Cryptocurrencies are currently being given many names. And with no agreed approach to naming and status between Governments and their supervisory bodies, it can be very confusing for the user.
Or COINfusing, if you like!
What’s in a name?
Here are some of the names and titles currently given to online currencies:
- They are a ‘commodity’ in the US and Finland
- A ‘virtual commodity’ in Hong Kong
- A ‘financial instrument’ in Germany
- An ‘electronic currency’ in Iceland
- A ‘speculative asset’ in France and Norway
- And a ‘Digital Representation of Value’ (ESAs) in a variety of other locations.
Some nations are so unsure about the use and status of cryptocurrencies they’re avoiding giving them any definitive name or classification.
When is money not money?
Many Governments are at least clear on what they do not think cryptocurrency is. Most countries agree that this is not ‘legal tender’ and these include Belgium, Sweden, Argentina and a number of others.
It is ‘money with no legal status at all’ in South Africa and quite simply it’s ‘no currency’ in Colombia and Singapore.
How is it licensed?
The licensing varies enormously too.
Some member states chose for a separate licensing system, others choose to put AML obligations on cryptocurrency service providers. Others use an existing licensing system like e-money or class it as a ‘defined asset.’
Others feel that as cryptocurrencies are not created or controlled by any central entity, currently there are no suitable and applicable financial regulations.
One thing we can all perhaps agree on; cryptocurrencies would benefit from having a globally agreed legal status.
Perhaps because of the current confusion, cryptocurrency is currently being given an array of warnings and has received plenty of negative news coverage.
The three main concerns Governments raise are price volatility, its inherent anonymity and its association with the dark web.
The ESAs have therefore come up with a list of risks that users face and these include a lack of exit options and lack of price transparency.
What’s more, these warnings keep coming.
A deeper agenda?
The risks and warnings are clearly there but should we also question whether these serve another (political) agenda?
The fundamental question is; should states always be able to maintain currency monopoly?
Essentially, Governments control their economies and inflation rates through the Fiat currency system and through money creation. This of course, requires a high degree of control.
Perhaps a hesitance to embrace cryptocurrency is driven by the desire to maintain full exchange controls.
Let’s not forget the benefits
Don’t forget however that there could be many benefits here too.
Because cryptocurrencies are potentially cheaper, faster and more secure, they could make online payments more efficient and reduce transaction costs.
If financial regulatory bodies and Governments embraced and promoted these the benefits (and also came together to agree safeguards) then we could see a significant cultural shift.
US took the lead
Interestingly, among those calling for greater regulations are the cryptocurrency exchanges themselves.
New York of course took the lead and was first to issue comprehensive regulations for Bitcoin and others.
What’s more, the scope of the New York licensing is broad and is not limited to exchange platforms but also includes AML obligations and consumer protection.
It also acts on business continuity and cyber security.
Whilst some say that the Big Apple’s BitLicense may be burdensome and expensive, a number of other jurisdictions seem to be following this lead.
Here in Europe for example, the final text for the 5th AML directive was politically agreed at the end of 2017.
This is now awaiting adoption by the Parliament and Council but when in place this would represent a significant and welcome step towards unilaterally agreed controls around AML for cryptocurrency exchange platforms and wallet providers.
The operators are ahead of the game
The markets are however not waiting for the regulators to make up their minds!
On the whole they acknowledge that self-regulation is necessary.
Many crypto platforms have already implemented controls to mitigate risks and one example is CryptoUK which is a self-established and self-governing body that has created its own codes of conduct.
The more self-regulation can be agreed by operators and co-adopted, the more this (hopefully) will the aid international agreement.
There is clear need therefore, for regulators and states to come together and adopt a unilateral approach.
If this does not happen, this highly significant innovation within international finance and commerce will continue to be stifled.
This blog is a summary of a presentation given by Michael Burtscher of Minerva and I. Check out the full slide deck here: https://www.slideshare.net/Minerva2018/cryptocurrencies-and-aml