Some still consider cryptocurrencies “suspicious” assets, citing the opinion of the Financial Action Task Force on Money Laundering (FATF). But it is impossible not to notice that the FATF shows great concern in connection with cryptocurrencies due to the fact that they interfere with the execution of U.S. sanctions against a number of states. The cryptocurrencies themselves, which work on the blockchain, provide transparency of transactions, the one that SWIFT—an organization that is a supporter of financial purity of banks’ operations in the world—is afraid of. The largest percentage of financial crimes is attributed to the U.S. dollar, given its long history as the main global currency. The blockchain of cryptocurrencies makes such financial crimes less likely. DeCenter figured who the financial future stands with—cryptocurrencies or cash.
The Cash U.S. Dollar Is Suspicious, Not Cryptocurrencies
The scale of cash circulation of U.S. dollars remains high. Billionaire Mike Novogratz cites the following data: “There are as many $100s in circulation as there are $1s. There are forty $100s for every citizen in the U.S.” Novogratz also notes that “cash in circulation is way up since 2008 as a % of GDP. Seems counterintuitive as the world rushes to a cashless society, but cash is growing as a store of value.” Even if we take into account the circulation of U.S. dollars abroad, we are talking about the presence of a shadow economy in the United States, and cash preference remains, even though, as The Block CEO Mike Dudas notes, “Not a good strategy as interest rates rise.” Tim Draper, an investor and crypto billionaire, believes that in five years, cash will no longer be in demand in human society, as it will be associated with some shoddy financial transactions, but this will be due to the fact that cryptocurrencies will take their place.
Japan and the United States: Plans to Reduce the Share of Cash in Circulation
Meanwhile, cash remains the backbone of Japan’s financial system, as 80% of all transactions in the Land of the Rising Sun are made using cash yen. Even large financial corporations of the country, such as Mizuho Bank, which, together with the 60 banks of the country, are launching the J-coin stablecoin on March 1, have joined the reduction of this share. The goal is, as noted by Mizuho Bank, “to help the government achieve a reduction in the proportion of cash payments to 60% by 2025.” A pilot project in this regard could be the launch of JPM Coin by J.P. Morgan in the United States, although, at the first stage, the credit organization does not plan to expand the use of new stablecoins, primarily due to the stalemate that has arisen with the regulation of the crypto market in this country. But J.P. Morgan chief executive Jamie Dimon hopes for wider use of the stablecoin in the future.
Cash is still popular, even in the USA, and many M&A transactions also include a partial payment condition in this way, since this is due to a considerable distrust of the existing banking system. In addition, cash and cryptocurrencies are related to the fact that transactions with them can be carried out without the participation of any financial intermediaries.
Banks Are Bad, but Centralized Crypto Exchanges Are Even Worse
Does this mean that we can say goodbye to cash? The question is, what do people get as an alternative? For example, depositing money in a bank has seven direct and indirect costs, which Jason Williams, the main founder of the Morgan Creek Capital cryptocurrency company, wrote about. But banks in their current form have advantages even over crypto exchanges, as this was shown by a survey that analyst Ran Neu-Ner led among the representatives of the cryptocurrency public. 68% of 9,734 respondents prefer to keep money in a bank, rather than in the form of cryptocurrencies on crypto exchanges. Of course, this once again shows that the instinct of people who intuitively prefer decentralized financial decisions cannot be deceived. And modern crypto exchanges already understand this, starting to open decentralized platforms.
GDPR and Blockchain Peculiarities
Meanwhile, only truly decentralized cryptocurrencies can become an alternative to the present fiat if we talk about the preferences of society. Stablecoins that run at the level of countries as a whole, as well as individual corporations, tend to be more centralized. The temptation to use blockchain’s openness for one purpose or another is very high. Moreover, transparency is maximal, as researcher Stellan Koch points out in his work Responsibility in the field of personal information on public blockchains: How compatible is the technology with the General Data Protection Regulation (GDPR)? “There is a problem of information deletion which exists in such a distributed ledger.”
The analyst believes that “the ability to delete information, which, for example, is protected by intellectual property rights, exists only if we install ‘filters’ when entering data, which is hard to do without restricting the functionality of the blockchain. Otherwise, we are dealing with the inability to follow the requirements of the GDPR.” This question, of course, requires attention; however, as was recently discussed, the phenomenon of cryptocurrencies itself does not have to be tied to the blockchain, or at least to the blockchain in its current form.
China without a Blockchain Has Placed People’s Lives under Control, but What about Blockchain?
But is a private or state blockchain automatically more efficient and relevant in this case? Corporations now collect much more data about their customers than government agencies often do, and this, alas, is a common practice. The rating system of “proper behavior” of Chinese citizens by banks led to the fact that corporations of the non-banking sector of China have actively joined in the process of accumulating virtually any information “about a step to the left, or a step to the right.” As a result, due to the slightest “inappropriate” behavior, from the point of view of the operators of these corporate-centralized structures, a person loses not only access to a loan but may also miss the opportunity to open an account in a bank forever, as well as de facto, go abroad, since they may be denied the purchase of a plane or train ticket. And this is happening even before China entirely switched to the blockchain. The appearance of their own blockchain platforms in the hands of corporations only reinforces this trend, given the transparency of operations through such decisions. It is obvious that society needs a decentralized system of human credit ratings.
Cryptocurrency Information Trading
The collection of information about a person by corporations has become too widespread, and there is a tendency, as companies are actively uniting in using the obtained data. For example, The Wall Street Journal reported that the Facebook social network received information from mobile applications that measured people’s pulse rates for several years, as well as a number of other health parameters. And this practice, alas, is migrating to centralized projects that are working on the crypto market.
Thus, the U.S. centralized crypto exchange Coinbase acquired a company whose staff includes employees from an organization known for collecting various information about Internet users. As Andreas Antonopoulos emphasized, “Coinbase’s new acquisition is not just a surveillance company. It’s much worse than that.” The situation does not look good if users are proposed to sell information about themselves for cryptocurrencies, as mobile phone manufacturers are starting to offer this more broadly after barely taking the first step in the crypto sector. The BitMEX crypto exchange is now ready to trade user data.
Blockchain at the State Level
The use of blockchain and cryptocurrencies at the state level also raises questions. For example, in Latvia, the authorities plan to collect information on any purchases made by citizens soon using blockchains. To “force out” the entire economy in this direction, the government intends to take a number of steps, one of which will be to lower the cash purchase threshold from the current 7,200 to 3,000 euros. Australia has also started working on the application of such a project. Meanwhile, such steps, if they are made carelessly, can only lead to the withdrawal of fiat cash into decentralized cryptocurrencies, as is being done in Venezuela and Argentina, where local currencies (in any form, cash or non-cash) are losing demand from the public.
In a democratic society, any use of the blockchain at the state level should be based on the search for consensus on the forms and methods, as well as the boundaries of the collection and use of information that will be processed and stored in this way. At the same time, some analysts believe that decentralized cryptocurrencies will still force out fiat. For example, researcher Alex Kruger is convinced that Bitcoin will replace the euro, and no tokenization will save it. Decentralized cryptocurrencies ensure the safety of personal data more effectively than cash since the latter will soon disappear anyway due to digitalization.