By Roshan Aslam
As Bitcoin adoption has grown, it has become impossible for central banks and governments across the globe to ignore it. In its short history of 14 years, Bitcoin has grown from being a niche asset by technology enthusiasts to a transformative financial force. While opinions on its place in the global financial system vary, it is undeniable that Bitcoin’s potential to reshape traditional financial paradigms has become a topic of intense discussion.
We have seen that with India at the helm of G20, regulation of Bitcoin & crypto assets have been one of the priorities this year and the rest of the world is closely watching to see how this could possibly shape the future of global crypto regulation. Elsewhere, the US Securities and Exchange Commission (SEC) has been leading the charge for more regulatory oversight of crypto products and platforms.
Governments and central banks have traditionally exhibited skepticism towards Bitcoin due to various reasons. Chief among them is its decentralized nature, which challenges the conventional control mechanisms that these institutions exert over traditional currencies. The absence of a central authority and the anonymity associated with Bitcoin transactions raise concerns for central banks about potential misuse, such as facilitating illicit activities and money laundering.
Another concern stems from Bitcoin’s price volatility. While the volatility of Bitcoin has been on a downward trend, as more people consider it a store of value and a long-term asset, it is hard to deny that it is much more volatile than other assets. The fluctuations in its value have fueled apprehensions in governments around its stability and reliability. Additionally, the prevalence of fraudulent schemes and hacking incidents in the crypto ecosystem has further heightened regulators’ reservations in recent years.
Despite these concerns, Bitcoin presents a revolutionary framework for transparency and security in the global financial system. While the process has been slow, retail investors and institutions are slowly waking up to the positive aspects of Bitcoin and exploring ways to harness its benefits.
What many fail to see is that Bitcoin could also work in tandem with traditional financial institutions rather than as a replacement. I believe that the evolution of the financial system doesn’t necessarily have to mean the outright replacement of traditional finance. Instead, we could also have the coexistence of Bitcoin with traditional financial institutions to create a synergistic ecosystem that leverages the strengths of both worlds. Bitcoin’s borderless nature, for instance, enables efficient cross-border transactions that could significantly reduce the cost and time associated with remittances.
Unfortunately, the recent trend has seen governments and central banks experimenting with central bank digital currencies (CBDCs) or private blockchains instead of Bitcoin. While incorporating blockchain technology will definitely enhance the efficiency, security, and accessibility of financial transactions, CBDCs could end up being just a replacement to the fiat currencies instead of exploring the transformative potential of Bitcoin.
In a world where traditional fiat currencies can lose value due to unchecked inflation, Bitcoin’s fixed supply of 21 million coins offers a form of digital scarcity that can act as a safeguard for individuals and even governments against economic uncertainties.
Meanwhile, on the other side of the world, El Salvador’s ongoing Bitcoin experiment is undoubtedly a fascinating case study in the governmental adoption of Bitcoin.The country kicked off their bet with Bitcoin by embracing Bitcoin as legal tender, a bold move that aims to foster financial inclusion and economic empowerment for its citizens. In fact, what was largely perceived as a gamble seems to be paying off as the country has managed to stabilize its economy and pay back its debt.
El Salvador now seems to be focused on building an economy around Bitcoin with proposals like a low-tax Bitcoin city, Bitcoin-backed ‘volcano’ bonds, the first-ever national mining pool as well as elimination of taxes on technological innovations.
El Salvador’s actions have garnered global attention and sparked discussions about the possibilities for other countries to adopt similar strategies. It showcases how Bitcoin, when integrated thoughtfully and responsibly, can lead to real-world benefits, such as fostering a more inclusive financial ecosystem.
As governments and central banks grapple with the evolving landscape of Bitcoin and other crypto assets, it’s evident that there has been a tangible shift on their viewpoints from outright skepticism to cautious optimism.With continued research, open dialogue, and responsible regulation, Bitcoin could very well find its place alongside traditional financial institutions, contributing to a more robust and equitable global financial system. As Bitcoin’s journey continues, one thing remains clear: the story of Bitcoin and its role in the world of finance is far from over. In fact, it looks to me like it’s just getting started.
The author is co-founder, CEO, GoSats
https://www.financialexpress.com/business/blockchain-role-of-bitcoin-in-the-global-financial-system-3209171/
