Cryptocurrencies, digital currencies that use cryptography to secure transactions, have gained immense popularity in recent years, transforming perceptions of traditional financial systems. They are primarily traded as investment instruments. Despite outperforming the well-established S&P 500 stock index over the past decade, cryptocurrency investments remain highly volatile and risky, notes Vitalie Rapcea, Program Director at Expert-Grup, in an informational note reported by IPN.
As their name suggests, cryptocurrencies are encrypted digital currencies. Unlike traditional transactions requiring centralized intermediaries, cryptocurrency transactions are validated through blockchain technology. However, as a medium of exchange, cryptocurrencies fall short compared to fiat or electronic currencies. They are accepted by only a limited number of merchants or e-wallet operators, and many countries have regulations prohibiting their use within their jurisdictions.
Cryptocurrencies have gained traction primarily as investment tools. About a year after the launch of Bitcoin, the most popular cryptocurrency, it was first used for a tangible purchase on May 22, 2010, when 10,000 bitcoins were exchanged for two pizzas. This day, now celebrated as "Bitcoin Pizza Day," marks a significant milestone in cryptocurrency history. By October 2024, those 10,000 bitcoins were worth over $628 million USD. Cryptocurrencies are not backed by any tangible assets, contributing to their extreme volatility. Unlike national currencies, which are guaranteed by central bank reserves and monetary policy, cryptocurrencies rely solely on public trust in these payment instruments.
Cryptocurrency transactions are highly valued for their anonymity. Their issuance and circulation are decentralized, reducing reliance on a single intermediary. Unlike financial markets or banking institutions, which operate on fixed schedules, cryptocurrency transactions can occur 24/7 without trading limits, avoiding currency exchange fees.
However, one significant drawback, according to Vitalie Rapcea, is their limited acceptance as a medium of exchange. Many countries deem their use illegal. Cryptocurrencies lack intrinsic value, like precious metals, and unlike national currencies, their issuance is not guaranteed by any authority. Their high volatility increases the risk of substantial losses during transactions or sales.
Cryptocurrencies are also favored for illicit transactions. In 2023, illicit transactions conducted using cryptocurrencies amounted to approximately $24.2 billion USD, or 0.34% of the total cryptocurrency transaction volume, the author notes.
In Moldova, the provision of cryptocurrency trading services is prohibited, with cryptocurrencies classified as virtual assets. Offering virtual asset services is also banned, with non-compliance punishable by both civil and criminal penalties. Financial institutions are not permitted to facilitate transactions from residents to foreign cryptocurrency service providers exceeding the equivalent of 50,000 lei in a month. Furthermore, reporting entities must implement enhanced due diligence measures for these clients.
Vitalie Rapcea concludes that cryptocurrencies and blockchain technology hold immense potential to transform the financial system, including through the introduction of central bank digital currencies (CBDCs). However, cryptocurrencies also present significant risks. Extreme price volatility remains a major concern for investors, while inadequate regulation exposes the market to fraud and illegal activities. Cybersecurity risks, such as hacker attacks on digital wallets and exchanges, emphasize the need for robust security measures. Additionally, the environmental impact of cryptocurrency mining cannot be ignored, requiring sustainable and innovative solutions.
