurture illicit activities and markets like drug selling, weapons etc through darknet is always high using cryptocurrency anonymously. It also increase risk for being in various terrorist activities across the border.
- Monetary control and economic behaviour- It could dramatically change global monetary policymaking. People will exchange their national currencies—dollars, euros, renminbi and rupees—for the new digital coin in order to buy and sell the many products that will be priced in it. This will further impact profit of banks and will put stress on their balance sheet.
- Inflation– Governments and policymakers will have reduced ability to control inflation. Usually, when inflation picks up, central banks take steps to control it through various monetary rates. Cryptocurrency will be out of control of central bank so liquidity control will be an issue. Also the effectiveness of such policies could be vastly diminished if one of the biggest money-creating authorities is a private organization.
Most institutional structures and systems in the world economy—barter, banking, paper money, financial markets and so on—emerged through slow, evolutionary processes. Deliberate attempts to establish entirely new systems have usually given rise to unanticipated challenges. The creation of the euro was one such planned act of economic engineering that had unforeseen consequences. Nations should be vigil.