This week might turn out to be one of the most important points in the development of cryptocurrencies and digital payments.
While the UK launched the “Central Bank Digital Currency Taskforce” to explore the use of a national digital currency, the Turkish government has banned the use of cryptocurrencies for payments entirely. The differing reactions to potential digital payments show just how carefully countries, companies, and — most importantly — individual people need to tread when it comes to investing in digital currencies.
The decisions by the different governments are both revealing of their priorities and positions in the world, but also of the viability of cryptocurrencies going forward.
Turkey Bans Bitcoin
The Turkish Central Bank announced last Friday that it would be banning the use of cryptocurrencies for any transactions within the country.
The short statement read:
“Crypto assets entail significant risks to the relevant parties due to the following reasons:
- they are neither subject to any regulation and supervision mechanisms nor a central regulatory authority,
- their market values can be excessively volatile,
- they may be used in illegal actions due to their anonymous structures,
- wallets can be stolen or used unlawfully without the authorization of their holders, and
- transactions are irrevocable.”
The new regulation introduced by the Turkish government went after payment service providers, rather than individual businesses.
“Payment service providers cannot develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance, and cannot provide any services related to such business models,” read the regulation.
Accordingly, Bitcoin and Ethereum, the two largest cryptocurrencies, fell in value by 4% and 3.9% in value as a result of the announcement — perhaps confirming the country's fears about volatility.
However, Turkey might have some other reasons for banning cryptocurrency use beyond its concerns about longevity.
“The Turkish lira has lost significant value in the last 12 months,” according to Bitcoin.com. “It plunged about 16% in one day on March 2 after former central bank governor Naci Agbal was fired and replaced by Sahap Kavcioglu, the fourth central banker chief in two years.”
In fact, the Lira's slumping value has created more interest in alternative payment methods in Turkey. “Cryptocurrency trading volumes between the beginning of February and March 24 hit 218 billion Lira ($26 billion) with a spike on the weekend of Agbal’s departure.”
However, volatile currencies are rarely the basis for effective and organized states which help protect their populations. While it seems Machiavellian of the Turkish government to ban cryptocurrencies as its central currency slumps, preserving stability is more important.
Britain Tests the Water
Over in London, however, the British government and the semi-independent Bank of England have announced a new taskforce to examine the benefits and pitfalls of issuing a new digital currency that could be used alongside cash.
The Central Bank Digital Currency (CBDC) Taskforce has four main points of interest:
- Coordinate exploration of the objectives, use cases, opportunities and risks of a potential UK CBDC.
- Guide evaluation of the design features a CBDC must display to achieve our goals.
- Support a rigorous, coherent and comprehensive assessment of the overall case for a UK CBDC.
- Monitor international CBDC developments to ensure the UK remains at the forefront of global innovation.
Having a centralized digital currency seems like a more soft-touch way of introducing cryptocurrencies into society. However, the CBDC is likely to be eye-balling a cashless society, rather than building a techno-libertarian utopia of decentralized money and markets.
However, Britain already has a largely cash-free economy — within the major cities at least. A centralized digital alternative would certainly make sense in this context.
There are 10,000 fewer cash machines available in Britain today compared to just three years ago. However, 17% of the British population, more than eight million adults, have said they would struggle to adapt to a cashless society.
Britain needs to mindful of rushing in head-first into a digital-only world.
Crypto and Digital Currencies: What do they mean for you?
If you're a regular consumer, the chance to invest in cryptocurrencies looks pretty inviting. The promise of big gains and profits, stoked by social media, is pretty enticing.
However, the uncertainty around cryptocurrencies is unlikely to see them take off in any major way for quite a while — don't go cashing in your dollars for Dogecoin just yet.
The prospect of centrally backed digital currencies creates big opportunities for businesses. Small companies will almost certainly have to retool and get ready for cashless customs with new point of sale software and hardware solutions.
These changes could have serious ramifications for how our society functions in the future. But, in the meantime, we'd recommend caution before going all-in on digital payments.