This past Thursday, Russia president, Vladimir Putin warned about cryptocurrencies, saying that people should tread carefully about them, describing them as a bad idea for the accumulation of funds and rubbishing claims that Russia is developing its very own national cryptocurrency, Russia can not have its own cryptocurrency by default – just like any other country,” he explained, ”If we talk about the cryptocurrency, it’s something that goes beyond national borders.” President Putin joins an ever-growing pool of cryptocurrency skeptics. In this article, we are going to discuss why these digital currencies are so controversial.
Cryptocurrencies have been thrust into the spotlight in recent times after bitcoin’s value soared to a staggering $20k, thrilling early believers, inducing pain in those that were too late to the show but the rise shocking them both alike. Bitcoin has since depreciated but the conversation about cryptocurrencies is only just beginning amongst economists, technologists. The conversation is a particularly difficult one for financial regulators, who have sufficient reason to worry as these digital currencies could potentially cause a world of trouble for them and the people their regulations set out to protect.
Why governments and financial regulators are worried:
Governments worldwide have exhibited a skeptical and in some cases even aggressive attitude towards cryptocurrencies. Several governments have banned mining and used of cryptocurrencies. This, however, has not stopped the technology in its tracks as they run on blockchain technology, which is virtually indestructible once set up. Blockchain technology and cryptocurrencies are not constrained by any one country’ borders. Hence the banning of digital currencies can only be successful in a collective effort by all governments worldwide. Logic, however, dictates that this is not going to be possible, not any time soon.
In the meantime, regulators are rushing to come up with rules to govern the space. Speaking at the Institute of Certified Investment and Financial Analysts’ (ICIFA) workshop at the Kenya School of Monetary Studies, CBK governor Dr. Njoroge said, “There are risks associated with cryptocurrency particularly on consumer protection, fraud, hacking and loss of data and they are prone to be used as pyramid schemes,” he said, emphasizing on the regulator’s determination to focus on the risks involved with cryptocurrencies above all else. “We are not anti-innovation or anti-crypto currency. We support innovation but are concerned about the impact on financial instability and the inherent risks. CBK is working with central banks all over the world to identify the risks and find ways to mitigate them. The weakest link is where problems in our financial system will start.”
Why financial industry players are worried:
Bitcoin and similar cryptocurrencies (such as Ethereum, et cetera), were created as a result of a lack of trust for the longstanding systems; the creators were thirsty for new more reliable systems that eliminated the need for banks and brokers. Cryptocurrencies, as a result, pose a continuous existential threat for Cryptocurrencies are relatively easy to use; the transfer is fast and there is no need for intermediaries, with the only requirement being a reliable internet connection. Naturally, you see this would worry the bankers and other players in the financial industry.
Why the laymen and enthusiasts are worried
Unlike traditional assets which are backed by real goods or products, ‘cryptoassets’ are backed simply by ideas, speculation, and technology, which don’t possess any intrinsic value, hence they are highly volatile. Their value is the child of massive speculation and a shift in the environment supporting the speculation could quite easily and realistically cost you your entire investment.
The probability of losing your digital fortune to internet hackers is very high. According to blockchain tracking company Chainalysis, more than 3 million bitcoins (almost US$60 billion at the peak valuation of US$20,000 a coin) was lost to hackers. The untraceable nature of the currencies coupled with their ever-increasing value makes for an extremely attractive and lucrative target for hackers. It also is not of much help that most people jumped into purchasing and trading the virtual coins without full comprehension of how it works and how to protect their loot from scam artists and hackers.
Bitcoin is a relatively softer target compared to credit card information theft. CEO of cryptocurrency security company Ledger Wallet says, “Let’s say you manage to steal a Social Security number or banking information – that’s not money, it’s information,” said Eric Larcheveque. “You need to find a broker to sell the data.”
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Before you take out that loan or withdraw your life savings to participate in that hot new ICO, what can you do to try and keep your virtual bounty safe?
– Set up backups for your backup
– Store your currency offline, in an air-gapped computer or flash drive will typically work well
– Be cautious before carrying out any business transactions with unknown persons
