The launch of a new cryptocurrency has become practically a weekly occurrence.
There are now around 1,900 cryptocurrencies in existence, and the overall industry is worth at least $710bn.
The amounts raised in Initial Coin Offerings (ICOs), the crypto equivalent of an IPO, can be eye-watering, often raising in excess of $100m.
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This explosive growth and the sums involved have generated a strong dose of scepticism among many in government and other institutional authorities.
Global leaders have begun to raise a collective eyebrow. Theresa May told the World Economic Forum at Davos, that “we should be looking… very seriously” at criminals exploiting cryptocurrencies, while the US treasury secretary Steve Mnuchin has commented: “my number one focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that theyre not used for illicit activities”.
Governments are wide-eyed to the danger of cryptocurrencies being used and abused by those with bad intentions. Their instinct is to control the beast.
Recently, the Joint Chiefs of Global Tax Enforcement was created, bringing together government agencies from Australia, Canada, the Netherlands, the UK, and the US, in a coordinated international effort to guard against cryptocurrency-related tax crimes and money laundering.
Meanwhile, many individual governments are busily working out how to regulate cryptocurrencies, to guard against scammers hoping to take advantage of an industry which has taken the world by storm.
And so they should. Governments unquestionably have a duty to protect the public. Yet this most weighty of obligations must not be allowed to obscure the opportunities offered by cryptocurrencies.
Nobel-winning economist Joseph Stiglitz could hardly have been more wrong when he said that cryptocurrency “doesnt serve any socially useful function.”
The truth is that there are many in the crypto industry who see its potential to change lives for the better, and who are dedicated to making this a reality. The time has come for governments and authorities to realise that cryptocurrency can be a source of hope, not fear.
A snapshot of recent headlines demonstrates the multitude of exciting possibilities.
The NBA franchise Sacramento Kings recently became the first sports team to use its arena to mine cryptocurrency. The currency generated by the mining machines which have been installed will fund local community projects, making cryptocurrency quite literally an engine for social change.
At the same time, the City of Berkeley in California is mulling a very different kind of ICO: an Initial Community Offering. The City Council is planning to launch its own cryptocurrency, to raise funds for social housing, providing a solution for Berkeleys growing homeless population. The plan has reportedly caught the eye of other cities across the US as an attractive approach to tackling social issues.
There is no reason why cryptocurrencies cannot increasingly provide innovative solutions to genuine societal problems. And its already starting. Sweden, for example is considering a cryptocurrency to help its drive towards a cashless society.
However, governments, local authorities, and other institutions should be more ambitious.
Cryptocurrencies, and the blockchain technology they are based on, can do a whole lot more than just facilitate or collect payment. They can help promote a wide range of projects and initiatives.
Blockchain requires consensus approval in order to permit transactions, removing the need for a middle man such as a registration authority – or, in financial terms, a bank. As a result, cryptocurrencies can act as a network facilitating direct financial interactions between individual users, businesses and institutions. This opens the door to endless possibilities for incentivising positive, civic-minded behaviour.
For example, blockchain-based cryptocurrencies would surely be the ideal medium for governments to encourage voter registration or census participation. Estonias forward-thinking government has already tested a blockchain-based e-voting platform.
And for municipalities looking to develop smart city capabilities, the potential is mouth-watering.
Imagine if Barcelona could offer targeted incentives in its drive to improve air quality – a city-wide, blockchain-based currency could help reward energy-saving measures with discounts on municipal services or special offers at local businesses.
Or what if London, Stockholm, and others could offer rewards, rather than punitive charges, for leaving your car at home? It would surely give a significant boost to these initiatives, enhancing daily city life.
Cryptocurrencies can make a genuine systemic social difference. Officials across the world need to better understand what they offer. If governments can brush aside their scepticism and instead harness the potential of a cryptocurrency industry blossoming before their eyes, they can become partners in making real transformational change.
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