Band 9 Model Essay and Vocabulary-Cryptocurrency

New forms of money are appearing at an ever-faster rate. Is this a positive development or adding risk to the system? Should new money technology face greater regulation and scrutiny? 

As progress in technology seems to quicken each year, it is inevitable it will start to encroach into new areas such as finance and even currency. This essay will review the modern advancements in the fintech world and determine both the risk and regulation situation. 

Firstly it is abundantly clear that technology is disrupting practically every industry, especially the financial sector. Finance has been a relatively stable industry for decades and has faced a deluge of regulations in order to manage and mitigate risk. Occasionally technology outpaces government regulations and new sectors and even new money is born. For example, cryptocurrencies such as Bitcoin are new forms of money based on blockchain technology. Due to their newness and relative obscurity, they are often quite volatile and therefore often deemed risky. However, with this new technology comes vast new opportunities, for example, someone who holds Bitcoin can now deposit it with companies such as Nexo and Celsius and gain a very healthy rate of interest, often upwards of five per cent. Not only can they deposit their Bitcoin they can also get a loan against it, this could be extremely useful for those who do not want to sell but need instant money. Although all these new developments may seem a little risky at the outset one must not forget the global financial crisis of 2008 caused by a so-called highly regulated and ‘mature’ industry. It is therefore clear that although these new types of money may seem risky, to date, even regulated finance is not immune to risk and depravity. In summary, given recent historical financial events, it would seem shortsighted, narrow-minded, and almost absurd to even consider that the new technologies adversely affect the risk equation in modern finance. 

New money technology should be legally treated the same way other financial institutions are treated, or perhaps even more leniently. Firstly, it is important that new technology gets the opportunity to evolve, mature, and ultimately disrupt the current field. Although old money transfer companies such as Western Union are expensive, due to technology they are finally facing serious competition from newer entrants. For example, younger startups such as Wise.com can also transfer funds but at a much more competitive rate, and often faster. This company faces similar regulations as the incumbents which protect users and prevent nefarious actors from abusing the network. Other technologies such as cryptocurrencies can also be used to transfer funds, however, at yet even lower rates and faster still. Although the regulatory environment has failed to keep up with the pace of blockchain technologies it is clear the benefits for consumers are profound. In fact, the sooner the government can legislate the better because this would reduce risks and also level the playing field between competitors. For example, currently, users of blockchain transfers lack the same legal protections and rights as users of other companies such as Wise.com. Therefore it is clear that updating the legislation so as to include new technologies would bring fairer competition for the industry players and a safer experience for users. 

To conclude, new forms of finance such as cryptocurrencies are possibly riskier for consumers than traditional finance, however traditional finance seems riskier for the entire world’s population. For this reason, it is difficult to determine the level of risk we are facing. Regarding regulation, new technologies should face the same amount of scrutiny as other competitors in the field. This should increase safety for all the market participants and even bring about improved services....