For the first time in modern history, our civilization is on the verge of a new concept in monetary transactions with cryptocurrency. Cryptocurrency could be hugely disruptive to many industries and could completely change money transfer services industries, but trust must be the cornerstone before it can gain wide acceptance and be legitimized. The historical concepts of trust, integrity, and the validation of people and identities also needs to evolve.
Cryptocurrency is skyrocketing. Today, there are more than 2,000 cryptocurrencies, according to the Digital Currency Group, and the total value of all cryptocurrencies grew to more than US $600 billion in 2017 alone. The production of this new digital currency is turning physical currency on its head.
Cryptocurrency is innovative, presenting new challenges with still much to learn about its structure and legitimacy. With no central authority or central bank to oversee cryptocurrency, users are in the midst of a gold rush—mining for gold with few rules. Current blockchain systems do not require personal or corporate identities, so where does that leave users relative to trust and identities? This is especially pertinent as the real-world technology environment includes cyberthreats, bad actors and dishonesty. It is necessary to redefine how to determine trust. Better identity management and encryption technologies must be in place for cryptocurrency to move to the next level.
Society has always determined fiduciary trust based on thousands of years of physical currency experience. It is rare that a new currency is born, and it is almost unheard of for a currency to have value with no pledge behind it, for example, the sovereign commitment of a government or a rare commodity such as gold.
Why Regulation and Identities Are Needed to Legitimize Cryptocurrency
Regulation may be the only thing that moves cryptocurrency out of the speculation arena and into commerce. Businesses and individuals need confidence that a currency will not lose half of its value overnight. Identity management and encryption technologies must be matured and deployed to protect these currencies.
Financial institutions are highly regulated, and banks know that employees need to be supervised and processes implemented to manage and audit money handling (e.g., bank vaults, balance sheets, registers, receipts). Banks also know that they can place US $5 million in cash in a safe and, due to the currency’s size and volume, a “trusted” employee cannot walk out with it in a bag. Or, if money is placed in a home vault or someone buries gold, the burden to find it and steal it is fairly onerous.
Consider the US Drug Enforcement Agency (DEA) investigation of Silk Road on the dark web. After bitcoin was seized in the investigation, the DEA lead agent and a US Secret Service agent then stole the currency from the agency. Did this occur because the digital currency was new, misunderstood and hard to trace? Or was it because no large bags of currency had to be removed from an evidence locker? At the time of the sentencing, the value of the bitcoin stolen by the agent would have been worth more than US $11 million. How do users determine if new levels of vetting, trust and policies are needed in order to place trust in others?
With the rise of cryptocurrency, the perception of the notion of trust is also changing. Will cryptocurrency change the perception of trustworthy persons? Is it advisable to redefine and profile how personnel with digital currency are investigated and controlled? With digital currencies easier to steal, will more insider theft occur? The world is in the midst of a global shift with potentially life-changing impact.