Bitcoin is a decentralized network and a digital currency that uses a peer-to-peer system toverify and process transactions. Instead of relying on trusted third parties, like banks and cardprocessors, to process payments, the Bitcoin technology uses cryptographic proof in its computersoftware to process transactions and to verify the legitimacy of Bitcoins and spreads the processing work among the network. We make a clear distinctionbetween the Bitcoin system where a capital B is used for the word Bitcoin and that of aBitcoin, which is a unit of the currency or a digital address created by the Bitcoin system.
With the invention of Bitcoin, payments can be made over the Internet without thecontrol and costs of a central authority for the first time. Prior to theinvention, transactions carried out online always required a third party as a trusted intermediaryto verify transactions.However, the currency unit used in payments on the Bitcoin network is Bitcoins, nota fiat currency. Therefore, bitcoins in itself is also a digital currency, in the sense that itexists “digitally” and, for most intents and purposes, satisfies the economic definition ofmoney: it is a medium of exchange, unit of account, and store of value.
Although Bitcoin and the cryptocurrency industry in general are taking tremendous strides to become mainstream payment and other services facilitators, in a number of countries they are still illegal. More countries lower regulatory barriers, but, with the world and its institutions becoming aware of the potential benefits of technology, a range of digital currencies remain strictly prohibitive.
Which Countries Do Not Allow Cryptocurrencies?
Before we move ahead, it is important to stop here and characterized the countries which questions the legality of cryptocurrencies in their law. Bitcoin is officially illegal in only the following ten countries or territories, according to the top blockchain analytics websites: Afghanistan, Algeria, Bangladesh, Bolivia, Pakistan, Qatar, Republic of Macedonia, Saudi Arabia, Vanuatu, and Vietnam.
There are another nine nations, where the platform classifies Bitcoin as “restricted.” Of these nine, China and India are the two most notable examples.
China is probably the most prominent example of a strict crackdown on cryptocurrencies. Initial coin offerings (ICOs) and crypto-currency exchanges were previously prohibited by the national authorities. State-run media in China reported in July 2018 that Bitcoin trading using the country’s national currency fell from a high of more than 90 per cent to less than 1 per cent of the international total.
In India, last year, famously the country’s central bank took action against Bitcoin. Reports have since suggested that this could have backfired and pushed criminal activity beyond the point of view of authorities in the region.
Why Countries Fear Blockchain and Cryptocurrencies?
Most people have been worried about this technology since the first Bitcoin blockchain came into being. Contrary to its parent technology, cryptocurrencies blockchain prompted many to look for its isolation, if not outright prohibition. Financial industries and governments around the world are on the frontier to combat these digital currencies. Indeed, some banks and other financial institutions have declined, while other governments have failed to impose legislation which forbids them within their respective jurisdictions, to offer their services to the crypto related companies. Although these steps can be introduced for different purposes, fear is the underlying factor. But why exactly are countries afraid of cryptocurrencies.
Lack of Understanding
At first, the digital currency idea appeared fictional. People didn’t understand how virtual money could be transacted. However, since no program or government issues and controls currencies, how will this money be used? Despite spite of many conferences, blockchain, cryptocurrency schools and other organizations, several are still in the dark.
Cryptocurrencies are commonly understood in developed countries, but in developing countries, in particular in some areas of Asia and Africa, where crypto technologies are poorly or not well-known. Incomprehension has led some governments to pursue specialist resources in the space in order to help their people grasp the technology before spending all their money.
But what is the cure to this problem? Education on blockchain and cryptocurrencies will be the best place to start. It will take several years to make the correct option for investors and newbies. Over the long run, education will reduce risks and awareness will remove some of these concerns and improve the use of these technologies.
No Legal Tender
No central bank issues Cryptocurrencies. Actually, these are smart contracts which are decentralized. This has resulted in them not being accepted as legal tenders. Legality of cryptocurrencies raises concerns in various circles, as mentioned above, particularly some governments who are afraid that if this system fails, it will take big economies down.
Others fear that because cryptocurrencies are not legal tenders, they are facilitating illicit activities such as money laundering, terrorism and other fraud. Statistics show that crypto-related crime and fraud have risen in recent years and that investors have become victims of conniving individuals, who profit from investor unknowledge.
Fiat currencies are regulated by governments. Central banks use what is known as monetary policy to wield economic power to produce or kill capital from the thin air. They also decide how to pass fiat currencies, allow them to track movement of currencies, determine who benefits, collect taxes on them, and trace crime. All this power is lost when Non-governmental organizations establish their own currencies.
Monetary regulation has many downstream impacts, perhaps most notably on the monetary policy, business climate and crime prevention efforts of a country.And the only way is to block the flow of money to traffickers. There is typically no ideal way to fix this permanently, but regulation initiatives which can comply with current anti-money washing and even counter-terrorist funding law are certainly going to regulate illegal transactions.
Decentralized Business
The current banking system is not appropriate for Bitcoin users. In the cyberspace the currency is generated when crypto miners use the power of their computers to solve complex algorithms for verification of Bitcoin transactions. Your reward is cyber-currency payment, which is digitally processed and exchanged between buyers and sellers without any broker. Airlines function similarly on a smaller scale, allowing travelers to purchase plane tickets, hotel rooms, and other items in virtual currency using airline miles.
If Bitcoin or another cryptocurrency is widely adopted, then the global banking system will become obsolete. Although this may sound like a smart idea in context of the banking sector’s policies and actions, every plot has two aspects to it. Who do you call without banks when your mortgage payment is compromised? How do you get interest in your savings? Who will provide assistance if an asset transfer fails or a technological failure occurs?
Although the financial crisis has given the banking sector a worse reputation than before, it is true for institutions which track acquisition transfer and its associated record keeping on time, efficiency and trustworthiness. Furthermore, there is the question of the fees that banks charge for the services they offer. These fees produce a great deal of revenue and many jobs in the global banking industry. We are disappearing without banks, as the tax revenue created by these banks and the paychecks of their employees. Within the virtual world, too, money transfers will vanish. Because everyone uses bitcoin, nobody wants Western Union or its rivals.
Trust and Security
Privacy plays an important role in the modern world. With technologies and machineries evolving so drastically, it is important to maintain the security and reliability of the system and its database. If a blockchain is implemented on a system that is susceptible to tampering from outside world, it is bound to lose decentralization and trust factors.
In other words, a system with such blockchain implementation would be extremely unreliable and unresourceful. Essentially, instead of having a completely public and uncontrolled network and state machine secured by crypto-economics, it is also possible to create a system where access permissions are more tightly controlled, with rights to modify or even read the blockchain state restricted to a few users, while still maintaining many kinds of partial guarantees of authenticity and decentralization that blockchains provide.
Digital currencies are only available online, making them vulnerable to hackers. Although blockchain systems, itself, cannot be hacked or compromised, the associated facilities like crypto wallets can be. Maintaining money safe online isn’t an easy job for some, particularly those who don’t understand how applications like crypto wallets and exchanges operate. Given the fact that exchanges and individuals take special precautions to protect their assets, hackers often find ways to steal, leaving people hesitant to use such cryptocurrencies.
To sum up, if you use bitcoin, you trust your money to a complicated network that you don’t understand, individuals you don’t care about, and a world where you don’t have any legal recourse. This will raise enough red flags in the conventional investment world to make it a bad idea. The European Central Bank, on the other hand, estimates that Bitcoin is only one of more than 500 digital currencies currently circulating around the world. And if Bitcoin eventually fails or is relegated to a minor position on the world stage, one of its successors could fundamentally change the way currency thinks the world.