Fate of Cryptocurrencies: Legitimate or Illegal?
By Hammad Hanif on ALTCOIN MAGAZINE
“I understand the political ramifications of cryptocurrencies and I think that government should stay out of them and they should be perfectly legal”
Ron Paul (Former US Politician)
FATF, IMF & G-20 Giants are planning assiduously to bring cryptocurrencies under the Regulatory Umbrella.
From the presentation of Bitcoin Whitepaper in October 2008 and the subsequent launch of BTC (A Peer-to-Peer Electronic Cash System) in January 2009, the authorities & standards of World’s Giant Economic & Monetary Systems were being challenged, although no one was aware of that gradually spreading cryptographic virus at that time. But with the passage of time, Financial Markets as well as Regulatory Watchdogs have been seen worried about the instantaneous adoption & popularity of digital currencies among the masses.
Although, present economic & financial world has admitted the benefits & innovative applications of Blockchain Technology, which is also the back-end base technology of these digital or virtual currencies, but still some features of said currencies are manifesting critical risks & alarming scenarios which have been seriously criticized & brought under considerations, with respect to multiple core issues including Money Laundering & Financing of Terrorism, by the domestic as well as international regulatory bodies.
Before discussing the positive as well as alarming aspects of Virtual Currencies, let’s have a look into their major characteristics.
Virtual currencies can be defined as a digital representation of value and have the following characteristics:
1. A Medium of Exchange.
2. A Unit of Account.
3. A Store of Value but does not have legal tender status.
So, digital currencies are neither issued nor guaranteed by any jurisdiction and performs the above mentioned functions only by agreement within the community of its users.
Talking about the positive impacts of digital currencies, these are much innovative & systematic in nature. Below are some green points:
- No chances of frauds or alterations in transaction ledgers due to immutable nature of blockchain technology.
- Its transactions are fast & secure due to the use of cryptographic algorithms as compared to the traditional fiat currency system.
- No hype of Inflation because of finite & limited supply of cryptocurrencies. For example, Bitcoin has only 21 Millions in quantity which are expected to be mined till year 2140.
- Cost Effective due to non-involvement of intermediaries or 3rd parties.
- Give People control of their own money i.e. it allows the control of money to be transferred from banks and back into the hands of people.
When it comes to the drawbacks of digital currencies, these are also much sensitive & controversial. Below are some red indicators:
- It works under pseudonymous or anonymous identities of alphanumeric addresses.
- Extreme Price Volatility & Lack of Inherent Values i.e. Bubble Phenomenon rather than a stable financial system.
- As a digital stuff, cryptocurrencies are subject to the high level of cyber-security breaches.
- Lack of jurisdictional & regulatory framework and thus using for illicit activities e.g. money laundering, terrorist financing, drug trafficking & dark web activities etc.
- Excessive Use of Energy Resources for Mining of Cryptocurrencies e.g. its is estimated that almost 5,085,995 US Households can be powered through Energy Consumption taken by Bitcoin Mining annually.
Now, What about the trends of Global Regulatory Bodies towards the adoption or rejection of virtual currencies?
Paris based Inter-governmental regulatory body Financial Action Task Force (FATF) is currently working on the development of regulations on virtual assets for the guidance & final adoption of member countries thereafter in June 2019.
As Per FATF’s opinion “The legitimate use of virtual currencies offers many benefits such as increased payment efficiency and lower transaction costs. Virtual currencies facilitate international payments and have the potential to provide payment services to populations that do not have access or limited access to regular banking services.
However, other characteristics of virtual currencies, coupled with their global reach, present potential AML/CFT risks, such as:The anonymity provided by the trade in virtual currencies on the internet.
The limited identification and verification of participants.
The lack of clarity regarding the responsibility for AML/CFT compliance, supervision and enforcement for these transactions that are segmented across several countries.
The lack of a central oversight body.”
International Monetary Fund (IMF) & World Bank are also concentrating on the effects of adopting blockchain technology & virtual assets. Presently, it is also being heard in crypto news platforms that IMF & World Bank are also developing their own “Learning Coin” to better understand how blockchain technology & crypto-assets works. IMF recently described the impacts of Distributed Ledger Technology & cryptocurrency in the following words:
“The development of crypto-assets and distributed ledger technology is evolving rapidly, as is the amount of information (both neutral and vested) surrounding it. This is forcing central banks, regulators and financial institutions to recognize a growing knowledge gap between the legislators, policymakers, economists and the technology.”
IMF Managing Director Christine Lagarde contributed that Distributed ledger technologies like cryptocurrencies and digital assets are “shaking the system”. She also warned that innovation in the banking sector needs to be accompanied by regulation to maintain stability and trust in the system.
G-20 Summit Leaders are also bringing cryptocurrencies under discussions in upcoming session on June 8 & 9 at Fukuoka, Japan. The particular focus of economic giants will be the on the critical aspects associated with cryptocurrencies i.e. pseudo anonymity, terrorist financing as well as money laundering. Moreover, bringing crypto-assets under tax umbrella will also be a core discussion point at summit. This upcoming G-20 event will definitely have a broad & lasting impact on setting the standards & directions of cryptocurrencies in global financial & economical markets. It will also assist to generate trust factor between crypto enthusiasts & governments and may prove a key factor too for the revival & restoration of crypto market capitalization which is suffering from bearish trends since 2018. It is also worth mentioning that the host country of G-20 summit i.e. Japan was the first country in the world to adopt concurrency as legal tender and today Japan is leading the world in cryptocurrency acceptance, regulation, and even legalization along with the fact that Japanese yen averages 11% of global trading volume for BTC.
While concluding the blog, I will definitely endorse the words of wisdom that technology will change, and so must we. Every emerging & innovative technology has its own pros & cons and we must contribute as well as support the positive attributes of that technology for the ultimate goal of its implementation for the benefits of global community & stake holders. No doubt, cryptocurrencies are constituting serious threats to the world in terms of money laundering & its applications in terrorist financing & dark web platforms but still it can be used in more innovative & exploring ways in financial, economical & social platforms under certain basic rules & regulations. For example, we all know that the cross border funds transfers through blockchain technology is much safer, easier, faster & cost effective as compared to that of initiating through traditional financial setups. So, we can use & promote that benefit of cryptocurrency after devising & implementing proper KYC/AML Regulations for that particular sector. And that’s why, global regulatory bodies & watchdogs are also admitting & accepting the presence & importance of blockchain technology & cryptocurrencies with the passage of time and soon we will experience a blockchain friendly universe in upcoming future.
So, what are your views about the roles, applications & impacts of cryptocurrencies & Blockchain Tech in our financial, economical & social lives? Feel Free to comment & suggest. And one more thing, if you consider my first-ever blog post informative & efficacious then do not forget to share it in your social circles! :)
References:
http://www.fatf-gafi.org
https://www.imf.org
https://www.cnbc.com/2019/04/11/cryptocurrencies-fintech-clearly-shaking-the-system-imfs-lagarde.html
https://www.skalex.io/crypto-japan/
https://digiconomist.net/bitcoin-energy-consumption
