Is Regulation A Necessity For Digital Currency?

Public opinion of digital currencies like bitcoin has dropped dramatically over the past year as hacking attacks, scams and illegal activities cast a long shadow over cryptocurrency enthusiasm.

For many, a lack of regulation has made investment in digital currencies a gamble, but bitcoin supporters say that the absence of a governing body setting rules for the currency is what makes it unique.

Fedcoin

At the beginning of February, Federal Reserve Bank of St. Louis economist David Adolfatto explained his vision of a digital currency managed by the U.S. federal government and pegged against the U.S. dollar.

The cryptocurrency, called Fedcoin, would be less volatile than rival currencies, but would still provide users with the low cost transactions available anywhere in the world that other digital currencies offer.

Would Regulation Ruin Cryptocurrencies?

While Fedcoin may sound like the answer that the digital currency market is looking for, cryptocurrency enthusiasts argue that the idea of a government controlled digital currency defeats the ultimate purpose for which currencies like bitcoin were created— to operate in an economy apart from government control.

Once digital currencies are linked to a central bank, they essentially become an online version of that country’s currency, in Fedcoin’s case, the dollar. 

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Government-Controlled Cryptocurrencies On The Horizon

Ecuador has already launched its own version of a cryptocurrency linked to the dollar and some other nations are expected to follow suit in the coming years as digital currencies become more and more popular.

While government controlled cryptocurrencies may be the next step in the digital currency revolution, they are unlikely to completely erase unregulated options like bitcoin.

Still, the stability and security that a digital currency pegged to an existing currency offers could be a popular draw for the general population, whose confidence in cryptocurrency investment has waned significantly.