As the popularity of cryptocurrencies grows, the debate over whether regulation is necessary is inevitable. The debate is complicated by the high risks and rewards associated with the new form of currency. In this article, we look at Blockchain technology, regulation of cryptocurrrecies, and the energy consumption required to maintain digital currency exchanges. We also explore how to protect brands in the cryptocurrency space. Listed below are some suggestions:
Blockchain technology
Blockchain technology is poised to revolutionize the way financial institutions work. Traditional databases are prone to errors and can allow for double-spending. Using blockchain, every asset is tracked on a shared ledger. Unlike traditional databases, a blockchain transaction can be verified immediately between two parties, eliminating the need for a third party. Its use is not limited to digital assets; it is also being used to process transactions in fiat currencies.
One of the latest applications of blockchain is the incentivizing of activities that support the UN’s Sustainable Development Goals. These impact tokens are embedded into smart contracts that reward certain activities. These activities may include everything from buying a used car to sending money to an elderly person. The use of these new technologies is expected to increase as time goes on. And as these technologies continue to improve, more mainstream adoption is likely to follow.
While many people are talking about cross-border payments, the future of this technology will be far more broad. For example, blockchain may provide an alternative to money remittances. Typical money remittance costs can run as high as 20% of the total amount, so a more affordable and reliable system could dramatically lower these costs. However, there are a number of hurdles that must be overcome before blockchain technology can truly take hold. For example, the regulation of cryptocurrencies in different countries as well as security concerns are just two of the hurdles that may stand in the way of the future of money.
Another application of blockchain technology is the recording and process of ownership of assets. Although most people have heard of it for digital assets, blockchain can also be used for real-world assets. In a real estate transaction, for instance, the two parties would verify ownership and money before deciding to purchase a property. The transaction would be recorded on a blockchain instead of local government records. This technology would be very valuable in the food industry and could help prevent the production of contaminated or mislabeled food.
Other uses for blockchain include voting. In addition to facilitating the movement of assets and information, blockchain allows for the recording of encrypted digital data for every transaction. This permanent ledger is open and decentralized and stores transaction details in digital “blocks.” Each block is permanently time-stamped and linked to the previous one. Changing one node would automatically update all others. In this way, blockchain has a potential to revolutionize the way elections are conducted.
Healthcare uses of blockchain technology include healthcare insurance. The use of blockchain can speed up medical records and improve the speed of diagnosis. By reducing human intervention, blockchain could help reduce costs and redundancies. It could also be used to monitor and manage the supply chain, fight counterfeit medicines, and lower health insurance premiums. In fact, blockchain-powered health insurance systems are expected to generate over USD 231.0 million in the next six years, and is expected to grow at a compound annual rate of 63% over the next six years.
Regulation of cryptocurrencies
The cryptocurrency market has been growing at an unprecedented rate in the global financial markets. This explosive growth has created both legitimate investment opportunities and illicit activity. Yet, US tax guidance on cryptocurrency has been limited to a 2014 IRS Notice, which essentially treats cryptocurrency as “property.” Lack of regulations has hampered well-intentioned crypto users, who are struggling to comply with current laws. As the world becomes more reliant on digital assets, financial and tax regulators will find it more difficult to catch up.
The ASIC has stated that it will regulate token sales as financial products from 5 October 2021. While this is not directly applicable to cryptocurrency, it will affect how the industry markets cryptocurrencies and tokens. Under the Act, financial products must be “targeted” at the right category of investors. While it may seem like the regulations will only apply to financial products that are currently regulated, it will affect the marketing and distribution of cryptocurrencies and tokens.
Other countries have taken steps toward regulating the digital asset. The Philippines has enacted legislation to regulate cryptocurrency. The EU 5AMLD and 6AMLD are expected to enact more laws regarding cryptocurrency. Countries in Latin America have varying regulations on cryptocurrencies. Bolivia and Ecuador have banned all but the government-issued SDE token. Meanwhile, Mexico, Argentina, Brazil, and Venezuela accept cryptocurrencies as payment. These laws will not be finalized for years, but they are a step in the right direction.
While the US Treasury has stressed the need for regulation of cryptocurrencies, it has not yet fully addressed the challenges associated with their use. The United States’ Department of Treasury has established the Congressional Blockchain Caucus to examine the issue. It has proposed a new cryptocurrency regulation that would require wallets and exchanges to collect data. It’s expected to become law by fall 2022. The proposed regulation would require wallet owners to identify themselves when sending more than three thousand dollars through a single transaction.
Malta has legalized cryptocurrency exchanges and has adopted landmark legislation in 2018. The act established a precedent globally and included new regulation on cryptocurrencies and addressed AML/CFT concerns. The new legislation also applies to ICOs and brokers, advisers, and asset managers. The new legislation does not address the use of cryptocurrency as a legal tender. In the meantime, Malta is one of the most progressive jurisdictions when it comes to regulating the digital currency.
Other countries have been less aggressive with regulations. While the United States has adopted strict regulations, other countries are also making strides to regulate cryptocurrencies. For example, Qatar’s Central Bank has banned the use of cryptocurrency by banks. In the same way, the Financial Authority of Singapore is developing a new regulation of cryptocurrencies in the country. In addition to the US, other countries are considering legislation to restrict their use. This is not an exhaustive list, but it does provide some insight.
Energy required to run cryptocurrencies
The world’s largest cryptocurrency, Bitcoin, uses 150 terawatt-hours of electricity per year – the same amount of power consumed by Argentina! This process releases 65 megatons of carbon dioxide into the atmosphere, the same amount as that of Greece! This massive increase in energy demand has led to a reorientation in the debate over the energy required to run cryptocurrencies towards environmental sustainability solutions. As the crypto industry continues to grow, mining companies are building larger and more expensive facilities to capture the crypto gold rush.
The majority of the crypto-energy debate comes from a privileged perspective. The wealthy, developed and free societies of the West account for less than 20% of the world’s population. The current world population is 7.9 billion people, with only 1.4 billion able to enjoy basic freedoms such as private property and freedom of expression. The same cannot be said for people living in developing nations. It is not clear whether cryptocurrencies will be able to scale globally as quickly as traditional currencies.
While all industries consume energy, cryptocurrency mining is disproportionately high in terms of electricity use. According to the Bitcoin Electricity Consumption Index, the energy needed to run a single Bitcoin mining machine consumes more energy than the entire country of the Netherlands, a country of 17 million people. However, energy use is subject to subjective standards, especially in a fledgling industry. Furthermore, the value of one bitcoin could cost up to $50,000, or even $41,300.
Mining for cryptocurrencies has many environmental consequences. The energy needed for mining a single bitcoin is equivalent to 0.6% of global electricity. This is comparable to the amount of electricity consumed by Norway or Austria! The cryptocurrency industry consumes a significant amount of energy and is not yet in a position to reduce its energy consumption. The energy required for mining cryptocurrencies is expected to continue increasing in the future, as competition for energy continues to grow.
This debate ignores the social benefits of cryptocurrencies and the energy it requires to sustain them. It is not only a form of wealth creation, but a source of economic freedom for poor and developing nations. The Bitcoin Ecosystem consumes less than 10% of the energy required to run a conventional banking system, and the latter serves far more people than Bitcoin. While cryptocurrency mining is still in its early infrastructure stage, it is likely that future energy-saving solutions will be found.
According to the 3rd Global Cryptoasset Benchmarking Study, the number of miners in cryptocurrency mining has increased dramatically. Currently, 70% of miners base their decision on daily rewards, while 30% base it on energy consumption. As a result, cities that provide cheap hydroelectric power have become the top destination for crypto miners. Furthermore, the global economy has seen a significant rise in blockchain companies and cities are seeking to attract these firms.
