The European Parliament’s Committee on Economic and Monetary Affairs just published a thirty-three-page document exposing the current state of virtual currencies (VCs) with caution and certainty.
VCs are here to stay.
Characteristics and Features of VCs
Even though VC is not connected to any underlying commodity or sovereign currency, it is not entirely different from most contemporary sovereign currencies. It was also said that VCs’ value or reputation arises because of its power to be passed around electronically and is basically dependent on the honesty of a person, given that it is not yet accepted as a means of payment by a lot of people.
In December 2017, Bitcoin‘s exchange rate stumbled down by 64.7% over less than 2 months, which gave people the idea that it is like an “asset bubble.” Nonetheless, in April 2018, it persisted to be the most popular VC with approximately 17 million units in circulation and market capitalization of over US$ 140 billion.
Ethereum encourages decentralized mining by individuals using their computers. Ethereum’s block time is also quicker than in Bitcoin, which is 14-15 seconds opposed to 10 minutes, that it enables faster transaction times.
As of April 2018, Ripple ‘XRP’ is the third-largest market capitalization. It is different from Bitcoin in many aspects given that Ripple does not use Blockchain technology. A unique distributed consensus mechanism through a network of servers is utilized to validate transactions.
Ripple’s average transaction cost is nearly 10,000 times lower than in the case of Bitcoin, the limit of transactions per second is 150 times higher, and the transaction time is just around 3-4 seconds; and Ripple also uses a minor amount of electricity as opposed to Bitcoin.
Laws And Regulations
In regards to the regulations, it varies differently from country to country and there is no apparent bearing.
Policymakers and regulators should not disregard VCs capabilities, nor should they try to ban them. Those who see VCs as “the inventions of ‘quacks and cranks’ (Skidelsky, 2018), a new incarnation of monetary utopia or mania (Shiller, 2018), fraud, or simply as a convenient instrument for money laundering,” are making a huge mistake.
It is essential to analyze the potential of VCs and its positive effects to replace sovereign currencies issued by central banks.
As said in the document:
“One cannot rule out that future progress in the area of information technologies can bring even more transparent, safe, and easier to use variants of VCs. This might increase the chances for VCs to effectively compete with sovereign currencies, including the major ones.”