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Digital currency enthusiasts have long held that someday, digital currency would replace traditional currency. That would mean most of local population (or world population) using a decentralized currency or currencies in place of fiat currencies like dollars, pounds, or Euro.
That reality would demand that at least one major world power adopt a specific digital currency or multiple digital currencies as its main form of currency, undergoing a transition process that would take years to decades. But how close are we to beginning that transition? And which nation will be the first to make a move?
EARLY IMPLEMENTER
The race to be the first nation to adopt a digital currency is over. As the Marshall Islands have created their own digital currency as a form of national legal tender. Though the country only has a population of 60,000, it has gathered a lot of attention.
In some ways, the Marshall Islands were beaten to the core by Venezuela, which launched the Petro, a virtual currency backed by oil reserves. But what’s different in this case is that the Marshall Islands are legally recognizing its currency (Sovereign, or SOV) as legal tender. However, the SOV is a bit different than Bitcoin, Litecoin, SmartCash, and other currencies because it requires its users to identify themselves. It remains to be seen how this adoption will play out since it’s so new, but for digital currency enthusiasts, it is certainly promising.
MAIN CHALLENGES IN ADOPTING DIGITAL CURRENCY
So why aren’t more nations working to adopt digital currencies as a nationwide standard?These are the main challenges:
1. CONSUMER PREPARATION
If your population doesn’t know what digital currency is or doesn’t know how to use it, there’s no point in making the transition. Today, digital currency (or crypto) isn’t exactly user-friendly; the average tech-savvy individual can learn the basics of digital currency in a few hours and may be able to put a wallet together with minimal time or effort, but major countries must think about millions of people, many of whom aren’t tech-savvy. Public opinion also matters. If the population fears digital currency, or doesn’t understand it, they’re not going to support a transition, and may actively resist one, slowing the process dramatically. The best way to overcome this hurdle is with acceptance, awareness, and time; already, businesses in the United States are moving to accept digital currency as a form of payment, and consumers are becoming more familiar with the advantages of this digital tender.
2. REGULATION AND OVERSIGHT
Countries are also concerned about adopting digital currency because of the lack of regulation that comes with it. Most modern digital currencies were created by individuals or groups, with set rules for how they can be mined and exchanged. Many users have flocked to these currencies because of this decentralization, but it isn’t a solely “good” thing, especially in the eyes of most governments.
In the United States, the currency’s value and economy’s momentum are linked strongly to the actions of the Federal Reserve Bank. The government has strict control over how currency is used, how it’s circulated, and how available it is to financial institutions. Opening the door to digital currency would mean sacrificing at least some control, or else creating a digital currency with a whole new set of rules and regulations. Neither option is appealing to proponents of the current system.
3. VOLATILITY AND STABILITY
The strength of the world economy depends largely on the stability of our national currencies. Despite minor, daily fluctuations in value, the US dollar, the Euro, and other forms of currency throughout the world are relatively stable, allowing people to price goods and services consistently, and preventing economic disasters like hyperinflation. In their relatively short life, digital currencies have been extremely volatile, with Bitcoin growing from almost nothing to $20,000, then shrinking back down to $6,000 in less than a year. This volatility will likely fade as currencies become more publicly accepted and traded with a higher market cap, but it’s difficult to say exactly when these stabilizing factors will come into play. No nation wants to take the gamble on a digital currency that could fluctuate wildly after being introduced. Nevertheless, one key aspect of most digital currencies is that the government can’t just print more of the currency, thus preventing hyperinflation as well.
4. SCALABILITY AND LONGEVITY
Blockchain is an remarkable technology, but it’s not without its downsides. One of the biggest problems is scalability; the blockchain works perfectly well when handling a few hundred to a few thousand transactions, but when a system demands millions of transactions, its capabilities begin to break down. The more users you add to a system, the more time it takes to put a transaction in the block, and the longer it takes to reach a true consensus for each transaction. There are proposed solutions for the scalability problem, including sharing or increasing the size of each block, but they’re not proven enough to launch the use of digital currencies at a scale that would allow 300 million people to use it freely in place of traditional currency. In the same manner, we have to worry about the longevity of any digital currency. It doesn’t make much sense to introduce a blockchain-based currency if an even better technology emerges in the next few years; we don’t want to keep replacing our digital currencies with newer versions every time there’s a potential upgrade.
5. PRIVACY AND TRACEABILITY
Finally, there’s the problem of privacy and traceability. Digital currency has been praised by enthusiasts because of its ‘pseudonymity’; and with some coins, if implemented correctly, no one can track what you’re buying or selling. For governments, this can be a problem. Not being able to track things like citizens’ income and purchases could lead to fraud and tax evasion, among other crimes. A solution here is issuing your own digital currency, which can be better tracked, like the Marshall Islands did for instance, though this might not be pleasing to the wider digital currency community.
WHERE MAJOR WORLD POWERS STAND TODAY
Challenges notwithstanding, which major powers have made progress toward adopting a digital currency or adopting one of their own? Some world powers are global advocates of digital currencies. They have formally recognized Bitcoin and/or other digital currencies (cryptocurrencies) as legitimate means of exchange, and in some cases, legally recognized investments. Countries in this category include the United States, Canada, Australia, England, Spain, Sweden, Finland, and Norway. There’s also one of the most crypto-friendly nations in the world, Japan, which has passed a law that accepts Bitcoin as legal tender.
There are also countries that haven’t explicitly taken much action on digital currency but seem friendly in general and/or are working to make it easier to use the currency. Countries in this category include Russia, South Africa, France, Italy, and Poland. They’re a few years behind the most advanced powers, but could catch up given the right circumstances, or if they see crypto breakthroughs at a different pace than other countries.
Then there are countries that have either completely removed themselves from the debate or have outright forbidden the use of digital currency. These countries include Iceland, China, and India. It’s unlikely that any country in this category would progress rapidly enough to be the first major world power to offer a digital currency.
Thanks to the challenges in place, it’s still going to be several years, if not a few decades, before we see the first major world power launch its own digital currency. But there are countries that look poised to embrace the transition once it becomes feasible. Small countries may follow in the footsteps of the Marshall Islands or Venezuela in the meantime, but chances are a progressive, tech absorbed country like Japan will be the first to make a move on the world stage. As long as the public remains actively interested in digital currency as a viable alternative for the future, we’ll continue to make progress.
Tags: Blockchain Technology
