Blockchain and Cryptocurrency Development Without Regulation

Introduction

The global financial crisis contributed to the advent of cryptocurrencies which challenged the paradigm of state-guaranteed currencies and the dominant role of central banks and other mainstream financial institutions; Nakamoto s. (2008). These virtual assets have become new means of payment, even units of account, thus reducing the demand for fiduciary currencies. But currently, cryptocurrencies are too volatile and even risky. For some, they inspire less confidence and can be entangled in cases of fraud, security breaches, breakdowns, and links to illicit activities. However, continuous technological innovation has addressed some of these shortcomings. To counter the potential competition from cryptocurrencies, central banks need to implement effective monetary policies too. They can take inspiration from the characteristics of cryptocurrencies and the technology they use to bring fiduciary currencies more in step with the digital age. Cryptocurrencies are pure blockchain products and a real advance in cryptography and distributed ledger technology. Cryptocurrencies are digital representations of value. They are denominated in their units of account and are traded peer to peer, without intermediaries S Wen, W Xiong, J Tan, S Chen, Q Li (2021). The market value of these assets is that they can be exchanged for other currencies and used for payments or as a store of value. Unlike fiduciary currencies, whose value is inseparable from monetary policy and their status as legal tender, crypto-assets are only worth the anticipation that other agents will value them and will use them Piera Ca, Roberto C b, Emilio Ea, Eugenio O a (2021). The fact that their valuation is based on convictions not firmly anchored in real assets, explains the high price volatility observed. With some cryptocurrencies like bitcoin, the risk of inflation is limited because the supply is also limited. However, these assets do not perform three essential functions that stable monetary regimes which are: protection against the risk of structural deflation, ability to adapt flexibly to temporary shocks in demand for money (thus impacting the economic cycle), and finally, the ability to act as a lender of last resort. several questions arise about the future of the use of these cryptocurrencies. For the volatile side, admittedly with maturity, the volatility could subside, encouraging more people to adopt them in their financial transactions and uses. By introducing new issuance rules, such as rules-based on artificial intelligence, the valuation of this virtual currency could become more stable. To remedy this, there has been the creation of new “stable” cryptocurrencies the Stablecoins; JB Abdo, S Zeadally (2020). The term stable has its origin because some virtual currencies are linked to existing fiduciary currencies. Used as a medium of exchange, cryptocurrencies have certain advantages. While offering roughly the same anonymity as cash, cryptocurrencies allow transactions to be made between operators neglecting the unit of transaction. These properties make crypto-assets particularly attractive for small payments made in the new digital economy based on sharing and services. In addition, unlike bank transfers, the clearing and settlement of transactions are fast and unmediated, which is particularly beneficial for international payments, which are expensive, complicated, and opaque. By increasing the number of correspondent banking networks, new services using blockchain technology and crypto-assets have shortened the times for international payments, since cryptocurrency reaches its destination in seconds instead of days. Thus, some cryptocurrencies will be more widely used and will have more monetary functions in certain regions or certain private digital commerce networks. More generally, the rise of cryptocurrencies and blockchain technology could herald the transition from an account-based payment system to a value-based or token-based system; Ali s. T., Clarke d. and McCorryP. (2015). In the traditional monetary system, the transfer of receivables is recorded in an account managed by an intermediary, usually a bank. In addition, the second system provides for the transfer of a payment object.If the value of the object is verifiable, the transaction can take place, regardless of the trust placed in the intermediary or the counterparty.In the digital age, this shift could also affect money creation itself: from scriptural money to commodity money.In the nineteenth and twentieth centuries, money was essentially based on credit relationships: central money represents a credit relationship between the central bank and citizens (in the case of cash) and between the central bank and commercial banks (in the case of reserves). And demand deposits from commercial banks represent a credit relationship between these banks and their customers. Moreover, cryptocurrency is not based on any credit relationship; it does not represent any debt, and is more like commodity money. This is how economists continue to debate the origins and use of this type of currency and to wonder why monetary systems have always alternated between cryptocurrency and cashless money, despite the absence of regulation and the risks that can arise there. Through our work, we will want to focus on the spectacular development of the use of this digital currency, despite almost no regulation on this type of currency. We have also focused on the reactions of traditional financial institutions in the world of finance, and more precisely their reactions to this competing phenomenon, especially with calls for digitization of services and the emergence of artificial intelligence. Our work will be organized as follows: first, we will present and define the blockchain, present cryptocurrencies. Then, we will present the evolution of the uses of digital currencies, and the risks that can result from it. In a third part, we will present the reaction of the world of classical finance to the emergence of the use of virtual currencies, and the future it holds for us.