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Here’s Why Bitcoin-Backed Economies Are a Possibility

According to Deloitte’s weekly global economy update, the U.S. – China trade war is heating up due to statements and actions made by the United States that could exacerbate the geo-political atmosphere with a world-wide effect. With massive losses on Chinese stock exchanges and outflow of investor funds from China, there is no positive end in sight for the global economy as we know it. Leading Asian economies like India have taken a negative stand on cryptocurrencies despite struggling with an economic slowdown.

Experts are speculating the causes of the slowdown and possible solutions for breathing life into a dying economy. One solution that is popular and has been put forward several times is that of a Bitcoin economy.

If you follow the FinTech space then you are already aware of the popularity of Bitcoin. There have been heated debates about its purpose and it’s use, instead of fiat money. The leading cryptocurrency promises lower transaction fees, have faster payment settlement, and may even be the ideal global currency. For some, it even means the fruition of their dream to have a true Universal Basic Income (UBI).

Bitcoin has been making headlines ever since its historic bull run of December 2017, and the cryptocurrency is always the talk of crypto Twitter. From speculation to massive volatility and price swings, Bitcoin is tulips to some and digital gold to others. When it was first launched in 2009, the cryptocurrency’s purpose was to serve as digital electronic cash.

The highlight of the whitepaper was Bitcoin’s decentralization and P2P nature of the transaction. Bitcoin introduced a generation to a decentralized way of transacting among themselves at a fraction of the cost; cutting out a centralized institution such as a bank with faster, cheaper transactions.

Though Bitcoin took time to become popular and hasn’t yet gone completely mainstream, there has been a flurry of conversation around its practical applications. Investors have started dialogue on replacing gold with Bitcoin, and announced Bitcoin to be the “digital gold of the century,” while traders are waiting to try their hand at Bitcoin futures. Inspired by Bitcoin’s core underlying technology – blockchain – several other cryptocurrencies tried to launch a similar project and add more features, however, they never really replaced it.

That was until Facebook announced the launch of its stablecoin project, Libra, in June 2019. This stirred regulators across the globe and had them asking questions and discussing the implications of digital currency, officially, for the first time in a decade. Institutions like the U.S. Congress, EU regulators, and the PBoC started asking questions and scrutinized every detail about Libra, some say because of its association with Facebook.

The social media giant was reprimanded on its Data Privacy Scandal and the matter gained paramount importance to regulators. One thing became clear, like it or not, digital currencies are here to stay. They are changing the face of the economy, especially in third world countries that house the largest unbanked population.

Bitcoin has risen in popularity in India, Indonesia, Africa among other nations and the cryptocurrency exchanges in these countries have recorded peak trading volumes during times of economic uncertainty. This points us towards a new revelation – A Bitcoin Economy is live. It is well on its way to debut on the world stage. These countries have witnessed and harbored an active cryptocurrency ecosystem, with businesses and individuals transacting in cryptocurrencies and in some cases, even paying taxes on it. It is a fact that we cannot oversee. While the Fiat Economy is slowly growing weaker due to geopolitical tension and heavy inflation, make no mistake, a Bitcoin economy is rising.

When we talk about the traditional economy, we realize that it’s represented by Fortune 500 companies, top investors and the Central Banks of various countries, the Bitcoin economy is represented by a bunch of tech believers, developers, innovators and this doesn’t limit Bitcoin to institutions only. It is as retail as a currency can be. The Bitcoin economy represents the people’s economy.

If we talk about a Bitcoin economy replacing the existing economy, we have to consider the fact that Bitcoin is a cryptocurrency and the transactions on the Bitcoin Network cannot be traced back to the users. This makes tax collection a challenge. If there is no log or record of an individual’s income, how is he expected to pay taxes? If there is no record of payments made against the sale of a product or service, how do we tax businesses? These questions are yet to be answered.

For a nation to function and serve its citizens, taxpayers money is the source that the treasury runs on. In the event of no taxation, economies would fail to function. This means that while Bitcoin, an untraceable digital currency may not serve the complete purpose, a centrally issued or centralized digital currency may replace Fiat currencies.

While we speak of centrally issued currencies, I’d like to mention China’s Digital RMB project that is underway and French Prime Minister La Maire announced a centralized digital currency as well. Other countries like Russia and India are exploring the idea of a centralized digital currency and evaluating its impact on its economy and on the global front.

Research and analysis may still take a few years but we may see the rise of a centrally issued stablecoin economy in Europe or Asia within the next five years. Of all the centralized digital currency projects, China may launch its Digital RMB first and set an example for the rest. Whatever be the case, we are inching closer to economies that run on digital currencies, whether Bitcoin or some other centrally issued stablecoin becomes the chosen one. The evolution of money is upon us. What happens next remains to be seen.

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