Tag: Cryptocurrency regulation

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Crypto Daily Topic

Is There a Looming Race for Digital Currency Supremacy?

Being the first of its kind, Bitcoin can be termed as the king of cryptocurrency – a position that can also be attributed to its large user base. 

Being the first of its kind, Bitcoin can be termed as the king of cryptocurrency – a position that can also be attributed to its large user base. 

Being the first of its kind, Bitcoin can be termed as the king of cryptocurrency – a position that can also be attributed to its large user base. 

Ever since its inception, this digital currency has inspired the launch of similar, or rather improved iterations, of new cryptos. As a result, the market is quite flooded with cryptocurrencies, each offering a unique utility point, in a bid to establish undisputed authority in the crypto-market. 

The race to dominating the crypto-space has grown exponentially to a point that it has attracted the attention of government institutions, who are seeking to regulate blockchain and all crypto assets. 

While most government institutions are playing catch-up, giant tech companies such as Facebook are laying plans on launching their own digital currency. So, the real question is, who is likely to win the digital currency race? Will it be a state or a private entity? 

The Case for Facebook’s Libra coin

Less than a year ago, Facebook announced that it would launch a digital coin called Libra. The coin is aimed at connecting thousands of people who don’t have immediate access to traditional banking systems. From the surface, Libra could indeed be a financial game-changer, as the giant tech company is banking on its massive international user base. This also translates to more profits for the company on top of its record high revenue generated from the advertisement.  

But the road to launching Libra, so far, has been nothing short of challenging. Lawmakers, especially in the U.S., were quick to grill Facebook’s plan on the basis of privacy concerns.

Unfortunately, the company hasn’t been in the good books as far as users’ privacy is concerned. As such, the U.S. Congress viewed its extension into the financial realm will likely result in more cases of consumers’ privacy violation. 

However, looking at what Libra can help users achieve, a good number of businesses will likely buy into it; despite Facebook’s disregard for privacy. For starters, the social media platform connects businesses to millions of potential customers. Put Libra into the picture, and Facebook transforms from just a social media platform to an e-commerce and financial marketplace, where customers can shop online using the built-in digital currency. This will be by far a great opportunity that many small businesses can’t resist. Also, Libra’s white paper outlines big brand partners such as MasterCard Inc, Visa Inc, and Uber Technologies, who’ve signed up to invest in the coin’s growth. 

But, for those who are unwilling to cede their personal details to a company that has always shown it can’t be trusted, the big-name partners can be seen as pathways for mitigating the regulatory measures and privacy criticism that Facebook faces. 

Central Banks Race

Sure, cryptocurrencies, in general, have been met with a lot of skepticism credit to their potential to disrupt global finance. Blockchain – the underlying cryptocurrency technology- is still in its infancy stage, which also attracts more speculation on digital currencies. 

Despite the backlash from finance regulators, a handful of countries are warming up to cryptocurrencies and its potential to revolutionize global finance. 

A good example is China, where the country’s central bank – People’s Bank of China (PBOC) – is closer than ever to digitizing the Yuan, China’s official currency. This move has been endorsed by President Xi Jinping, who believes blockchain is an integral part of China’s plan to become a high-tech superpower. 

Following closely behind is Japan, where the legislators are exploring the idea of issuing Central Bank Digital Currency (CBDC) in the form of a digital Yen. Apparently, the process of digitizing the national currency will be a joint venture between the Japanese Government and several private companies. Nonetheless, the goal is to give Japan an upper-hand in the cryptocurrency industry. 

Many believe that Japan’s plan to issue a CBDC is in response to the fear of competition from China, who are also digitizing the Yuan. Facebook’s Libra coin is also part of the reason why Japan is joining the race for digital currency supremacy. This is due to the fact that Libra is backed by different fiat currencies, making it hard to manage since it can’t be pegged to a single county’s politics. 

Western Countries Response

Western economic powers haven’t been as fast as expected, in adopting or promoting the use of digital currencies. In fact, since the birth of blockchain, some Western Countries have been actively inhibiting the growth of cryptocurrencies through strict regulatory laws. Case in point, the U.K. is determined to ban crypto derivatives in addition to planning on taxing crypto users. Things aren’t any better for crypto users in the U.S., where the IRS has managed to stub out several crypto start-ups. 

Recently, however, the western countries have realized the futility of blocking digital currencies. The European Central Bank (ECB), in particular, is working on a digital currency that could be an alternative to private providers. There have been notable moves by central banks in Canada, Switzerland, and Singapore, where they are looking at adopting a digital currency, as the use of fiat currencies decline. 

As countries and private entities try to establish their dominance in the crypto-market, the world’s largest central bank, Bank of International Settlements, aims at keeping the race co-ordinated and less chaotic. For this reason, the institution has appointed one of the ECB board members, to oversee the development of a digital currency model that other central banks can easily adopt. 

In the U.S., several Congress members expressed in writing to the Fed chairman – Jerome Powell – their interest in pushing for the digitization of the dollar. According to these Congress members, the current skepticism surrounding cryptos will jeopardize the widespread acceptance of digital currencies in the long haul. 

Conclusion

Clearly, the race to establishing a sovereign digital currency has taken root. China is expected to emerge victorious in this race, owing to the political back up blockchain has received in the country. 

Facebook and Japan could be the closest rivals to China as the two already have an established framework to support their digital currency. The former is only held back by legal setbacks, while the later is yet to materialize its plan in comparison to China’s concrete effort to digitize the Yuan. 

Western countries, however slow they might be, will soon catch-up at their own pace. But for now, only time will tell who will win the race. 

 

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Crypto Daily Topic

Are Anti-Money Laundering Rules Hurting Crypto?

Netherlands-based cryptocurrency mining pool Simplecoin and Bitcoin gaming platform Chopcoin are shutting down over the fifth European Union Anti Money-Laundering Directive that is set to come into force on January 10, 2020. The proposed directive will require crypto operations in the EU territory to conduct Know Your Customer procedures on customers for anti-money laundering purposes. 

Netherlands-based cryptocurrency mining pool Simplecoin and Bitcoin gaming platform Chopcoin are shutting down over the fifth European Union Anti Money-Laundering Directive that is set to come into force on January 10, 2020. The proposed directive will require crypto operations in the EU territory to conduct Know Your Customer procedures on customers for anti-money laundering purposes. 

Netherlands-based cryptocurrency mining pool Simplecoin and Bitcoin gaming platform Chopcoin are shutting down over the fifth European Union Anti Money-Laundering Directive that is set to come into force on January 10, 2020. The proposed directive will require crypto operations in the EU territory to conduct Know Your Customer procedures on customers for anti-money laundering purposes. 

One of the basic tenets of cryptocurrency is privacy, and some crypto operations would rather close shop altogether than go against that principle. Indeed, Simplecoin argues this as the reason informing its decision to shut down: “We believe in the power of cryptocurrency and its potential. Mining should be available to anyone and we refuse to jeopardize our users’ privacy.”

Chopcoin’s website is currently inactive, while its Twitter page sent out a tweet on November 18th informing users that it will be suspending its services due to “regulatory concerns.”

This comes barely a week after UK-based crypto payments provider BottlePay announced its decision to cease operations on 31st of this month, citing an unwillingness to subject users to “the amount and type of extra personal information” that it would be required to extract from customers.

Some member states have even taken it a notch higher. In the Netherlands, it is alleged that the Central Bank and the Ministry of Finance are planning to introduce more rules than the ones outlined in the AMLD5.

While some crypto firms may be closing down over ideological reasons, others may be closing down due to the financial implications spelled by AMLD5. Wouter Vonk, the co-founder of Dutch-based crypto exchange Coingarden, which is also closing, has revealed that the new regulations “will come with serious costs”, forcing them to end operations.

What is the AMLD5?

The fifth Anti Money-Laundering Directive (AMLD5) entered into force in 2018 and will take practical effect in January 2020. EU member states are obliged to entrench the new policies into law by January 10th. Many crypto services regard the directive as privacy-intrusive.

AMLD5 is set to bring changes such as limiting the anonymity of cryptocurrencies, wallets and prepaid cards; increased exchange of information between anti-money laundering authorities, public registers for crypto entities; monitoring of transactions and reporting any suspicious activity to authorities.

Crypto Regulation in America

It isn’t just the EU that is cracking the whip on crypto operations. In the US, the Securities Regulation Commission continues to crack down on crypto-based projects, including those that seem to not have registered “properly.”

And the current administration’s reception to crypto has been hostile – to put it mildly. Treasury Secretary Steve Mnuchin has branded them a “national security threat”, while President Donald Trump has tweeted before that he’s not “a fan of bitcoin and other cryptocurrencies.” Some in the crypto community worry that the president could exercise his supreme powers and enforce more stifling regulations on cryptocurrency. 

Hurting More than Helping

These regulatory proposals could have a negative effect on cryptocurrency and the emerging blockchain ecosystem.

To begin with, the majority of such regulations are more likely to push out or hurt small crypto operators who can’t keep up with the costs of compliance.

And, of course, these regulations defeat the very purpose of cryptocurrency – to wrestle control of money from central authorities and provide censorship-resistant finance for all.

These proposals could also backfire. Crypto dealings may be pushed to the ‘underground’ world in exchanges that fall outside of ALMD5’s and other regulations’ scope.

Such blanket regulation also risks curtailing the flow of crypto assets, including that of honest actors. This is evident with the US where KYC requirements for banks, so as to curtail the spread of drugs, have been extremely financially taxing for banks. Also, entire regions such as the Caribbean have suffered debt thanks to the enforcement of indiscriminate compliance requirements. 

And overall, uncontrolled regulation could push up the costs of operating crypto enterprises, which would have the undesirable effect of stifling the growth of the crypto and blockchain infrastructure. 

Conclusion

With such increasingly stringent controls, what’s the future for the crypto space? Will it achieve the desired effect and curb illegal crypto use, or will it backfire and encourage such activity in less detectable platforms? It’s hard to tell at this stage.

What’s already clear is more crypto entities will be pushed out as they find it impossible to operate in the full glare of regulation or the costs that come with it. It will also be interesting to watch the effect of such regulations on the growth of the crypto sector and the burgeoning application of its underlying technology, the blockchain. 

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Cryptocurrencies

What Are The Real-Life Applications Of Cryptos?

The word Bitcoin first came to light a decade ago when Satoshi Nakamoto mailed cryptography nerds a technical white paper of what he called the new electronic cash system.” A decade later, it has become a household name, a pioneer in what seems like the next technology-inspired global revolution. The cryptocurrency itself and its anchor blockchain technology are now household names. But questions still abound about what Bitcoin really is and its real-life applications.

The word Bitcoin first came to light a decade ago when Satoshi Nakamoto mailed cryptography nerds a technical white paper of what he called the new electronic cash system.” A decade later, it has become a household name, a pioneer in what seems like the next technology-inspired global revolution. The cryptocurrency itself and its anchor blockchain technology are now household names. But questions still abound about what Bitcoin really is and its real-life applications.

The word Bitcoin first came to light a decade ago when Satoshi Nakamoto mailed cryptography nerds a technical white paper of what he called the new electronic cash system.” A decade later, it has become a household name, a pioneer in what seems like the next technology-inspired global revolution. The cryptocurrency itself and its anchor blockchain technology are now household names. But questions still abound about what Bitcoin really is and its real-life applications.

Chances are you are either familiar with the term Bitcoin or have interacted with this crypto technology at one point. You probably heard the interesting but cautionary tale about a cryptography nerd that paid for two Pizzas with 10,000 BTC just about the time the digital currency was gaining momentum.

Today, one Bitcoin is valued over $7,500, and at one time, it hit the highs of $20,000. The once worthless digital coin has now become a major topic in the global finance arena. Central bank heads and governments are rushing to tame the coin that they consider a threat to the government-controlled currencies. Some like China have banned Bitcoin use within its borders.

Note that while these political and policy challenges have contributed significantly to Bitcoin price volatilities, they have done little to negate its penetration into the global economy. And in this guide, we will be looking at some of the real-life applications of the Bitcoin digital currency. Here are a few:

Purchasing food and property:

You, too, can use bitcoin to pay for Pizza. Unlike in 2010, however, you don’t need 10,000 BTC to pay for it. The massive Bitcoin popularity has seen several fast food companies innovate their payment systems to include Bitcoin. The move has also seen the birth and adoption of the Pizzaforcoin technology that processes Bitcoin and 50 other cryptocurrency payments in the fast foods industry.

The bitcoin revolution has spread way beyond the fast-food industry and into the global eCommerce industry. Here, the ever-increasing number of online shops like Overstock and Microsoft will ship different products and process your Bitcoin payment option. Propy.com – an international real estate company – has started accepting Bitcoin payments whileMyCOINreality.com is also advertising homes that you can purchase using Bitcoins.

Inventive middlemen like Gyft are also making it possible for you to buy from popular eCommerce stores like Amazon and Target that don’t accept Bitcoin payments via the digital currency – albeit indirectly. To achieve this, Gyft helps you convert your bitcoins to gift cards that you can use to shop.

Paying for social and professional services

People around the world are also using bitcoin to pay for social/ entertainment and professional services. One of the online industries most impacted by bitcoin payments is the sports betting and casino industry that has grown tenfold since the launch of bitcoin. The primary driver of the explosive growth witnessed here is the fact that most of these bitcoin processing companies support anonymous betting, deposits, and withdrawals.

Traditional online casinos were highly regulated, taxed, and limited to the nationality of members that they can accept in their casino. Bitcoin casinos don’t report your winnings to the tax authorities, aren’t bound to a specific jurisdiction, and will process registration for individuals from virtually any part of the world.

Interestingly, you can also use Bitcoins to settle payments for different professional services. Lucerne University – a vocational art and science institute – in Sweden was among the first to process bitcoin payments for tuition. Ever since King’s College in New York, Cumbria University in the UK, and the European School of Management and Technology in Berlin have since started accepting Bitcoins. Law firms, hospitals, and accountancy firms have also joined the bandwagon.

Salary payment:

Japan has, on several occasions, and different global platforms been hailed for having the most progressive cryptocurrency laws. Here, bitcoin and a handful of other cryptocurrencies are accepted as a legal property that can be used in place of fiat currencies in monetary transactions throughout the country.

New Zealand would, however, make history as the first country to okay the payment of salaries, goods, and services and adequately regulate the bitcoin taxation process. Here, companies get to pay their employee salaries and goods and services via bitcoin while obeying the different tax laws like the Pay As You Earn (P.A.Y.E) deductions and other withholding taxes.

Alternative to inflation-stricken global currencies:

In Bitcoin, Satoshi Nakamoto saw the solution to all the inherent limitations of the fiat currencies, chief among them inflation. The inflation menace in almost every instance caused by having too much money in circulation, which effectively translates to a loss of the currency’s value. To arrest this and make Bitcoin inflation-proof, Satoshi limited the number of Bitcoins that will ever be created to 21 million coins.

All over the world, failed and failing nations like Zimbabwe and Venezuela have been witnessing cases of hyperinflation that make their currencies worthless. At the peak of inflation in Zimbabwe, for instance, saw the country’s inflation hit over 200 million percent. In Venezuela, inflation towers way above 10 million percent, and nothing seems to work – not even the devaluation of their Bolívar currency. The situation in the country is so dire that residents are using the bolivar notes to makes bags for sale in and outside the country.

In both of these countries, the tech-savvy and much of the elite class have already turned to bitcoin and other cryptocurrencies as a means of preserving their cash. While the rest of the country turns to the US Dollar and currencies of neighboring countries, this elite class has turned to bitcoin transactions. In Harare, Zimbabwe, for instance, there has been installed several cryptocurrency ATMs for Bitcoin and Litecoin aimed at providing the citizenry with highly reliable and trustworthy financial exchanges.

Sending cash home:

There is a staggering number of expatriates working all over the world. And they all have one common problem – finding a secure, efficient, and cost-effective means of sending cash home. Most avoid banks primarily because of their exorbitant fees, and also due to the heat, most of the institutions turn their way in the form of scrutiny by the host country governments. But they also don’t want to risk their cash by trusting these rather unconventional, unreliable, and equally pricey online payment methods.

Most of these individuals have, therefore, turned to bitcoins. The only time most of these will have to interact with their host country’s financial institutions is when converting their cash to bitcoins. Sending cash home in the form of bitcoins has gained track in recent years because the transfers are free. International bitcoin transfers are also safer and instantaneous, unlike bank transfers that often take as much as five days before the cash reflects on the home country’s bank accounts.

Trade and digital asset investments:

The global perception of Bitcoin and blockchain technology has tremendously improved, as evidenced by favorable bitcoin policies in most economies. However, most of these countries are yet to acknowledge the digital currency as a legal tender. Crypto operations have thus been left on the fringes of unregulated online trade. It, therefore, would be right to say that crypto trade on exchanges accounts for the largest form of crypto application in real life. In most cases, the traders on these platforms seek to exploit the highly volatile nature of digital currencies by profiting from their regular price fluctuations.

When Bitcoin first premiered in these crypto exchanges, it was valued at no more than a few cents. The forces of demand and supply would, however, see it skyrocket and hit $20,000 at its peak in early 2018. Today, one BTC is valued at over $7,500. Either of these figures and valuations represent thousands of percentage value growth in a short ten years.

Investment analysts have gone on to label it the best performing investment product, overtaking the traditionally hailed real estate and money markets. There also is a general feeling that all factors held constant; Bitcoin’s value will continue to soar. This has the in effect, created the next most popular form of real-life application of this coin – Bitcoin investments.

Unlike bitcoin trade, where traders buy the coin with the intent of selling it as soon it reports a small percentage jump in price, investment refers to a long term buy and hold strategy. Bitcoin investors will, in this case, buy and hold on the coin for the longest time with the intention of drawing maximal profits from its long term and consistent value growth.

Pay for travel and accommodation:

Apparently, you can book for your local or international air flight or accommodation and pay with Bitcoins. Travel companies like Cheapair.com make it possible for you to purchase air tickets and make accommodation bookings that you pay with Bitcoins. They will also connect you with cruises, tour guides, and even international cruises that accept bitcoin payments.

Donate to charity:

If you are passionate about charity and would like to donate to charitable courses, you don’t necessarily need to go through the troubles of converting your bitcoins to fiat currencies. The world isn’t short of not-for-profit organizations that accept bitcoin and other crypto donations. The most popular today, include The Water Project that builds clean water solutions in Sub Saharan Africa using pooled funds, Common Collections that donates pooled Bitcoins to refugees and underprivileged global communities, and even Julian Assange’s WikiLeaks that advocates for more transparency from governments and corporations by leaking what they consider classified information.

Buying and selling art

For the longest time, the art industry was dominated by the super-rich, who used art as a store of value. The landscape is, however, changing and transforming into a more welcoming niche where virtually anyone can buy and sell art. But did you know that you can now initiate art transactions using Bitcoin? Companies like Bitpremier.com have already created an online platform that connects art sellers and buyers willing to transact using Bitcoin.

Paying for VPN or domain name:

Different internet companies are also alive to the use of Bitcoin and, therefore, accept bitcoin payments for various services. NameCheap, a domain registration company, will, for instance, let you buy and renew the domain name for your blog or website via bitcoins. And if you are trying to avoid trackers and keep your online activities private, Express VPN lets you subscribe for their premium services with bitcoins.

Pay for monthly bills:

Your post payphone service provider is also keen on digitizing their payment systems. AT&T, for instance, started accepting Bitcoins as a payment method for users seeking to settle their phone bills.

Conclusion

A decade ago, Bitcoin was no more than an idea on a technical white paper that only cryptography nerds could decipher. And when the online community started appreciating its monetary value, 10,000 BTC could only buy two Pizza. Ten years later, it has become the center of attention for financial institutions, governments, and central bank heads that consider it a threat to the traditional banking and financial systems. Countries like China have banned its use within its borders, while others like the United States have resorted to suppressing its influence in the country. However, none of these strategies has stood in the way of bitcoin morphing into a globally accepted digital currency.

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Cryptocurrencies

Cryptocurrency Risks You Need To Watch 

Ten years after the first cryptocurrency was launched, thousands more have filled the scene. Today, they are a digital asset class that either confounds or fascinates many. The latter makes

Ten years after the first cryptocurrency was launched, thousands more have filled the scene. Today, they are a digital asset class that either confounds or fascinates many. The latter makes

Ten years after the first cryptocurrency was launched, thousands more have filled the scene. Today, they are a digital asset class that either confounds or fascinates many. The latter makes them an attractive investment option – and indeed, many have become rich from trading in cryptos. 

However, the crypto world can prove murky. Thanks to some of their inherent characteristics like being intangible, decentralized, and incredibly volatile, cryptocurrencies are fallible to unique risks that anyone hoping to interact with them should be aware of.  

In this article, we explore some of these risks so you can stay safe while interacting with this digital asset class.

The Future is Uncertain 

Cryptocurrencies are known for their wild and unpredictable down and upswings. The crypto market is thus an unstable market marked by speculation and uncertainty. Trading in cryptocurrencies could set you up for huge losses – or huge profits, depending on market events. Consider, for example, how Bitcoin achieved a high of $20,000 in 2017 – from a paltry $700 at the beginning of the year. And as of November 2019, it’s trading at $7617. All these figures are nowhere near stable or predictable. 

And in 2018, the total market capitalization of cryptos fell from a massive $183 billion to a low of $100 billion. 

These fluctuations mean you shouldn’t rush all in to invest in cryptocurrencies – especially with money you can’t afford to lose. The same applies to transactions in crypto. Let’s say you’re purchasing something expensive with crypto. What if the price drops before you close the deal? You will have to fork out more crypto than you had planned for. The takeaway is: practice due diligence before trading in, or transacting with cryptocurrencies. 

Cold Shoulders

Governments, businesses, and institutions are yet to fully embrace cryptocurrencies. Some businesses are wary of the currency due to its history of instability. They are thus reluctant to accept it as a means of payment. 

What’s more, many governments around the world are either openly hostile towards it or just plain indifferent. As a result, people and businesses are ambivalent or outright mistrust it. 

For example, China has long banned banks from engaging in any activity that encourages the survival of cryptocurrency in the country. And in other countries such as Russia, using crypto to pay for things is illegal.  

The Entry Is Wide, But the Exit Is Narrow

Since Bitcoin successfully busted on the scene, it’s become almost impossible to keep up with every other cryptocurrency that gets introduced virtually every week. As of now, the number is nearing 3,000. There is a low barrier for entry for cryptos – which creates a wide entry for new ones to enter the market. 

However, most of these coins start with a frenzy and end up fizzling out, or devaluing. People that rushed in to invest in these cryptos are left stuck with valueless coins in their hands, with no one willing to buy them. 

Extortion and Manipulation 

Cryptocurrencies are a very appealing asset class – thanks to their sophisticated technology and the potential to make you rich under the right conditions. For this very reason, they are susceptible to all manner of social engineering and fake news such as fear, doubt, and uncertainty.  

Crypto beginners, along with the naïve, can easily become prey to these tricks, misinformation, cyber fraud, market manipulation, and other risks. 

Another area of extortion is Initial Coin Offerings. Some cryptocurrency projects have run away with investor money after these sale events. 

Hype and Noise 

There’s a lot of noise surrounding cryptocurrencies. From social media to news headlines to crypto forums, everyone is now ‘expert.’ 

A lot of people buy into the noise instead of doing their own research. What if prices crash when you’ve put substantial money into an overhyped cryptocurrency? The cryptocurrency market can give you handsome returns – but only after you make informed bets backed by research and patience.

Theft Hovers Above

Stories abound of crypto hacks that led to substantial losses. The crypto community is still reeling after the massive hack of 850,000 bitcoins from Mt.Gox – which led to the exchange closing shop and filing for bankruptcy. Another case is when hackers made away with 7,000 bitcoins from Binance. 

These are only examples of the hack all too familiar in the cryptocurrency industry. If you have crypto holdings, they are always prone to hacking, phishing, stealing, or other ill-intentioned activity. Passwords can be stolen or hacked. Your hardware wallet can be corrupted or stolen. For this, it’s vital to employ extra caution when dealing with cryptocurrency. 

Human Error 

‘Man is to error’ is true with cryptocurrencies. Thanks to their intangible nature, a simple thing as forgetting your password could lead to a loss in crypto funds. Losing hardware, spilling a drink on your paper wallet, transposing numbers, etc. are enough to create losses. Think of an exchange taking place, and you enter the wrong public key. You could lose thousands of crypto. 

Technological Risks 

The computational complexities and high energy consumption associated with some cryptocurrencies such as Bitcoin are also their limitations. Although Bitcoin and some mainstream cryptocurrencies have proven resilient, such aspects could backfire on others. 

Also, the decentralization of genuine blockchains cushions them against certain risks, like having a single point of failure. However, not all cryptocurrencies are truly decentralized as they claim. For this, investors should be on the lookout for cryptocurrency projects that claim to be decentralized, yet are really not. 

Forking Wars

Forking is a specter that’s always hanging over some cryptocurrencies. This can lead to a loss of confidence in the market and cause price falls. Forks can also erode market share, valuation, and interfere with the adoption of crypto. 

Forking can also lead to factions – with one supporting the original currency and other supporting the fork, as was observed with Bitcoin and Bitcoin Cash in 2017. This may significantly erode trust in either currency.  

Conclusion

Cryptocurrencies have made an indelible print on the world already – and they’re here to stay. Investing in cryptocurrencies can make you a fortune but under the right conditions. The first thing is to understand the perils associated with them before you start using them. Before you dip your toes into the murky waters of cryptocurrency, we hope this list of ‘crypto risks’ will be your lighthouse.

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Cryptocurrencies

Cryptocurrencies and Crypto Regulations

Since the debut of the first cryptocurrency only ten years ago, thousands of more cryptos have filled the space, disrupting not just finance but technology itself. And in recent years

Since the debut of the first cryptocurrency only ten years ago, thousands of more cryptos have filled the space, disrupting not just finance but technology itself. And in recent years

Since the debut of the first cryptocurrency only ten years ago, thousands of more cryptos have filled the space, disrupting not just finance but technology itself. And in recent years, cryptos have become especially popular such that they have attracted the attention of governments seeking to exert some form of control over their seemingly unlimited potential.

Cryptocurrencies were discussed in a high-level meeting for the first time ever, in the 2018 G20 summit, about the possibility of introducing regulation of the crypto industry. The G2O countries declared in a statement that they would “regulate crypto-assets for anti-money laundering and countering the financing of terrorism…”

Although the move did not lead to any concrete action on the part of many countries, the discussion at such an influential meeting was a sign that it was no longer business as usual.

Challenges Governments and Regulators Face

Still, most countries of the G2O and indeed the world have yet to effect full regulation of the industry. The sudden emergence of cryptocurrencies and the new technology has caught most regulators off guard, and they still grapple with how to regulate them. This is due to reasons such as:

☑️Most regulators and governments don’t know how to classify Initial Coin Offerings (ICOs)

☑️Most regulators don’t know how to properly classify the sheer cryptos in existence – are they coins, tokens, stable coins?

☑️The fear of stifling innovation by overregulation – where do they draw the line between protecting users and suppressing innovation?

However, while some countries have taken zero notice of cryptocurrencies, others have responded to it with vigor: both receptive and unwelcoming.

In this article, we explore the cryptos regulation space, the widely divergent approaches taken by a selection of countries, key areas for regulation, and the current crypto news dominating political and financial discourse: Facebook’s cryptocurrency project: Libra.

Areas for Crypto Regulation

With the crypto world having various levels – mining, trading, etc., countries have been looking at different areas for regulation. Let’s take a look:

Exchanges, trading, and mining

There’s always the question of how cryptocurrencies should be classified. Are they securities, are they commodities? The category they fall in is the one that determines how they will be regulated. 

Regulators have also weighed the mining aspect – which is verifying transactions and recording them on the blockchain ledger. The process involves designated computers and is known to consume excessive amounts of power. For some governments, this is an area that has occasioned regulation.

Fundraising and ICOs

ICOs are the way crypto startups raise money by issuing crypto coins in exchange for fiat money or other cryptocurrencies.

ICOs represent a potential risk. Some ICO processes have turned out to be fraud, while some companies are looking to fundraise without a solid proposal for an asset.

Investing Instruments

With cryptocurrencies acquiring more clout, investors are looking to get a piece of the action. But the unregulated nature of crypto exchanges plus their susceptibility to malicious attacks render them a risky proposition. This has precipitated a drive to regulate cryptos to make them safer investments.

Governments and Citizens: Warnings about Cryptocurrencies

While governments around the world may issue different warning to citizens about the issue of cryptocurrencies, there’s a common theme running through them. Countries usually alert their citizens about cryptos’ potential weak spots:

☑️The high volatility cryptocurrencies – Cryptos are prone to drastic fluctuations in market prices, which might render them risky investments

☑️Unregulated organizations – Unlike fiat money, cryptos are issued by unregulated entities, which means there’s no one standard, safe, or ethical code of conduct binding them

☑️No legal recourse – Unlike investing in stocks or bonds, investing in cryptos has no legal protection in case of losses

☑️Facilitating illegal activities – Thanks to their anonymous (or pseudonymous nature, in some cases) transactions, cryptocurrencies are a favorite for criminal activities

Cryptocurrencies, Regulations, and Banks

The attitude of the banking system towards cryptocurrencies is wary since they see them as a threat that may cause an eventual bust of the traditional model.

This has seen banks reluctant to support crypto-related businesses, which could significantly limit the potential and growth of these businesses.

In this way, the traditional system could be the wedge that regulators will continue to use to keep the crypto industry in check.

Other sentiments concerning banking and cryptos have come from powerful individuals, perhaps pointing to the increasing and unstoppable power of cryptocurrencies. Some of these comments have come from the president of the United States, who has denounced cryptos and called for them to be regulated “if they want to become banks.”

In a tweet on July 2019, Donald Trump made the comments On Twitter, declaring he is “not a fan of Bitcoin and other cryptocurrencies”, which are “based on thin air” and that cryptocurrencies must “become subject to all Banking Regulations, just like other banks” if they wanted to become banks.

Understandably, such sentiments from the world’s most powerful leader sparked a fresh round of discussion about the regulation of cryptocurrencies. However, it remains to be seen if the president could aggressively go after cryptocurrencies and if those efforts would succeed.

Regulations by Country

Countries all over the world have taken quite disparate approaches to cryptocurrencies: from outright bans to open and liberal approaches to cautious optimism. Let’s take a look at how different countries are handling the crypto phenomenon and how some small nations are already establishing themselves as crypto havens.

United States

In the US, the treasury has classified bitcoin as a convertible decentralized virtual currency. The trading regulatory body: The Commodity Futures Trading Commission (CFTC) has classified bitcoin as a commodity. And the tax body, IRS, recognizes Bitcoin as taxable property. The Securities and Exchange Commission (SEC) considers cryptocurrencies as securities.

Though cryptocurrencies are not legal tender, the government recognizes them as “a medium of exchange, a unit of account, or store of value.” Finally, the Department of Justice is in consultation with both the SEC and CFTC to design legislation for the space.

Canada

Canada deems cryptocurrencies to be securities at the Federal Level. The Canadian Securities Administrators (CSA) directs for existing securities laws to be applied to Initial Coin Offerings and Initial Token Offerings, as well as crypto investment funds and exchanges.

Canada also allows the use of cryptocurrencies, but not as legal tender. The Financial Consumer Agency of Canada directs that “you can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital or cryptocurrency exchanges.”

Canada’s tax laws and rules are also applicable to cryptocurrency transactions.

China

Banks and payment companies are not allowed to facilitate bitcoin transactions. Financial firms also cannot hold or trade cryptocurrencies. On April 1, 2014, the People’s Bank of China, which is the central bank, ordered financial institutions to close bitcoin trading accounts within two weeks. Crypto exchanges and trading platforms were effectively banned in September 2017.

The clampdown on crypto-related activity has precipitated the movement of several exchanges and mining companies setting up operations in other countries, like the mining company Bitmain which has since moved to Singapore.

The UK

The UK has warned citizens about the dangers of investing in ICOs and the speculative nature of cryptocurrencies. Still, the country has taken a cautious approach: neither giving the crypto industry carte blanche nor instituting stringent measures against it.

British lawmakers in 2018 launched an inquiry into digital currencies and blockchain to establish the impact of the cryptocurrencies. At the time, Nick Young, Treasury Committee member, said in a statement: “Striking the right balance between regulating digital currencies to provide adequate protection for consumers and businesses, whilst not stifling innovation, is crucial… ”

As of October 2019, the sale, purchase, and transfer of cryptocurrencies are still unregulated.

Switzerland

In Switzerland, cryptocurrencies are legal. In fact, the country’s economics minister Johann Schneider-Ammann said Switzerland wanted “to be the crypto nation” at a 2018 crypto finance conference.

The Swiss Federal Tax Administration deems crypto to be assets and subject to the Swiss wealth tax. The Swiss Financial Market Supervisory Authority (FINMA) has also published guidelines for ICOs, but to apply existing financial regulation to the fundraising model. FINMA has also stated that regulation will be applied to the crypto industry on a case-by-case basis.

The European Union

The EU’s European Supervisory Authorities released a statement in 2018 warning consumers about the dangers of cryptocurrencies. “VCs (virtual currencies) such as Bitcoin are subject to extreme price volatility and have shown clear signs of a pricing bubble and consumers buying VCs should be aware that there is a high risk that they will lose a large amount, or even all, of the money, invested,” the organization said in a statement.

The European Central Bank classifies bitcoin as a convertible decentralized virtual currency. And the European Banking Authority has advised banks not to deal in cryptocurrencies until regulations are in place.

In 2016, the European Parliament voted with an overwhelming majority to institute a task force for monitoring virtual currencies. It was revealed in 2017 that the proposal would include requirements for crypto exchanges to identify suspicious activity, including fraud and money laundering. As of 2019, one of the most popular crypto exchanges, LocalBitcoins.com, has implemented measures to verify customer identities in compliance with the EU’S 5th Anti-Money Laundering Directive.

Malta

Malta, the small country in the Mediterranean, is another jurisdiction that is seeking to regulate cryptos, blockchain, and distributed ledger technology. In July 2018, the Maltese parliament passed three cryptocurrency and blockchain bills into law, setting up the first regulatory framework for crypto technology in the world.

The first is the Virtual Financial Assets Act, which regulates crypto platforms ranging from ICOs, brokers, asset managers, wallet providers, etc. The second is the Malta Digital Innovation Authority, which established a regulatory body, the Digital Innovation Authority Department, to certify crypto platforms and address legal issues arising out of the crypto space.

The final bill, the Innovative Technology Arrangement, and Services Act, is responsible for registering tech providers and their services.

“I think that blockchain technology, DLT, and cryptocurrency is where innovation is happening right now, and we are very glad that Malta can offer the first jurisdiction in the world to regulate this sector,” said the country’s Prime Minister, Joseph Minister in a statement to Forbes.

Gibraltar

In 2018, Gibraltar, the British Overseas Territory, introduced its Digital Ledger Regulatory Framework to regulate the crypto industry. Per the regulations, any firm using blockchain or DLT for “storing or transmitting value belonging to others” should be authorized by the country’s financial regulator.

The minister of commerce, Albert Isola, told CNBC in an interview that the “purpose of the framework is to create a new form of commercial activity. We are going to regulate it in a safe environment, seeking quality firms to come to Gibraltar in a way not to stifle innovation, but to actively support it.”

Some of the principles of the law are as follows include:

☑️Providing customers with clear and accurate information concerning risks

☑️DLT providers possessing enough resources to ensure they can run in a “safe and smooth” manner

☑️DLT providers taking “all reasonable precautions” to safeguard customer assets against “unexpected eventualities and threats.”

☑️DLT companies applying “adequate” anti-money laundering and counter-terrorist financing protocols.

Bermuda

The island country in the North Atlantic Ocean established its regulatory framework: the Digital Asset Business Act (DABA) to regulate the crypto industry. The set of laws apply to any identity incorporated in Bermuda and engaging in digital assets business – whether within or outside the country, and any similar business incorporated outside Bermuda but operating in its territory. 

The country’s latest regulation delineates the information that a company should provide during an ICO process. This includes a description of the project, how the ICO will be financed, the technical standard of the asset to be issued, and the identity of the fundraiser participants.

The Facebook Case

Perhaps no cryptocurrency project in the world has roused multinational pushback and threatened the traditional banking system as much as Facebook-affiliated Libra. Libra is a stablecoin (cryptos designed to offer price stability and are backed by a reserve asset such as fiat money) proposed by Facebook and whose release is projected to be in 2020. With Facebook’s 2+ billion users worldwide, the project could very well change the face of global finance.  

But before it’s even released, the project has been met with opposition from governments and banks who have voiced concern over its harmful potential: a threat to the global financial system, a gateway for all illegal activities, data privacy abuse, stripping nations of monetary sovereignty, etc.  

The US, UK, EU, France, Germany, and India are some of the countries that have spoken out against the project. The European Union financial services commissioner, Valdis Dombrovkis, responded by promising a new regulatory framework for cryptos, especially Libra. In September, French and German regulators voiced their objections, stating the crypto could threaten the Euro and unlawfully privatize money.  

And the G7, the world’s most powerful countries have warned that cryptocurrencies such as Libra “pose challenges for competition and antitrust policies” and that it mustn’t launch until regulatory concerns are addressed.  

Earlier in 2019, Facebook had released the names of 27 companies that made up the Libra Association – the nonprofit association which is behind the project. However, buckling under the regulatory pressure, several companies have abandoned the project, including MasterCard, eBay, and Visa. Other companies have also announced the intention of departure.  

However, Libra has stated that it doesn’t have the intention of bucking regulation. Dante Disparte, the head of communications for the project, had this to say: “We agree that the Libra project should be appropriately regulated, so calls for regulation are not a ‘setback’ or a ‘blow’ to the project. Responsible financial innovation and regulatory oversight are not in contest.”

The significance of Libra is that it could trigger more stringent and global clampdown on cryptocurrencies. It could be the cryptocurrency that changes the regulatory, and in fact, the cryptocurrency landscape for good.  

Conclusion

A common theme running through governments and regulators is they have yet to figure the potential power of cryptocurrencies, or even what their future looks like. Still, one thing is clear: regulatory scrutiny for cryptos is set to increase.

Thus, crypto-related businesses: issuers, trading platforms, exchanges would do well to establish safe registration practices, robust security for their platforms and customers, and seal any loopholes that might facilitate illegal activities. This will encourage the growth of the industry while continuing to power innovation in the space.