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Are National Cryptocurrencies a Possibility?

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How do you feel about the money in your wallet becoming obsolete, replaced by zeros and ones and floating in the digital ether? It’s a future that might be closer than we think, writes FXTM Communications Manager, Emma Davidson.

Cryptocurrency trading has caught the imagination of the world, Bitcoin and Ethereum has been outperforming almost every other investment class since January, with Bitcoin reaching a 52-week high of $4,522.13 on Thursday 17 August, according to Coin Desk. Currency traders aren’t alone in their penchant for digital money, with Central Banks across the world investigating the applications of blockchain technology.

Interestingly, the small country of Estonia, with a population of a little over 1.3million, is well on the way to making a national cryptocurrency a reality. The EU-member state is known for digital innovation, and it is the metaphorical home of 22,000 e-residents scattered across the globe – start-up owners who jumped at the chance to take up e-residency and register an EU business. The result is, perhaps, one of the best developed legal and digital infrastructures of any country, and it is this innovation which will facilitate the implementation of an Estonian cryptocurrency, or ‘Estcoin.’

How Estonia will begin circulating this new currency is still up for debate, but one suggestion on the table is ICO (initial coin offering), a crowdfunding-type model where buyers invest in cryptocurrency, ‘pocketing’ coins instead of rewards.

Estonia might be leading the charge, but it isn’t the only nation eyeing up a fiat cryptocurrency. If rumours are to be believed, The People’s Bank of China has a digital currency prototype up and running – although it won’t be offering it as an ICO anytime soon, having recently ruled the process illegal. Russia, has also been vocal in its support of cryptocurrency, with the Bank of Russia’s Deputy Chief on record suggesting greater cooperation between Russia and the EU to test blockchain applications and improve trade between the two.

National cryptocurrencies have significant implications for the world economy. Not only will they facilitate international trade, being more readily available than fiat currency, but they will also increase accessibility to banking services for the millions of people around the world who are unable to access traditional facilities. Kenya has been quick to capitalise on this advantage – the next step on from its revolutionary M-PESA programme – with one in three Kenyans thought to own a Bitcoin wallet as of 2016. The problem of the “unbanked” is significant, it is estimated that over 2 billion people are excluded from effectively participating in the economies of their countries. The problem with so many people cut off from capital and services presents a huge missed opportunity for individuals and the international community alike. Interestingly, the countries with the highest percentage of unbanked people, tend to have the fastest-growing economies. Although East Asia is outpacing Africa, many experts predict that their growth rates may increase exponentially as their economy reaches a critical point in its development. Having people outside the circle of banking services will slow everything down. Crypto currencies will go a long way to address this.

The property market could also benefit from the implementation of national cryptocurrencies, especially if central banks were able to implement a device similar to the Bitcoin Contact, which negates the need for third party approvals. A national cryptocurrency with a similar mechanism would make the transfer of large assets – like businesses and property – cheaper and quicker. Blockchain is also a safer payment method; it only provides merchants the value of an authorised payment and not (as is the case with credit cards) access to a card holder’s full line of credit.

Thanks to its increasing popularity, cryptocurrency trading has dominated the headlines this year. We’ve seen investors trade Bitcoin as a safe haven, and – while not guaranteed to continue – the value of both Bitcoin and Ethereum shoot through the roof. It marks an interesting shift in the financial perception of cryptocurrencies, one that might well mark the beginning of the end of currency as we know it.

 

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.


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