Why Governments Are Afraid Of Bitcoin is an article written by James E. McWhinney published through Investopedia. The article is an insider on what Bitcoin really is, how it operates with a focus on its challenges, and why governments could be impacted negatively by its growth.
The article begins with a brief description of Bitcoin, followed by criticism towards how it operates. The article’s structure involves breaking down information and categorization through sub-headings, which allows an easier grasp of information. I believe the article’s title is meant to capture readers’ attention while using Bitcoin as a term to represent the entire cyber currency network and its effects on a global scale.
Bitcoin is a peer-to-peer payment network with no central authority. This factor is what sets aside cyber currency from fiat currencies (currency directly issued by the government). An example of fiat currency would be the Tanzanian shilling, which is centrally governed by the Bank of Tanzania.
Governments can control currency movement, criminal activity, as well as collect tax through the fiat currency system. This circulation of money in an economy stimulates investment and employment. All these actions can be disabled if cyber currency is to take over, primarily due to the closed networking that governments cannot access. McWhinney predicts that Bitcoin’s negative impact on the banking industry further affects government and employment rates.
There are criminal activities associated with cyber currency such as drug trafficking, prostitution, terrorism, money laundering and tax evasion, among other things. It seems as though the cyber currency network is just an alternative platform to commit crimes that have been taking place even before its discovery.
As an example from the business sector, the cyber currency scheme is similar to the miles program used in the aviation industry whereby one can purchase plane tickets and hotel rooms through airplane miles as a virtual currency. This is a glimpse of how the cyber networking system could become an integral part of our daily lives.
James McWhinney has been a professional writer for almost two decades and has worked for numerous magazines and banks. His experience working with banks is clearly reflected in his bias towards the banking system. Seemingly, McWhinney doesn’t support the art of cyber networking, rather he sides with the structured approach, placing him in complete support of the banking industry in relation to the government. Between 2004 and 2008, McWhinney worked as Managing Editor/Vice President at the Bank of America, suggesting how he can directly relate government actions to the banking network.
Although there is a lot of risk involved with cyber currency, the benefits include:
- Not being bound to exchange fees;
- No interest or transaction charges;
- On-the-spot transactions;
- Complete anonymity of the receiver and sender; and
- Larger storage without the need of physical space.
All these benefits could heavily influence small scale traders to think globally, as they wouldn’t be affected by exchange rates nor would they need to pay any tax.
According to IT News Africa, Tanzania is the fifth fastest growing economy in Africa. Therefore, it isn’t too long before the East African region is exposed to the practice of investing in cyber currency. The Bank of Tanzania has so far only issued a warning to citizens to act with extreme caution when trading in cyber currency. Tanzania as a nation has yet to make an official decision regarding cyber currency trading as investigation and research is still ongoing. McWhinney would surely be in support of the Tanzanian government as it is concerned about the risks associated with cyber currency networks.
In conclusion, the article presents the point of view of an author who has a lot of experience within the banking system. In my opinion, McWhinney should have looked at both sides of the spectrum to allow the reader to understand the pros and cons of using cyber currency. He should have also expanded on Bitcoin as to its origin and how exactly people lose or profit from it, keeping in mind it is just one of multiple other cyber currencies.
In terms of how this translates to recommendations for government, authorities should be negotiating the possibility of gaining access to cyber currency networks. Access can, in turn, help trace virtual transactions. Governments should also be forming alliances with neighboring regions to create virtual trade routes, which can structure transactions across borders.
Included links:
- Original article by James McWhinny (Investopedia)
- Bitcoin homepage
- Tanzania issues warning against cryptocurrencies (East African)
