Cryptocurrencies have infiltrated our financial vocabulary, leading even citizens who had never dealt with investments to devote part of their income to them. According to data from the International Monetary Fund (IMF), there are currently more than 8,000 active cryptocurrencies, with a total of $2.5 trillion in cryptocurrencies and coins being traded.
The first decentralized cryptocurrency, Bitcoin, was created in 2009 by Satoshi Nakamoto, a pseudonym believed to correspond to an anonymous developer or group of people. It began as a libertarian vision, aiming to free the transfer of value and wealth from the control of banks and governments, giving control back to citizens. This is based on the fact that the issuance of cryptocurrencies takes place without the intervention of any central bank. The main advantage of digital currency technology is that it is decentralized – since it is not controlled by any central institution – and immutable, since all transactions are recorded on the blockchain and cannot be tampered with.
However, the absence of a regulatory framework around the operation of cryptocurrencies undermines their use, making them susceptible to large and frequent changes in their value. Additionally, due to their anonymous and unregulated nature, digital currencies can be used to finance illegal activities.
Cryptocurrencies are created by computers with complex mathematical equations, a process known as mining. A network of computers around the world monitors transactions, using virtual addresses, hiding the identities of those engaged in the transactions. Therefore, even if the police manage to identify any criminal activities behind the transactions, they have no way to freeze the accounts, as they would in a normal banking system.
The IMF, in its Global Financial Stability Report , states that the more the use of cryptocurrencies increases, the more likely they are to cause negative effects on the global economy.
At the same time, however, he points out that the very technology that makes possible the existence of digital currencies also offers the necessary tools to monitor, detect and process illegal transactions for which they are used. In order to deal with these phenomena, it is necessary to conclude cross-border cooperation between governments for the regulation of cryptocurrencies. At present, the absence of a common commitment by states for an international regulatory framework that will govern the smooth and legal operation of cryptocurrencies, leads some states to individual actions aimed at obtaining short-term interest.
Cryptocurrencies are here to stay. However, as with any new technology, the proper mechanisms to regulate them must also be created. When the appropriate institutional framework is in place and their high volatility is limited, digital currencies will establish themselves as an alternative medium of exchange.
