Blockchain is one of the most promising fintech innovations of our time. It can revolutionize international finance. Cryptocurrencies have the potential to bring down the high costs of international money transfers down to almost zero. This would help millions of the world’s poor who depend on remittances. These developments would move us closer to achieving the global Strategic Development Goals. However, Blockchain applications have challenges too.
The foremost hurdle to the adoption of digital currencies is the issue of regulating them. Nations have taken widely different approaches to this. Some have burnt their fingers and others remain cautious. There are also a select few countries that are aggressively adopting and promoting digital currencies.
All our monetary transactions are recorded. These include credit/debit card use, ecommerce, mobile payments, digital wallets, and pretty much everything else. Governments make it their business to track them and tax them. The only potential exceptions are cash and cryptocurrencies. Both of these have notable characteristics.
National currencies are printed, controlled, and guaranteed by central banks, in line with government policies. Cryptocurrencies are not. Owing to this feature cryptocurrencies are often seen as potential means of tax evasion. Governments frequently allege that cryptocurrencies are used for activities such as terror financing and money laundering. Many governments caution the citizenry against the use of digital currencies.
There have been major incidents that point to online security issues regarding the use of cryptocurrencies. Mt. Gox was a major Bitcoin exchange in Tokyo. In June 2011 a hacker exploited a security loophole in this exchange. The damage caused by the hack was assessed to be in excess of $8.7 million. Despite this incident the exchange continued to operate. Its transactions exposed additional bugs in Bitcoin software. In February 2014 Mt. Gox abruptly suspended trading.
In January 2018 another cryptocurrency exchange service called Coincheck in Tokyo was hacked. The hackers stole tokens of the cryptocurrency NEM worth $530 million. This affected 260,000 users. Coincheck continues to operate to this day.
Cash washing machines
Some of the former Soviet countries allegedly became a hotbed of money laundering for the Russian mafia. During the years preceding 2017 Ukraine’s IT revenues suddenly shot up to make-up nearly 10% of its GDP.
In January 2018 Ukraine’s National Security and Defense Council stated that “Ukraine can no longer allow the uncontrolled turnover of cryptocurrency on its territory.” In early 2018 Belarus made ICOs tax-free. Recently the U.S. government charged two Chinese nationals for laundering stolen cryptocurrency for North Korea.
The value of the stolen currency is in excess of $100 million. In 2018 a Russian IT specialist who had similarly laundered $4 billion was detained in Greece.
Since 2014 China has been conducting research toward launching its own virtual currency based on blockchain technology. Unfortunately Chinese authorities have shown a strong desire to control not just the currency, but the very direction of fintech innovation.
The country’s virtual currency will be nothing like Bitcoin or any other digital currency. It won’t promote open borders and decentralization. Some fintech veterans visualize that China’s virtual currency will be centralized, highly controlled and tightly regulated. This will simply be a move toward monetary digitization, giving the government even more control and oversight. The Chinese government will continue to ban the use of all other digital currencies.
Some hate them
Bangladesh, Iran, Thailand, Lithuania, China, and Colombia bar all financial institutions from engaging in transactions using cryptocurrencies. Some of these nations ban initial coin offerings (ICOs) to raise funds. They restrict online access to digital currency exchanges. Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam have banned all transactions which involve cryptocurrencies.
Some love them
Belgium, South Africa, and the UK consider the digital currency space too small to regulate or ban. Spain, Belarus, the Cayman Islands, and Luxemburg, while still reluctant to embrace digital currencies, encourage the adoption of blockchain technology. Israel, Bulgaria, Switzerland, Argentina, Spain, Denmark, the UK, and the EU don’t just allow digital currencies; they have tax laws regarding their mining and use.
The Isle of Man and Mexico allow citizens to pay taxes in cryptocurrencies. Venezuela, Lithuania, and members of the Eastern Caribbean Central Bank (ECCB) are interested in developing their own cryptocurrencies. Colombia, Hong Kong, Russia, Ukraine, Australia, and Panama are a few of the nearly 70 countries that have Bitcoin ATMs.
Digital currencies are meant to promote free markets. By design they are meant to be decentralized, unregulated, and freely traded. Regulating a blockchain-based currency or pegging it against a physical currency pretty much defeats its purpose. Perhaps regulating cryptocurrencies is not a challenge but a misnomer.
About the author: Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.
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