European Parliament Concludes Cryptocurrency Has Potential to Serve as an Alternative to Fiat Currency

A recent review issued by the European Parliament Committee on Economic and Monetary Affairs has proven that cryptocurrencies can make for an effective replacement to fiat currency. The lengthy review covered most of the areas that many crypto fanatics were pondering upon, which include crypto classification, uses, regulations and central banks’ possible entry into the crypto market.

The review noted that the digital asset can be considered as:

“a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money.”

It was also noted that the cryptocurrencies run based on “the law of supply and demand”, with a lot of dependence on “other goods or sovereign currencies, and it is not backed by any monetary authority (decentralized character).”

The review also highlighted cryptocurrencies’ ability to serve as a payment method, as it has already been used for services such as “crypto payments, crypto wallets, exchange and trading solutions […] and mining”, which in many cases can be compared to fiat currency.

A lot of emphasis was placed on blockchain and distributed ledger technology (DLT) in the review. The points were made in a positive light, as many view the tech behind crypto to have the potential to revolutionize various industries.

In particular, it was stated that:

“digital currencies that operate in a decentralised way by means of P2P technologies, like blockchain, and without participation or supervision by any central bank or institution. These cryptocurrencies offer technological and operational paradigms that are source of disruption for the entire [finance] sector.”

Many fear that the crypto market is stagnated due to the lack of competition. The review argues that if central banks were to create their own cryptocurrencies, then the lack of competition will be resolved – possibly helping to stabilize it. Whether central banks’ participation is beneficial or not is questionable, but based on the review, it could be a “remedy”.

Here is an extract of the involvement of central banks in the crypto sphere:

“A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy.”

The nature of cryptocurrency appears to be problematic to European competition, as per the review. A key point that was made was the fact that many firms have been established outside of Europe, which makes it difficult to assess them.

“Europe leads, an international level, the supply of wallet and exchange services, with 42% an 37% in terms of number of players. […] Nevertheless, the main weakness of Europe is the concentration of mining activity on non-European countries (Europe only capture just 13% of the current mining market).”

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