The Global Financial Crisis of 2007-2008 marked the inception of a new digital currency: Bitcoin. Launched to the public in 2009, we now know this currency as Bitcoin, the most in-demand and valuable cryptocurrency.

However, more than a currency, Bitcoin was a catalyst: since its genesis, the world has seen a manifold of currencies emerge.  

But what has exponentially increased the popularity of these digital currencies? For one, transferring money has become easier than ever with cryptocurrency, as there is no involvement of financial institutions. Transactions can now be performed within a matter of minutes, while the traditional transactions through a US bank can take 24 hours or longer. Secondly, digital currencies are more readily accessible to investors and users, as you only need internet connection to use the currency. 

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While cryptocurrency has its fair share of advantages, users still run many risks.

Their dangerous reality is only further exacerbated by the lack of protection from the government. 

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The Federal Deposit Insurance Corporation, also known as the FDIC, was established in 1933 during The Great Depression in order to restore public trust in banks. The FDIC insures $250,000 per depositor, protecting that money in the case of a bank failure. 

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The problem with cryptocurrency, however, is that it lacks the governmental support that the FDIC had, meaning that there are no federal protections in place for digital currencies. Now, if you lose the money, it’s gone. In addition, users can be easily swayed by influencers or organizations to depend on certain currencies that are merely advertised as safe, when in reality, they’re not.

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In one specific case, users of the failed exchange FTX experienced what can be labeled as a digital run on the bank. After users started questioning the exchange’s ability to meet financial obligations, money was pulled out, leading to disastrous failure. Although 98% of FTX users will be getting their money back, it’s still a prime example of the major risk that users of digital currencies face.  

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Despite the increased risks associated with digital currencies, there are still some that argue that cryptocurrency should have less regulation. However, the International Monetary Fund recognizes that, “Without robust safeguards, the increased risk of fraud and misconduct could adversely impact investors’ expected returns.” With more regulation and intervention from the government, investors would be protected, increasing reliability on digital currencies and establishing efficient markets.  

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As digital currencies begin to gain more traction, the necessity for regulation becomes evident.

Similar to the FDIC, by fostering more regulation and consumer protection, cryptocurrency can gain public trust and encourage its usage. 

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Sources: 

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https://www.forbes.com/advisor/in/investing/cryptocurrency/advantages-of-cryptocurrency/

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https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance/

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https://www.investopedia.com/crypto-insurance-5441920#:~:text=Although%20the%20U.S.%20Federal%20Insurance,federal%20protection%20exists%20for%20cryptocurrency.

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https://www.latimes.com/business/story/2024-05-09/ftx-crypto-money-back#:~:text=Nearly%20all%20customers%20of%20FTX,would%20be%20available%20for%20distribution.

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https://apnews.com/article/ftx-crypto-bankman-fried-creditor-6365ceb2565deb891da9b268db94b7a8

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https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors#:~:text=Without%20robust%20safeguards%2C%20the%20increased,the%20broader%20implications%20of%20crypto.

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