Cryptocurrencies: Shaping the Future of Legal Tender

Stable currencies like USDC, USDT, DAI, & USDT can surely be used as currencies. However, the question is there a limit to the maximum quantity that is being mined for these coins? It is very important to make sure that there is a maximum limit to coins that are being used because unlimited supply will eventually lead to inflation and take a country’s economy for a ride. Bitcoin is a good stable coin because it has a max supply of 21 million tokens and no more coins will be mined thereafter. 21 million coins in circulation will be used by the people to buy and sell goods or services.

Cryptocurrencies

The only way to purchase any coin is by linking bank accounts with an exchange platform and then purchasing the coin. The question that arises is whether these coins must be purchased with the current national currency, then why should they be replaced with another currency at all? Two quick advantages, the value of money increases as demand beats supply & once cryptocurrencies are purchased, it is much easier to process transactions locally and internationally without dependency on banking institutions. Banks charge clients a monthly service fee and transaction fees on all international transactions. However, with cryptos both these charges are disregarded. There are no monthly service fees or transaction fees, in fact, banks might take up to 2 business days to process a few transactions and with crypto, that same transaction can be completed within seconds.

Accepting cryptocurrency might affect the national currency of that country because goods and services could become more expensive considering the transaction fees and risks involved with cryptocurrencies. There is a high possibility of a constant rise in inflation and a fall in the value of the national currency. Everything else will remain the same but prices for most commodities might increase. Few vendors and retailers that do not wish to accept cryptos might go on strike which would create a false scarcity of resources and increased prices of FMCG’s.

Accepting coins should be optional for everyone and not be made mandatory because if such impactful policies are put into place without people’s consent, it leads to a dictatorship. Switching payment methods from a national currency to a digital asset that was created a few years ago is surely a risk for the country as well as its citizens.

The government of that country might have to purchase a chunk of coins ahead of making it legal along with distributing coins to each citizen as a token of appreciation to kick start the acceptance of coins. Generally, countries print currency bills within a certain limit to make sure inflation and recession are kept in control. With cryptocurrencies, this macroeconomics isn’t in anyone’s control. For instance, if a whale investor decides to sell their holdings of 10,000 bitcoins, that country’s economy can crash in a span of minutes. To build a treasury deposit, the government must purchase and stack up coins.

Traders, investors, and retailers should be provided with set guidelines before making any crypto a legal tender because it is very different from a national currency. Fiat currencies do not change in value, however, the prices of all cryptocurrencies fluctuate drastically. Revenue recognition and understanding of taxable gains must be channeled by the government.

Moreover, since the government has decided to make crypto legal it is their responsibility to ensure that these currencies are safeguarded. Citizens should not lose all their life savings because of potential theft or loss of coins due to any sort of software glitch.

Will insurance companies and government agencies have to cover any losses due to crypto theft?

The respective country’s government should work with insurance companies and provide citizens with added security and assurance. This will provide the people with a confirmation that they are in safe hands and using this payment system will bring them no harm. In the event of a potential loss due to system error, human error, or theft they will receive their coins back and the money will not be lost. Just like how it is done by banks for unauthorized transactions.

Should the government create software that can allow vendors to link their wallets using API keys which will help them keep track of crypto inventory and revenue generated?

Yes, this will make things easier for citizens when preparing their taxes and keeping track of revenue generated on a timely basis. API keys will help citizens integrate their exchange platform and wallets with government software which will do most of the work for them. This way, all citizens will have to report taxes appropriately and there will be almost no scope for tax evasion or financial crime because all transactions will have to undergo a government system and algorithm.

Will banks have to start providing blockchain products? Like, crypto deposits, transfers, savings accounts, etc.

If cryptocurrencies are made used as legal tender, then banks will have to act as “crypto banks” that provide customers with all functionalities of cryptocurrencies. Interest staking, opportunities to invest in upcoming ICOs, transfer coins from one wallet to another, safeguard funds from system hacks, and so on. Acting like crypto banks might be a little difficult for banking institutions because the market prices of coins will decide what is the bank’s financial position in terms of the assets that are currently locked by clients in the form of savings accounts and other investments.

How we can help?

In light of these complexities, consulting with experts becomes essential. Cryptocurrency consulting services offered by our team bring over 20 years of experience in serving the forensic accounting and business management needs of Burbank, CA, and surrounding areas of Los Angeles County. If you require assistance in navigating the financial intricacies of cryptocurrencies or managing any aspect of your business’s finances, we’re here to assist you.