As the influence of cryptocurrencies spreads around the world—market capitalizations are at record levels, and countries like El Salvador are going all-in on bitcoin—there are concerns regarding the potential for these currencies to be used as “weapons.”
Are those concerns genuine, and can bitcoin and other cryptocurrencies be used as weapons?
Can Bitcoin Be Used as a Weapon?
In early 2021, Peter Thiel, a venture capitalist who once described himself as “pro-bitcoin,” said that bitcoin could be considered a “Chinese financial weapon against the US.”
He reasoned that it could be used to intentionally weaken fiat currencies, including the US Dollar. As things stand, the US Dollar is the de facto currency for a lot of global trade, and the US economy relies on that. If you take that out of the equation and replace the dollar with bitcoin, the US economy will suffer, which could play into China’s hands.
Or at least, that’s the theory.
China, Russia, and More
Peter Thiel wasn’t the only one who voiced these concerns about the use of cryptocurrency. However, while Thiel is a prominent cryptocurrency investor, he’s also a major critic of China-US relations and has spoken out against US companies that do business with China.
He was also one of the people calling for banning TikTok, a popular social app that a Chinese company owns.
That doesn’t mean his fears are unfounded or biased, though. There could be something to these claims, and it’s not just China that the US needs to worry about. If it’s true that bitcoin and other cryptos can be weaponized, it’s potentially something that Russia, North Korea, Iran, and other enemies and critics of the United States can do.
In fact, Russia helped to create Petro, a national cryptocurrency used in Venezuela that launched in 2018.
Some argued that Russia had a couple of ulterior motives for this.
The first was to involve themselves in creating national cryptocurrency so they could learn more about creating their own.
It’s a sensible conclusion because if cryptocurrencies continue to grow, most companies and countries will be getting involved, and previous involvements will serve as useful precedent.
The other potential reason is a little more nefarious. Some believe that Russia may be trying to weaken the US dollar and improve its standing in the global economy. Considering the many sanctions that have been placed against them in recent years, such an outcome would be a great boon to the Russian economy.
What is the Main Risk Concerning Bitcoin?
The global economy runs on fiat money, essentially an IOU from the government. In the past, money had a physical value and was made from gold or silver. You had the value stamped onto the face of the coin, but you also had the value of the currency itself. But that changed, and money became little more than a promise minted on worthless materials.
To keep the economy ticking over, a nation relies on a delicate balance of borrowing, lending, and consuming, all of which occurs within that system of “fake” money and relies heavily on trust.
When you buy something using fiat currency, you’re trading one asset for another, and the central authority has control over all of that. As a result, it can regulate the currency and stay in control.
But when you swap money for cryptocurrency, you’re trading something that the government can control for something that it cannot. You’re taking money out of a centralized financial system (one governed by banks and financial institutions that can monitor and track every cent) and placing it into a decentralized currency.
It plays havoc with the usual “cycle of trust” on which a developed nation relies, which could destabilize that country’s economy.
Other Potential Issues with Cryptocurrencies
Potential weaponization isn’t the only reason major nations are worried about the spread of cryptocurrencies.
There are also fraud and money laundering concerns.
In many developed nations, governments require individuals to report payments of more than $10,000, and financial institutions also use a series of checks to determine if such payments have been made. If you try to transfer a lot of money regularly and without any valid reason, the government will know about it, and the IRS will come knocking.
With bitcoin and other cryptocurrencies, there are none of these systems. Theoretically, criminals and use cryptocurrencies to transfer large amounts of money, and the government and tax authorities will never find out.
That level of anonymity is one of the reasons why cryptocurrencies became so popular in the first place. Still, it’s also why financial institutions are calling for more legalization and protection.
The article was written by Cloudbet – the leading cryptocurrency casino.