Central Banks are Feeling Threatened by Bitcoin: Optimistic Sign For Long-Term Price Growth
A growing number of governments, financial regulators, and central banks are beginning to feel threatened by the increasing adoption of bitcoin and the decentralized financial network it provides.
Bitcoin is decentralized in nature as it operates on a peer-to-peer protocol and a transparent ledger called the blockchain. Every transaction processed by the Bitcoin network can be seen on the blockchain network through platforms like blockchain explorers. The Bitcoin network also relies on a unique monetary policy in which the maximum supply of bitcoin is fixed at 21 million.
The price of bitcoin is solely dependent on the demand from the global bitcoin and cryptocurrency markets. If the demand toward bitcoin from casual investors, institutional and retail traders increases, since the supply of bitcoin is fixed, the price of bitcoin surges. The independence and decentralization of bitcoin allows the network to operate as its own economy without the influence of global markets volatility and economic uncertainty.
As the Bank of Finland, the central bank of the nation, explained in its research discussion paper entitled “Monopoly without a monopolist: an economic analysis of the bitcoin payment system,” bitcoin is not and cannot be regulated. The Bank of Finland further encouraged economists to study the marvelous structure of bitcoin. The paper read:
“Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts. Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional. Its apparent functionality and usefulness should further encourage economists to study this marvelous structure.”
While many central banks including the Bank of Finland, the Bank of Japan, and the Bank of Korea are taking the right approach in regulating trading activities and businesses around bitcoin efficiently with practical policies, several central banks in regions such as China and Russia are still against bitcoin because it remains as a threat against the global banking industry and existing financial networks.
For the most part, the fear from central banks and major financial institutions is understandable; the presence of bitcoin renders the necessity of banks useless because it provides an alternative financial system which users can facilitate payments within a peer-to-peer manner.
Earlier this week, the president of OPORA Russia public association, Alexander Kalinin, stated:
“Elvira Nabiullina said that the central bank is against, because this is actually a loss of control over the money flows from abroad.”
Governments and financial regulators are limited in what they are capable of regulating in bitcoin and cryptocurrency markets. Evidently, the protocols themselves such as the Bitcoin and Ethereum blockchain networks cannot be regulated or censored. But, trading activities and businesses around the cryptocurrencies can be regulated and so far, the Central Bank of Russia and the People’s Bank of China have created a restricted and challenging environment for businesses and investors.
— Joseph Young (@iamjosephyoung) September 19, 2017
However, for long-term growth, bitcoin is at a perfect position. Several central banks are encouraging economists and bankers to study the structure of bitcoin and its capability of offering a decentralized financial system while others such as Russia and China remain threatened by the cryptocurrency.
It is an optimistic indicator for long-term growth that central banks and major financial institutions fear the exponential growth of bitcoin because that demonstrates the potential of bitcoin to surpass and overtake the world’s largest financial systems including fiat money, reserve currencies, and gold.