Can Covid-19 Kill Cash and What Will It Mean for Bitcoin?
It has been argued many times that for purposes of money laundering and conducting black market activities Bitcoin in fact does not even come close to its predecessor—hard cash. In fact, some go as far as to claim it is foolish to rely on Bitcoin for traditional illicit activities while cash still exists.
This argument was universally used to show how laughable it was to brand Bitcoin a “haven for criminals” all while the good old cash was a much better and more reliable tool for shady dealings. But the truth is regulators also understand this and they have been researching and developing solutions to possibly replace the physical cash or at least put it under tighter control.
That being said, the general consensus has long been that while cash is fighting an uphill battle, it will not truly go away any time soon for a number of objective reasons. However, some recent developments in the world may catalyze this process and make the demise of cash inevitable.
Why Is Cash So Enduring?
Cash is in fact a fantastic means of payment. It does possess certain qualities that can not be easily replicated even by the most advanced technology. Cash is actually untraceable, secure, and accepted everywhere one goes. It does not rely on Internet connection, electricity, and the availability of certain devices.
It can be stolen but is otherwise protected from most types of fraud. It is incredibly popular and widespread. For those who are poor and/or do not have reliable access to banking, cash is also absolutely vital.
And of course, this all makes it a real haven for criminals.
Then Why Is Cash Doomed?
To be fair, we knew for a while that cash was not going to make it into the future. And arguably, Bitcoin was to cashless future what Elon Musk was to Martian colonies. We always knew we were going to have them, but now we fully expect them to happen in our lifetimes. For the past decade, the conversation about cash going away has reached its peak and became less theoretical and more observational.
We now have a clear and logical understanding of why cash is not going to make it. The reality of our lives right now dictates that our day-to-day activities, including the financial ones, are increasingly moving online. Technologies are evolving while safety and transparency increasingly become more important values than privacy and anonymity. Regulators do not really want us to use cash, this vessel of corruption and criminal activities, and it seems that most of us begrudgingly agree.
China is far ahead of everyone else on the frontlines of the war on cash. Being an authoritarian state it can safely ignore its citizens’ thoughts on privacy, and emphasize the need for safety and control. Even now the most popular instrument for payments in urban areas is online currencies maintained by Chinese online giants Alibaba and Tencent. And the latest developments suggest that China will emerge from the pandemic with a strong digital currency that will potentially be even more widespread than the existing digital payment methods.
The USA is notoriously more liberal and until now was not ready to bail on cash. Some regulators are already fighting an uphill battle against the advance of cashless businesses.
In Europe, regulators follow the opposite trend, artificially limiting the amount of cash that consumers are allowed to spend or transfer. Such limits exist in Italy, Spain, and some other countries. A similar restriction is being introduced in Australia.
Scandinavian countries are already halfway to the cashless society. Many banks in Sweden no longer deal in cash. The use of cash for payments has plummeted to 10% by 2018.
Despite all this, the general consensus saw the demise of cash questionable or at least gave it another 20 to 60 years.
Covid-19 may have changed everything.
We kind of always knew that licking fingertips when counting money was a gross and unhealthy habit. As early as 2014 researchers at New York University have identified as many as 3,000 kinds of bacteria living on dollar bills. While the Daily Mail noted, that there were more germs on a £1 coin than a toilet seat.
But what really could be the bell tolling for cash was the WHO’s warning that banknotes may be spreading Covid-19.
On March 3rd, the World Health Organization issued a warning against cash payments, suggesting to instead switch to contactless payment methods to avoid the transmission of the virus. Following this we have seen a slew of measures directed at handling paper money during the pandemic, including world governments quarantining banknotes, especially coming from abroad.
Cash payments were already seeing a decline in many technologically advanced countries as more and more businesses transition to credit and virtual payments. But the lockdown posed a challenge before all businesses, who now had to respect the social distancing rules while serving their customers.
According to Square, there were only 8% of self-described cashless sellers in the U.S. on March 1. But by April 23, that number went up to 31% and the growing trend is continuing. The numbers tripled in a matter of months and the pandemic is nowhere near its end.
Moreover, it is not just cash that came under scrutiny during the Covid-19 pandemic but also instruments that facilitate its use. We have seen specialists warning the public about using ATMs too. And some studies show that credit cards may potentially be even more contaminated than currency.
All this led to an increase in consumer demand for all forms of contactless payment. As reported by The Futurist Group in a March research, the WHO announcement initiated a huge shift in consumer payment preferences. According to the research, 38% of consumers evaluating a credit card offer with a contactless feature indicated that this feature is a “table stake” need, a 26.6% increase compared to the period prior to WHO warning.
What Cashless Society Means for Bitcoin?
Some experts predict that the immediate future of money may not be in fact cryptocurrencies but the CBDC. Still, Bitcoin’s adoption will likely benefit from the governments’ efforts to discontinue paper money.
An important thing to consider here is that without cash there will be no convenient and reliable means to transact value without the government tracking and controlling your money other than Bitcoin. If there is no cash then all illicit activities will indeed shift to Bitcoin. Yet without cash, it would be nigh impossible to money-launder darknet Bitcoins and withdraw them into the normal economy. This may lead to a situation where two economies exist simultaneously and do not really interact. One—absolutely transparent and controlled by the government, and another—anonymous, volatile, and shady.
This leads to a surprising conclusion that Bitcoin perhaps needs the cash as a scapegoat and a buffer to avoid actually being marginalized and dogged by the state.
Governments claim that CBDCs will enable them to better protect citizens from criminals and terrorists. This is true but still ignores the risk of the government itself becoming corrupt and tyrannical. Total control over money will make such a corrupt government incredibly potent and virtually invincible.
Bitcoin can become the financial equivalent of the second amendment. A weaponized financial instrument to protect citizens from the corrupt government.
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