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Cryptocurrency and Bitcoin: Is this the future of banking in the 21st century?

Most of us have heard of Bitcoin, even if we haven't used or invested in the digital currency. Bitcoin is one of the world's first and most well-known bitcoin exchange and cryptocurrency wallet providers. Unlike regular government-issued money, bitcoins only exist virtually. They are not regulated the same way as typical currency as a cryptocurrency has no central authority like the Bank of Canada and no central bank that issues and regulates its use. Instead, bitcoin payments are processed through a network of private computers linked through a shared online ledger.
 
Bitcoin can be exchanged with other private users as payment for services or debt and can be used to purchase goods from a growing number of recognizable merchants. Even though bitcoin hasn't found success as a mainstream, transactional currency, it is increasingly used in scams and facilitates illegal activities on the dark web.
 
At this time, Canada's financial institutions do not permit cryptocurrencies to be purchased through bank-issued credit and debit cards. SCU does not process transactions involving bitcoin or other forms of cryptocurrency. At this time, SCU does not offer our members the use of cryptocurrency. However, as the use of digital payment evolves, we will continue to evaluate our policy on cryptocurrency.  
 
For hundreds of years, central banks worldwide have been providing currency as part of the government's public policy. To evolve and meet a changing world's needs, central banks are looking at the pros and cons of offering the public a general-purpose central bank digital currency (CBDC). 
 
For those who are thinking of entering the cryptocurrency market, you must do your research, and understand that there are no safeguards in place should you fall victim to fraud. Much like the stock market, the more you know, the more you can protect yourself, and the better decisions you can make.


Six things you should consider before using or investing in cryptocurrencies
 
  1. Review your risk tolerance. You should only invest what you are willing to lose.
     

  2. Do your research and due diligence. Don't invest unless you have a thorough knowledge of how cryptocurrencies operate, including their tie to illegal activities and transactions on the web.
     

  3. Cryptocurrencies are risky. It's challenging to predict the price of bitcoins and is, therefore, a riskier investment.
     

  4.  There is a fixed supply of bitcoins. (21 million) This limited supply can cause prices to fluctuate significantly, even over a day, as supply and demand rise and fall.
     

  5. Security is essential. Protect your bitcoins with a reputable online wallet organization, since virtual currencies can vanish and pose a risk as bitcoins can't be stored in a physical place.
     

  6. Cryptocurrency attracts hackers and scammers. Like any valuable item, bitcoin has attracted hackers and scammers who can target computer files and programs with malicious software.

 

Why are cryptocurrencies gaining popularity?
  • Cryptocurrencies are the new frontier and offer the potential for significant financial gains, which attracts interest and investment

  • Peer-to-peer transactions allow for direct exchange over the internet without a go-between

  • Bitcoin mined by complex computer algorithm that generate a verification code without any human contact

  • No government or third-party are involved, so mining is decentralized and overseen by the user community using a central ledger that all can see

  • Fast, free or with low transaction fees way of exchanging currency

  • Bitcoin does not require currency conversion and, therefore, can easily be used for international purchases

 

Key considerations before getting involved in cryptocurrencies
  • Still early in development (11 years) and not widely accepted by most businesses

  • Requires knowledge and understanding of the industry and of open and unregulated cryptocurrency markets

  • Cryptocurrency markets are highly volatile, with numerous risks and instability, so enter at your own risk

  • No refunds or recourse if something goes wrong during a transaction or within your digital wallet

  • The cryptocurrency market is known to be a centre for black market activity

  • Environmental impact is substantial as bitcoin relies on thousands of computers operating continuously (server farms) and require vast amounts of power to run and cool these "farms," emitting large amounts of carbon dioxide into the environment


For more information on the future of bitcoin in a changing digital world, read more in the joint report from the Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and Bank for International Settlements (BIS) on an international central bank digital currency: Central banks and BIS publish first central bank digital currency (CBDC) report laying out key requirements.

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