Influence of the Cryptocurrency on the Economic Component of National Security

Abstract

This study is dedicated to researching the impact of cryptocurrency markets on national security, specifically analysing how cryptocurrency's ability to function as conventional money can distort the supply and demand of money, accelerate inflationary processes, and facilitate an increase in illicit transactions (such as drug and weapon trade, and terrorism financing). It is evident that inadequate regulation of professional participants within the cryptocurrency market can result in substantial losses for both the public and businesses, leading to adverse macroeconomic effects. Using the FTX crypto exchange bankruptcy as a case study, this research illustrates the potential for a cryptocurrency-induced crisis to spill over into stock and currency markets. The study relies on statistical data to demonstrate that the national security risks associated with cryptocurrencies are closely linked to the size of the local economy. In response to these findings, this article provides recommendations for national regulators to mitigate the risks posed by cryptocurrencies to national security. Furthermore, it underscores the importance of global regulation of the cryptocurrency market and the revitalization of central bank digital currency (CBDC) issuance. These measures are proposed as effective ways to reduce cryptocurrency risks, particularly for smaller economies.

Keywords

• cryptocurrency
• national security
• risks
• function of money
• fiat money