The cryptocurrency grew in 2021.
According to the cryptocurrency exchange Coinbase, the market grew more than 250% annually as of December 15. Known for a long time as Bitcoin, the leading currency, the market has diversified into more than 11,500 currencies with various functions and uses.
While many investors see great potential in cryptocurrencies, the market still has doubts, from its complexity to its volatility and lack of regulation. And while it has yet to take off as a form of currency, both in Arkansas and beyond, some policymakers and investors see great potential for it to move forward.
'THE DIGITAL CURRENCY OF THE INTERNET'
Cryptocurrencies, which belong to a broader group of assets that use blockchain technology known as crypto assets, are digital tokens that are exchanged through the blockchain. This distributed database acts as a complex virtual ledger that can quickly and efficiently verify ownership of an asset while ensuring secure and decentralized transactions.
โCrypto assets were designed to be an online way to get around all bank expenses; completely peer-to-peer, no middlemen, no banks, no government, no supervision, no fees, no delays, โsaid Carol Goforth, a professor of law at the University of Arkansas who has become a leading scholar in regulating the crypto assets. "It was originally designed to be a substitute for currency, where the government knows everything you are doing."
"It's the digital currency of the internet," said Chad Yoes of Bentonville, general partner at Centurion Crypto Fund 1.0, a digital currency fund that simplifies and provides easy access to cryptocurrency investments for accredited clients. "It is a very complex market and has many nuances."
Cryptocurrencies and crypto assets serve a wide variety of uses, from currencies specifically for use in video games to a broader use of blockchain technology that can monitor and provide transparency in areas such as supply chains. Goforth noted Walmart's collaboration with IBM to work with farmers to track their products using blockchain technology.
"So if there is something that is contaminated, they can quickly and safely track it down and avoid throwing away good food while quickly throwing away anything that is contaminated," he said. โIt took a couple of weeks to do it with conventional tracking methods and a few seconds to do it once we had everything on the blockchain.
"The uses are really only limited by human imagination and ingenuity," he added. "And we've really only scratched the surface of what can be done."
Crypto's utility has attracted more than 100 million investors worldwide, but the lack of regulation carries risk. The Arkansas Securities Department (ASD) regards cryptocurrency as "a speculative investment for retail investors looking to purchase digital currency or derivative products for profit" and urges investors to exercise caution.
"The recent wild price fluctuations in cryptocurrency-related investments can easily tempt unsuspecting investors to rush into an investment that they may not fully understand," said ASD Commissioner Eric P. Munson. โCryptocurrencies and the investments linked to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart. "
'BIRTH STAGES'
Yoes said that the cryptocurrency is still in its "nascent stages" of use in Arkansas and has yet to be used as a widespread form of payment. The lack of service is partly due to cryptocurrency owners holding onto their tokens rather than selling or trading them and the general volatility of cryptocurrency prices, creating instability when using them as payment for services.
Currently, the Arkansas Department of Securities does not plan to accept cryptocurrency as a form of payment due to that volatility. But Yoes said that there are stablecoins to choose from.
"If that was your fear, both on the merchant and consumer side, there are currencies you could be in that are much more stable and less volatile," Yoes said.
For cryptocurrencies to proliferate as a real currency rather than simply a commodity, Yoes said providers will have to โget tired of paying commercial fees to a credit card company.
"They're going to realize, 'Wait a minute, I can save 3.5% using this token,'" he said.
NON-FUNGIBLE TOKENS
While blockchain technology is currently used in different ways across the state, crypto assets themselves have yet to see widespread use in Arkansas. One area that may soon see adoption are non-fungible tokens (NFTs), which use the blockchain to represent ownership of real-world items such as music, art, and other media.
According to Yoes, the technology has a practical use, specifically in areas such as ticketing.
"The most practical use of the NFT market is to verify ownership and authorship," Yoes said. "So if you had something you wanted to avoid some kind of counterfeit asset on, like tickets to a sporting event or concert, the venue can scan it and instantly determine if it's a legitimate ticket or not."
According to Kevin Trainor, senior associate athletic director for public relations at the University of Arkansas, the athletics department is exploring NFT but has no immediate plans to adopt the technology.
"We are reviewing his position and perspective in the industry, his various applications and his position at the conference level," said Trainor. โHowever, I wouldn't say that something is imminent about that at this point. We are only analyzing the space, as we do with other emerging trends within the industry โ.
REGULATORY RIGAMAROLE
According to Goforth, crypto assets face challenges that could threaten their proliferation in the coming years. The crypto market provides a new opportunity for money laundering and other financial crimes that have drawn the attention of the federal government. The new infrastructure bill expands tax reporting requirements for cryptocurrency transactions, requiring brokers to issue 1099-B forms to investors. And federal administrators such as Federal Reserve Chairman Jerome Powell and SEC Chairman Gary Gensler have raised concerns regarding cryptocurrencies and hinted at additional regulations.
But Goforth sees the regulations as vague and potentially stifling.
"We need to clarify the regulatory structures and environments and make sure they are balanced," he said. โI understand the risk of fraud and criminal elements, but I am not sure that regulators will do more than talk about the reality that this is also a very exciting and potentially positive technological development that we must avoid stifling. And I think the regulatory system that we have now is very close to stifling innovation, and I hope that will change. "
Going forward, Goforth envisions Congress passing additional regulations on stablecoins, which are cryptocurrencies tied to a more stable reserve asset, such as the US dollar or gold. Then you see government-backed digital currencies that will provide additional legitimacy to the market and attract new users and investors.
Yoes also predicts that the crypto market will continue to grow, but sees a need for greater simplicity and confidence.
"Cryptocurrencies will have to become simpler to explain and be accepted with faith," Yoes said. โPeople have to have faith in cryptocurrency and embrace it for widespread use. That comes from more users. At the end of the day, when it reaches 1 billion users, everyone will know that it is here to stay. "
