The interest in cryptocurrencies is surging all across the world; especially in Africa, there is a growing interest more than ever before. The world of cryptocurrencies is a somewhat murky and contentious one. This emanates from the fact that there are definitely remarkable benefits that cryptocurrencies bring about. However, the issue of threats to decentralization is one of the most topical ones. In nations where cryptocurrencies are gradually coming onto the scene, central banks are expressing interest in exercising oversight. Some cryptocurrency developers are agreeable to engaging the government (central banks in particular) whilst some are not. Does engaging central banks in cryptocurrency development affect the decentralization aspect which is at the core of what makes cryptocurrencies? In this article, I explore that and other related issues.
Decentralization – Why Is It A Big Deal?
By definition, decentralization entails the distribution and dispersion of power away from a central authority. The concept of decentralization is simple – no one has absolute control of the money (even the founders of a cryptocurrency). Essentially this means that any holder of whatever amount of a cryptocurrency has absolute control of their money and how they will use it. Decentralization is what makes cryptocurrency a proposed alternative to the usual government-issued money that we know (i.e. fiat currencies).
Blockchain technology is what makes it possible to decentralize a cryptocurrency. So all in all, decentralization is the reason why people believe that cryptocurrencies are the answer to the scourge of corruption that affects most nations. The fact that cryptocurrency entails a fixed money supply means inflation (emanating from unchecked printing of money) is gotten rid of. The immutability of a blockchain (i.e. the impossibility to change an entry (block) in a series (chain) of transactions) means corruption can also be gotten rid of. So that is the bit about decentralization and some related aspects that make cryptocurrencies a huge deal. On the other hand, the anonymity behind cryptocurrencies and their creators or exchanges can be problematic because in the event of loss or other shortchanging there is no legal recourse available. This anonymity has made cryptocurrency a new haven for scam artists using the Ponzi-scheme modus operandi.
The Bone Contention Regarding Central Banks Involvement
One of the major reasons why cryptocurrencies are not yet mainstream in many countries is because the central banks want to have control. The reality also is that most central banks are still sceptical about cryptocurrencies because they have not yet fully grasped what they are. So you find several scenarios where cryptocurrencies have been banned outright. In some cases, though, the bans have been informed by a full understanding of what cryptocurrencies are. For instance, in Pakistan, there is a case before the courts right now where a central bank ban on cryptocurrencies is being challenged.
You see, the central bank’s core operating principle is centralization (as is apparent in the name central bank). This goes against the core operating principle of cryptocurrencies which is decentralization. There is a popular local case regarding a cryptocurrency startup called Golix. A closer look at that case will show you that those guys skirted some formal processes and went ahead to operate without properly engaging relevant authorities. There is, of course, the need to protect the decentralization but I do not believe that justifies not engaging relevant authorities such as the central bank. Zimbocash which is a local cryptocurrency startup developing a local cryptocurrency called Zimbocash is actually engaging the government along the way.
I think one misconception that people and even governments might have is that cryptocurrency is meant to totally replace government-sanctioned money. In theory, it is possible and if ever governments reach that pinnacle of adopting cryptocurrencies as the main medium of exchange that will be awesome. However, most cryptocurrency startups actually emphasise that it is an alternative currency. For your own information, Zimbocash is even proposing a percentage of the ultimate tokens to the government in exchange for legal tender and licensing.
I am mentioning all this to make people realize that engaging the government (if done well) will never compromise the decentralization aspect of a cryptocurrency. Let me just quickly highlight another notable example. Cryptocurrencies were once banned in Japan but proper engagements were later on done and today Japan has the biggest chunk of all cryptocurrency trading done in the world. Thousands of shops across Japan now accept cryptocurrencies for the payment of goods and services. This all means that a symbiotic relationship between cryptocurrency startups and central banks can be established without ruining the integrity of the cryptocurrencies.
The SECZ Has A Key Role To Play
The Securities Exchange Commission of Zimbabwe must play a more active role in these matters regarding cryptocurrencies. Here is the thing; our current laws are somewhat divorced from the latest and emerging tech trends (cryptocurrency in this case). There is a need for legislation to be updated to include such advancements.
In the meantime, the SECZ can play a huge role in providing the necessary guidance. There have been some calls from the public in this regard and the SECZ actually tweeted saying, “The Commission has an open-door policy for new product proposals which are securities-related. These can be accommodated for incubation and innovation purposes as well as ultimate overall capital market development”.
A latest global example worth mentioning is Hong Kong. Its Securities and Futures Commission (SFC) has unveiled new regulations pertaining to cryptocurrency trading. I will not go into detail regarding the new regulations but analysts have hailed the new regulations saying they have the potential to push Hong Kong to the apex of cryptocurrency trading in the world. This is just to show that the SECZ has a critically important role to play to speed up the adoption of cryptocurrencies locally. USA and Singapore are also living proofs of how the SECZ can enhance the adoption of cryptocurrencies locally.
One thing is for sure, cryptocurrencies cannot be ignored anymore. The SECZ now has a working group that will look into crypto assets and digital currencies amongst other financial tech innovations.