Government authorities will not make bitcoin legal tender, but why?

The increasing globalization has led to the proliferation of several cryptocurrency systems, such as bitcoin. Platforms have a robust algorithm that performs the research for bitcoin traders and makes trading easy. Also, it has helped many beginners to get started with bitcoin trading. However, while governments worldwide are cracking down on unregulated exchanges in 20202, only some believe that bitcoin will come under the same fate. It is because cryptocurrencies like Bitcoin are decentralized and function without a central bank or other financial institutions. If you are a newbie and you want to start your trading journey, here’s the Bitcoin mining basics beginners guide . 

With its transparent transactions and users operating anonymously, they allow users to be their bank. Cryptocurrencies allow individuals to maintain wealth without relying on governmental or institutional banks. It is fascinating how developers invented these cryptographic forms of money, and their potential importance in the future remains to be seen. However, many believe it could solve global economic woes caused by banking crises and excessive debt accumulation.

 However, these digital forms of money cannot be used by people for transaction settlement as government authorities do not recognize them as legal tender. As such, the use of cryptocurrencies is more akin to a barter system than a conventional medium of exchange that country’s people have come to know. The question, then, is why aren’t cryptocurrency systems like bitcoin being accepted by governments?

Decentralized Financial Systems Proliferating Globally

The whole argument regarding the lack of recognition by national governments on cryptocurrency is due to their decentralized nature. These new financial systems are fundamentally decentralized, which means they operate without intermediaries like banks and financial institutions.  

And while most countries have begun to take an interest in blockchain technology, it is that they are taking notice of cryptocurrencies. Due to this, governments today are beginning to take notice of virtual currencies like bitcoin. 

The fact remains that governments have always been conservative regarding their perception of new technologies. It stands true for any country, whether a developed or developing nation. And in the case of cryptocurrencies, the nature of these new financial systems makes it difficult for governments to accept them.

Governmental Response to Cryptocurrencies

The idea behind recognizing a cryptocurrency system as currency is one that most would agree with. It is because government authorities want a way to regulate and control their flow and circulation. But while they are not willing to change their regulations made in favor of unregulated means of payment like bitcoin, there is another reason why governments need to prepare to recognize cryptocurrencies as legal tender. It also has little to do with these newer financial systems, as this was already well-documented before the advent of blockchain technology.

It is because companies can use virtual currencies to finance various illegal activities. Moreover, given the flexibility offered on these exchange sites, individuals using cryptocurrencies to purchase these items cannot easily be traced back to their original buyers. In this sense, governments have noticed the potential harm threatened by bitcoin and other cryptocurrency systems and seen their potential threat.

Bitcoin is way too volatile to be accepted as legal tender:

Volatility has been a significant factor in why national governments will not recognize bitcoin and other virtual currencies as legal tender. We would have to wait until its development matures to have the possibility of these digital currencies being accepted as legal tender or remaining out of reach without government intervention. 

However, national governments are increasingly taking notice of virtual currencies like bitcoin. The technology underpinning them has sparked a growing interest from governments across different countries and conditions.

Bitcoin has a finite supply:

While this fact is bound to draw more investors into the space, it makes little sense for governments to recognize bitcoin as a legal tender given its finite supply. It is because legal tenders are not supposed to depreciate over time but instead appreciate; undeniably, bitcoin’s value has increased with time, but there needs to be more bitcoin to serve as a legal tender in every country. The same is not about cryptocurrencies and, therefore, will not have any natural, intrinsic or fundamental values other than what has been set for them by designers of these new financial systems. 

Bitcoin mining is harmful to the environment:

 Computers on a global scale join these digital financial systems to solve complex mathematical problems as an incentive to “mine” more bitcoins. And even though this is a relatively costly process, it is not as detrimental to the environment as reported in the news. However, it has been noticed by people that mining activities create excess heat, which can damage the electronic components of mining machines and be bad for their CPUs in the long run, which further leads to massive environmental damage.