Virtual currencies are very much a global reality
The last couple of years have seen virtual currencies come to the fore front, a decade-plus after the emergence of Second Life and its Linden Dollar. And now virtual currencies are among the hot topics at industry conferences.
Led by bitcoin and all of its (positive and negative) buzz, virtual currencies are a concept with which an increasing amount of people are familiar, and a concept that may soon approach a tipping point in terms of wider use and acceptance.
For those in the financial services market, what does this mean: A new fad, short-term burst of interest, or something a little more concrete and long-lasting? With an increasingly connected world and a generation raised on using the Internet for all manner of things, it would be hard to argue this is going to be another flash in the pan, doomed to exit. Case in point, we are seeing brick and mortar organizations worldwide accepting bitcoin.
In many ways, the advent of the Euro was critical in the development of a virtual currency system. Various sovereign countries and central banks signing up to a currency that could be used for cross-border trading. Virtual currencies are similar in that respect, although they do not even need to worry about crossing a border or meeting the requirements of a central bank. Arguably, all of this is now left by the wayside as the system circumnavigates the traditional issues of cross-border trading.
When you look at the whole process, these currencies are based on some of the basic fundamental principles of a transaction. Does the faith the spenders place in the currency match the perceived value of the vender? You can go back to the early gold exchanges and draw similarities with the values placed on a lump of gold as being more valuable than something else like tin. It is all a matter of faith and we are and will continue to see more consumers (and businesses) putting their faith in these currencies.
With all that in mind, the real debate should be around how far-reaching and how impactful a broader virtual currency system will be. At the moment, the anonymity of the currency exchanges means there is a shadow hanging over the whole process. People are expected to have faith in a currency without a great deal of protection in place. It’s almost a leap of faith. Surely, virtual currencies will sooner or later fall into the cross hairs of the regulators looking to make this exchange more watertight.
The only question is, how? These exchanges do not observe national protocols. How do you regulate bitcoin when, by its very nature, there is no one pulling the strings, no wizard behind the curtain? Is bitcoin beyond regulation? It is a global concept and for regulation to work, it will only be as strong as its weakest link. Without a global bank in place to enforce the rules, it requires each sovereign bank to agree to one single set of policies. That is highly unlikely.
Equally, who is to say each nation wants to regulate virtual currencies. In some countries, where the economic climate is more volatile and more likely prone to crash, a virtual currency system would ease the burden on the domestic currency. No longer would countries rise and fall on the global faith in their currency. Instead, a virtual currency used by all would be the default to provide them with more stability.
It could be a complete paradigm shift in the way economies manage themselves. Interest rates, tax, and domestic fiscal policy; suddenly everything would change.
This is many, many years off, if indeed it ever happens. However, as we look toward 2015, there needs to be an acceptance that virtual currencies are here to stay, and more debate needs to be had around the ability to regulate them, expand where the currencies are accepted, and understand the wider global macro-economic impact these new systems will have on every economy on the planet.
Mark Ranta I am a digital banking professional with enthusiastic interest in bleeding edge services and technology. The digital revolution has just begun. www