The widespread use of cryptocurrency as an alternative method of payment has led to a growing digital ecosystem over the years. Governments are behind the curve, continuing to wrestle with how to develop effective public policy measures to regulate its use.
The Bank of Canada has been actively exploring the option of a central bank digital currency (CBDC) to address the perceived threat of cryptocurrency for several years. This national digital currency would be centralized, meaning that the bank would be able to monitor and regulate the transactions within that network.
Cryptocurrency is a decentralized digital currency that relies on the application of cryptography to conduct financial transactions and protect against counterfeit and fraud. Cryptocurrency is an alternative to sovereign currencies that are issued by state governments, like the Canadian dollar.
My doctoral research explores how states try to regulate cryptocurrency — a disruptive technology that threatens sovereignty that’s resistant to being controlled by any state unilaterally.
Regulating cryptocurrencies
The use of cryptocurrencies has broad implications for the global economy as well as the role of the state. As a decentralized, peer-to-peer payment network that allows individuals to share information with one another without the need for a middleman, cryptocurrency circumvents the control central banks have over money supply.
Powered by blockchain technology, no single third party is in control of the transactions and data stored on the distributed ledger. As such, the use of cryptocurrency as a means of payment has the potential to undermine the ability of the state to track currency movement.
As a result, governments have moved to curtail cryptocurrencies, in some cases referring to them as a direct threat to national security and the stability of the global financial system.
This move to classify cryptocurrency as a threat contradicts statements made by Mark Carney, the former governor of the Bank of Canada and current governor of the Bank of England. Carney challenged the role of the world’s reserve currency, stating that it could be replaced with a digital alternative.
Federal digital currency
In a report commissioned by the Bank of Canada, findings suggest that Canadians now have an increased awareness of cryptocurrencies such as Bitcoin, and an estimated five per cent of Canadians actually own these digital assets.
