According to a speech by the governor of the Bank of Spain, the global move to cryptocurrency requires regulation that can encourage innovation and bring the risks under control at the same time. According to Linde, despite blockchain technology having interesting possibilitie,s the technology is yet to mature and the accompanying risks such as cyber-attacks need measures to protect and process customer data and assets.
More Risks Than Benefits
Linde believes that digital currency provides more risks than benefits. In his own words, cryptocurrencies are “spurious novelties that do not provide significant improvements and should be tackled as soon as possible.” Some of the features that make virtual currencies such risky ventures according to him include:
- Cryptocurrencies have low acceptance rates as a means of payment. For instance, most Bitcoin owners are reluctant to use cryptocurrencies given their rate of appreciation. This has made some digital coins such as Bitcoin become more of an asset than a currency. The reluctance by retailers to accept the digital coins as a means of payment might also be due to the scaling challenges making transactions more costly for retailers.
- Digital currencies also suffer from extreme volatility. Virtual currency is still a new market that is still developing, and investors should continue to expect volatility and significance market swings.
- Last but not least digital currencies have been used to perform illicit and fraudulent activities in the past. This has led some countries to ban cryptocurrency exchange while others have come up with regulatory measures to regulate the market.
In Spain, Bitcoin is not a legal currency although it is considered to be digital goods. Transactions are governed by barter rules provided in Spain’s civil code. Despite this, the Spanish government might be considering coming up with a blockchain-friendly legislation that might include tax breaks for firms dealing in blockchain technology. This is after MP Teodoro Garcia came up with a comprehensive cryptocurrency-related bill that hopes to set up a safer framework in the country for investors who want to invest in ICOs and other blockchain technology-related investments.
The sentiments by the governor of the Bank of Spain come at a time when blockchain technology, which is the backbone of digital currency, is increasingly being seen as a blessing.
Some of the associated benefits include that it reduces the cost and complexity of financial transactions. Additionally, the use of digital currency improves transparency. Furthermore, cryptocurrency is not affected by exchange rates, transaction charges or interest rates. Transactions take time regardless of the sender or receiver location. These benefits are not only evident in the financial services but also in other areas including government, law, healthcare, technology, education, and more.
However, despite the popularity and the positive performance of virtual currencies, they are not without risks; as has been pointed out by Linde.