TABLE OF CONTENT
NO. CONTENT PAGE
1. Acknowledgement
2. Introduction
3. Summary Of The Journal/Article
4. Critique
5. Recommendation
6. Conclusion
7. References
8. Appendices
ACKNOWLEDGEMENT
Alhamdulillah, first of all I would like to thank God as finally I was able to finish our
assignment that have been given by my lecturer. I manage done this task properly and wisely with all
the help from people surrounded me.
Besides that, million thank I address to my Madam Rohaiza Binti Kamis because without her
guide my assignment cannot be done properly like this. She always give me the supports and guide
on how to do my assignment in purpose to produce a good outcome from research that been
studied. Topic that been chosen by lecturer are regarding the study of understanding
cryptocurrency, Bitcoin which is so much related with my course.
Finally, big thank also we wish to all our classmate because they also help us in doing our
group. They always give us ideas and comments on my assignment so that I can improve my
assignment in many ways. Finally,thank to my beloved classmates that always stick together and also
work hard to produce a good assignment with all afford and responsibility. Hope that all the afford I
will give a lot of benefits to me and also to my assignment.
INTRODUCTION
Bitcoin (₿) is a cryptocurrency, a form of electronic cash. It is a decentralized digital currency without
a central bank or single administrator that can be sent from user-to-user on the peer-to-peer bitcoin
network without the need for intermediaries. Transactions are verified by network nodes through
cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by
an unknown person or group of people using the name Satoshi Nakamoto and released as open-
source software in 2009. Bitcoins are created as a reward for a process known as mining. They can
be exchanged for other currencies, products, and services. Research produced by the University of
Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency
wallet, most of them using bitcoin.
Bitcoin has been criticized for its use in illegal transactions, its high electricity consumption, price
volatility, thefts from exchanges, and the possibility that bitcoin is an economic bubble. Bitcoin has
also been used as an investment, although several regulatory agencies have issued investor alerts
about bitcoin. Bitcoin is a new currency that was created in 2009 by an unknown person using the
alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! Bitcoin
can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But
much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the
thousands in 2017. Bitcoins can be used to buy merchandise anonymously. In addition, international
payments are easy and cheap because bitcoins are not tied to any country or subject to regulation.
Small businesses may like them because there are no credit card fees. Some people just buy bitcoins
as an investment, hoping that they’ll go up in value.
The not so distant 2008 global financial crisis (GFC) rekindled questions about the nature of money.
Crises provide threshold moments when we doubt institutions we have long taken for granted and
trusted. The GFC spurred public interest in money: what is money, how it originated, where its value
comes from, and what we think it should be. Explanations tend to point to either the Barter Theory
of Money or the Debt Theory of Money. In turn, the philosophy underpinning each theory fuels our
interpretations of current monetary and banking affairs, the type of monetary and financial market
policies we espouse, and our opinions and use of alternative money types such Bitcoin and other
cryptocurrencies.
Two Theories of Money
According to the Barter Theory, money arose to clear inefficiencies arising from the difficulty in
finding pairs of people whose disposable possessions for exchange at any one time are capable of
satisfying all exchange parties’ wants simultaneously. In this theory, money acts as a token
intermediates exchange because by using it we establish and accept units of account, value and
trade. Some of the theoretical stipulations imposed on this barter-resolving, exchange-token
included a controlled supply, divisibility, accountability, portability, integrity (non-forgery) and
reliance (trusted value). Thus, money is considered a commodity with intrinsic value, even when
considering fiat (paper) currency whose value derives from society’s confidence in central banks
backing its use.
The Debt Theory of Money instead interprets money as the representation of a dynamic process of
social relationships (in many instances in terms of power or inequality). Just as debt is not an object
but a relationship, money acquires its value from the endogenous dynamism across money users
and their network of trust. This theory parallels German sociologist Georg Simmel’s philosophy on
money – a social institution, meaningless if restricted to one individual, but can bring about changes
in general conditions only by changing the relations between individuals (Simmel, 1907).
Bitcoin conforms to both theories
Both theories hold trust (in the object according to the barter theory, or in the relationship
according to the debt theory) to be of primary importance if the monetary instrument is to be
usable. Indeed, the founder of Bitcoin, Satoshi Nakamoto, denounced the amount of trust required
to make conventional currency work as one of its root problems, especially in light of the erosion of
public trust in bankers and policy makers.
Nakamoto combined a technological protocol based on cryptography, a distributed scarce-asset
(computational power and energy) model, and a peer-to-peer lending scheme to create an instant,
decentralized, and pseudonymous system for electronic transactions of value transfer. This system
claims to be apolitical, not relying on a central authority’s power and bypassing the need for trust.
The idea of relinquishing the need for trust in a unit of value transfer might seem counterintuitive,
but Nakamoto claimed to have surpassed trust issues through his design of the blockchain. A
blockchain is a distributed (non-centrally coordinated) database containing the immutable
timestamped record of any and every transaction processed in the Bitcoin network, of which every
member has a copy.
The protocol’s assertion of fully-trust-proof relies on the decentralized-consensus reached through
the proof-of-work mechanism all network members engage in to validate transactions. Owners
(miners) of the network’s scarce resources (energy and computing power) use their hardware to
solve cryptographic or mathematical proofs that validate any transaction and verify it via the
blockchain’s history. Computer scientists recognize such mathematically based validation and
verification checks as the way to prevent trust-eroding problems such as double-spending (an agent
spending the same funds twice, denying the first transaction happened) and Sybil attacks (when
agents claim to be multiple people in a network to gain resources they are not entitled to). Miners
performing the transaction checks for the blockchain are paid with the network’s own, self-
produced, self-regulated token – Bitcoin – as well as with transaction fees whenever other users
(third-party Bitcoin wallet providers or digital currency exchanges) employ the blockchain.
Features of Bitcoin’s design correspond to the two theories of money. The strictly controlled supply
of Bitcoins is programmed not to exceed 21 million. The proof-of-work mechanisms help make the
network tamper-proof. These facts echo the controlled supply, accountability, and unforgeability
requirements for money under the barter theory. Bitcoins have also been hoarded and used in
speculation, thus exercising their asset bearing, value storing function. All these monetary uses
correspond to a clear adherence to the barter theory of money.
Yet, at the same time, Bitcoin’s design makes explicit the importance of network members’
relationships and interactions during both the verification and authentication of transactions and in
fuelling Bitcoins’ production. Likewise, the value of Bitcoin is directly correlated with the expansion
of its network of users and with the miners’ adherence to the protocol’s security and proof-of-work
verifications. Cryptocurrencies like Bitcoin don’t have an anchoring intrinsic value, rather, they
derive value solely from the expectation that others would also value and use them. Therefore,
Bitcoin and similar digital currencies seem to also illustrate the relational aspects of money
formation and usage associated with the debt theory of money. Moreover, as new forms of money,
cryptocurrencies seem to embody, more than traditional fiat currency, modernity’s spirit of
rationality, calculability and impersonality. These traits, Simmel argues, shifts the character of social
interactions when monetary transactions replace barter exchange.
2. The two sides of the coin: advocates and opponents
Bitcoin inspired the creation of cryptocurrencies such as Litecoin, Ethereum, Dogecoin and more
than 700 other digital currencies less well-known but with some market capitalization. These
cryptocurrencies seem to appeal to those who propose the radical transformation and improvement
of money for the betterment of society. Many alternative approaches to currencies seek the
disintermediation of money, that is, to disengage either the state, private banks, or both from
controlling the production of money and managing its use. Bitcoin eliminates the influence of the
state (and central bank), thus garnering ample support among Hayek-minded proponents of the
denationalization of currencies. Bitcoin also restricts the power the current fractional reserve system
gives to commercial banks to tie the creation of money to the extension of credit and debt.
Striving for the best of all possible worlds, Bitcoin purports to take the regulation and control of
money away from untrustworthy sources of human authority and put it in the hands of machines
and computer algorithms. Unfortunately, despite the apolitical rhetoric of supporters, Bitcoin is not
politics-free. Indeed, as the London School of Economics sociology professor Nigel Dodd alerts us,
Bitcoin helps to demonstrate the relationship between technology and the social context of its use.
Technology cannot enact social organizations on its own. As a form of money, Bitcoin does not
evade social relations. Rather, social structure, leadership, hierarchy, friendship, and community, all
forms of social relations, sustain Bitcoin. (Dodd, 2015).
SUMMARY OF THE JOURNAL/ARTICLE
The article are discuss regarding on Bitcoin, cryptocurrency have posted a question whether Bitcoin
should be regulate or not. Basically, crypto currencies are categories under visual or digital money.
This article relate with the tendency of cryptocurrency toward two theories of money which is Barter
Theory of Money and Debt Theory of Money.
CRITIQUE
While much less centralized, the Bitcoin blockchain protocol has a tendency towards centralized
money (Bitcoin) production. The high computing and energy resources required for the validation of
transactions and the production of Bitcoin supply tends to massively favor the miner pools (specific-
capability groups of miners) with the greatest processing power, incentivizing cartels of monopolistic
production strategies. Alternative cryptocurrencies such as Litecoin and Dogecoin claim to avoid the
concentration-bias of money production found in Bitcoin. Yet, relational power structures are all too
evident in other blockchain currency applications (e.g., Nextcoin) that use proof-of-stake consensus
mechanisms. In this system, miners are assigned transactions awaiting verification based on the
quantity of coins they hold (their “stake”), instead of having to randomly compete to verify
transactions and thus earn digital coins as remuneration. These systems also link the amount of
cryptocurrency owned by miners to their degree of investment in the stability and security of the
network.
Recent governance issues in both Ethereum and Bitcoin blockchains reveal the importance of politics
in the cryptocurrency environment. Protocols correspond to the set of rules enforced in
cryptocurrencies’ ecosystems. However, governance structures determine the rule-making
stipulations for them. Most cryptocurrencies lack a formalized governance framework leading to
disagreements and splits in the community.
On August 1, 2017 Bitcoin Cash (BCC) was launched. BCC emerged from a hard fork (software code
modification) to the original Bitcoin protocol. The split results from a politicized disagreement
between pools of distributed miners over how best to adjust the protocol to increase transaction
capacity and speed. Bitcoin’s original design placed a 1MB data limit per block on the block chain. As
Bitcoin’s trading volumes rose with its popularity, such block chain space limits caused transactional
delays. Whilst searching for solutions, the Bitcoin community failed to reach a consensus on how to
increase the block size, leading to a split in the community and to the creation of Bitcoin Cash. First,
a group of Bitcoin developers proposed an increase in the block size to 2MB. The group had other
updates to free up space by removing signature data from Bitcoin transactions. The Bitcoin
community faction against the modifications that would move transactions off the block chain
opposed the fork. This faction came up with another solution to increase transaction speeds which
led to the split and the launching of the new, independent, Bitcoin Cash relying on an 8MB block
size.
In a more successful enterprise, Ethereum recently incentivized its miners to modify (fork) the ledger
to prevent a fraudulent hacker from spending millions of Ether tokens from their investment crowd-
funding startup DAO. This action sheds light on the need for well-structured governance structures
with consistent motivations. Yet, in most cases, cryptocurrency networks struggle to align the
incentives of miners and stakeholders.
For supporters of alternative money who wish to curtail the excesses of commercial banks and their
hegemony in money creation through debt, it is not completely clear whether Bitcoin and its altcoins
will indeed provide disintermediation. Through the launch of Bitcoin in 2009, and its underlying
blockchain legacy, Nakamoto provided financial market infrastructure participants the blueprint for
a disruptive innovation set to revolutionize payment systems. Since then, big corporate banks such
as Goldman Sachs, Barclays, JP Morgan Chase, and others have invested heavily in start-ups and
blockchain protocol schemes that create regulatory-clout economizing and cost-reduction links
between them. They mostly advocate any system that facilitates digital relationships without the
need for an overarching trust-ensuing central regulatory third party. But the ethos of discussions on
applications of blockchain and distributed ledger technologies over their products and services tend
to view trust as an outcome product rather than as a procedural sentiment.
Recalling Simmel’s definition of money as a claim upon society, confidence in the truth of such
claims cannot be fully based on the mathematical certainty of algorithms. Trust in governance
frameworks made by humans must be as strong as trust in algorithms for the value of electronic
transfers to be perceived as stable, legal, and protected from hacking that can make digital currency
wallets evaporate.
2.2 Supporters
A large portion of potential cryptocurrency and blockchain financial services users will evaluate the
ethical character of the instruments, especially considering online black-market reliance on Bitcoin
as a medium of exchange for illicit products and services. However, as shown in one of our prior case
studies on the Ethics on Bitcoin, cryptocurrencies like Bitcoin cannot in itself be immoral. Instead,
moral appraisals of cryptocurrencies must evaluate the intentionality behind the development of
these technologies, the moral character of their actual usage, and whether their protocol design
incentivizes unethical behavior more than other currency and payment mechanisms.
Positive uses of the distributed ledger technologies underlying the Bitcoin blockchain have already
emerged in different domains of mainstream financial services. For example, through blockchain-
based intermediaries and Bitcoin transfers, several international money transfer start-up initiatives
have managed to reduce the cost of sending remittances and have expanded the receipt of
remittances across unbanked populations in countries such as Kenya and the Philippines. High social
impact start-ups have also sprouted from Ethereum’s blockchain. 4GCapital, a 2012 FinTech start-up
dedicated to providing instant access to credit for small business growth in Africa, relies on
Ethereum’s blockchain to record and validate donors’ digital currency transfers, convert digital to
fiat money, and disburse it to businesses.
Since late 2014, when it became apparent that Venezuela’s president Nicolas Maduro’s policies
would only be worse than those of his socialist-dictator predecessor Hugo Chavez, some analysts
have claimed that Bitcoin has helped some segments of Venezuela’s population expand their ability
to purchase food and basic services. In the midst of Venezuela’s economic and political crisis
characterized by unemployment, hyperinflation, capital controls, and foreign currency black
markets, Bitcoin acts as a cost-effective and efficient means by which Venezuelans can either store
part of their wealth or receive foreign funds that help meet people’s needs including food, health,
and basic utility bills. Essentially, Venezuelans buy, sell, or receive Bitcoins from family members
abroad. They then rapidly convert them into U.S. dollars and then into local Venezuelan bolivars via
local cryptocurrency exchanges. Access to cryptocurrencies of course remains scarce, with Bitcoins
mostly helping already relatively better-off Venezuelans. Additionally, some cryptocurrency
exchanges have been closed-off by the government. Nonetheless, this application of Bitcoin use
echoes Nakamoto’s priorities of restoring the sovereignty of people over their money and re-
empowering them with a means of payment devoid of political greed and manipulation.
Despite these positive ethical attributes, the credibility and trustworthiness of cryptocurrencies and
their foundational technologies continue as work-in-progress. Potential off-ledger manipulations of
pseudo-anonymous, encrypted, publicly recorded transactions invite questions about the ability to
blindly trust blockchain structures as they stand today.
3. Perceived cryptocurrency risks
In less than a decade, hundreds of cryptocurrencies have emerged in the relative absence of
effective regulation. The revolutionary nature of the blockchain protocol schemes underlying
cryptocurrencies’ core design, the speed of adoption and adaptability of such technologies, and their
potential to rapidly change the financial industry have mobilized expert communities, high-stake
market participants and regulatory bodies into public consultations regarding potential benefits,
risks, and challenges posed by cryptocurrencies.
Identified cryptocurrency risks fall into a ranked continuum based on the perceived immediacy of
each concern. In order of imminence, the risk-range starts from threats to financial integrity (anti-
money laundering/financing of terrorism (AML/CFT)) and moves to issues of consumer protection,
tax evasion, and the regulation of capital movements to stave off instability. Concerns regarding
systemic financial volatility, or the potential implications a widespread use of cryptocurrencies
would have on monetary policy, are still perceived as distant. Nonetheless, they require further
analysis and monitoring.
Examples of institutions implementing regulatory initiatives, primarily since late 2014, include: the
New York State Department of Financial Services (NYDFS), the Japanese Financial Services Agency,
the US Treasury FinCEN (Financial Crimes Enforcement Network), the European Central Bank (ECB),
the European Commission, the UK Financial Conduct Authority (FCA), the European Banking
Authority (EBA), the British Banking Association (BBA), the UN Financial Action Task Force (FATF),
and the Committee on Payments and Market Infrastructures (CPMI).
4. Regulatory responses
• Financial Integrity (AML/CLT)
Given the ample use of Bitcoins as a main form of payment in black-markets and in the online drug
site Silkroad (now eradicated), this is the one area that has received the most regulatory attention.
Cryptocurrencies’ anonymity and cross-border reach motivate their use in illicit marketplaces,
money laundering (ML), and terrorist financing.
Following the 2014 multi-million dollar theft due to the hacking and collapse of the Japanese-based
cryptocurrency exchange Mt.Gox, then the largest in the world, Japan took regulatory measures to
prevent the demise of any other cryptocurrency-related service provider on its premises. To prevent
money laundering and cybersecurity issues in Japan, digital currency exchanges now need to register
and report to the Japanese Financial Services Agency as their governmental regulator. More
recently, Japan has recognized digital currencies as asset-like-values. In spring 2017, the Japanese
government passed legislation endowing Bitcoin and virtual currencies with legal tender status. They
now can be used legitimately to make payments as well as digital transfers.
Similarly, Spain’s Finance, Taxation and Public Administration Ministry concluded in 2015 that
Bitcoin should be treated as a legitimate electronic payment system and started requiring Bitcoin-
based online gambling companies to apply for and obtain a license to continue to operate in Spain.
• Consumer protection
since Market-based or technology-related disruptions of cryptocurrency protocol systems can result
in substantial losses for users, especially given the scarcity of insurance for digital currency accounts.
Because of the lack of regulatory safeguards and the complexity of the technology, cryptocurrency
holders and users are vulnerable to scams, fraud, misrepresentations, value asset loss through
hacking, and fraudulent investment schemes (which operate as online Ponzi schemes). Other
consumer vulnerabilities relate to the irreversibility of transactions, especially of flawed or
fraudulent ones.
In response, the U.S Securities Exchange Commission (SEC) and the U.S. Commodity FuturesTrading
Commission (CFTC) have started to combat virtual currency Ponzi-type investment structures. In
2015, the New York State Department of Financial Services (NYSDFS) issued one of the most
comprehensive sets of regulations governing virtual currency operators within its jurisdiction. The
hallmark NYSDFS rules require businesses involved in transmitting, storing, buying, selling,
exchanging, issuing, or administering cryptocurrencies and other virtual currencies in New York to be
licensed by NYSDFS. Likewise, the NYSDFS subjects its licensees to minimum capital requirements,
regulatory periodic examinations, financial disclosures, and approval of management changes and
mergers and acquisitions.
Private sector participants have also taken action. Loss of consumer confidence caused by misuse of
cryptocurrencies’ foundational technologies and their improper surveillance drove FinTech market
participants to create a non-profit standards organization for the cryptocurrency ecosystem, the
CryptoCurrency Certification Consortium (C4). C4 provides startups and other market participants
with self-regulating codes of practice such as the Cryptocurrency Security Standard (CCSS) and the
C4 Code of Ethics.
• Taxation
By design, the identity of cryptocurrency users and network members is encrypted. Thus, these
currencies provide pseudo-anonymous users with an ideal vehicle for tax evasion. Additionally, in
several countries there is no consensus regarding the proper tax treatment of cryptocurrency
holdings. Some countries argue in favor of treating them as a form of (non-monetary) property while
others record cryptocurrencies as a form of currency. Where cryptocurrencies are considered non-
monetary property, their use in purchasing goods or services, or for investment purposes, entails the
recognition of gains or losses. These are subject to local rules pertaining to whether the property is
defined as a capital asset, its holding length period, or classification standards of transactions as
speculation. Where cryptocurrencies are considered currency (e.g., Japan) foreign exchange gains or
losses are required. In Japan, virtual currency transactions are taxable, and cryptocurrencies
received from abroad are not tax deductible but are treated instead as non-taxable purchases.
Finally, Japan records income earned from virtual currencies as operating revenue for corporations
and subjects’ individuals’ cryptocurrency income to a tax on aggregate income.
Different value-added and sales-tax grading scales are applied to owned cryptocurrencies depending
on whether they were obtained through mining or via buy and sell operations in digital currency
exchanges. The U.S. records, as part of each owners’ gross income, the fair market value of the
cryptocurrency at the time it is mined. Australia taxes miners only at the time of sale or transfer of
Bitcoins previously mined. In the U.K., the value of virtual currencies at the time of purchase of
goods or services is used for VAT purposes, income from cryptocurrency mining is outside the scope
of U.K.’s VAT. Conversion of virtual currencies into British or foreign currencies is also not subject to
VAT on the value of the currency. Conversely, in Australia, Bitcoin exchanges and markets have to
charge taxes on the full value of Bitcoins supplied to residents and not merely on commissions.
• Exchange Control & Capital Flow Management
Cryptocurrencies and their blockchains lack full identity transparency, making them fitting
instruments for circumventing exchange and capital controls. Instances of cryptocurrencies and
virtual currencies serving as an avenue for the evasion of capital controls have been reported in
China, Venezuela, Cyprus, and Greece. Instead of purchasing foreign currency subject to
government-imposed limitations, market participants purchase cryptocurrencies and virtual
currencies online and use them to conduct internet-based foreign exchange transactions or to make
otherwise prohibited capital transfers. Cryptocurrency conversion into fiat money is achieved via
peer-to-peer exchange floors or marketplaces matching the sellers and buyers. In the case of
Venezuela, the dictatorial government has cracked down on some local Bitcoin exchange ventures
and continues to pursue their demise.
• Financial Stability
Despite the rising market capitalization of several cryptocurrencies, the small volume of transactions
conducted in their decentralized blockchains makes it unlikely that the non-negligible financial risks
they pose to individual users would lead to systemic contagion. Nonetheless, the International
Monetary Fund (IMF) warns the growing large-scale use of virtual currencies and the greater
interconnectedness of blockchain technologies could, in due course, give rise to systemic financial
risks. The broader adoption of algorithms and distributed ledger digital solutions also increase
vulnerabilities to cyberattacks.
Monitoring rising systemic risks poses formidable challenges due to the anonymity of exposures,
decentralized participants, and lack of an agreed-upon governing regulatory framework. Some
cryptocurrency schemes may become so big or interconnected that a failure could be catastrophic,
making systemic risks more difficult to resolve, especially in the absence of a lender of last resort.
Regulatory responses to financial stability concerns are still in their early stages.
As of now, most countries limit financial institution exposure to virtual currencies by simply
prohibiting financial institutions from engaging in virtual currency businesses (IMF, 2016). The U.S.
Conference of State Bank Supervisors developed a model framework for states’ virtual currency
regulatory regimes. Regulators must first ensure the stability of the larger financial marketplace
when allowing any virtual currency activities. The Conference also recommends introducing financial
strength requirements for virtual currency companies.
At the international level, given the cross-border nature of cryptocurrency and virtual currency
networks, there is no consensus yet regarding who should oversee virtual currency markets and
financial market institutions using blockchain technologies for payment, settlement, and clearing
activities (IMF, 2016). Virtual currencies could create an alternative payment system subject to lower
standards in terms of regulatory requirements, fuelling race-to-the bottom behaviour in the absence
of an international regulatory body consensus.
• Monetary Policy
Currently, virtual currencies do not yet pose significant constraints on monetary policy but they
could raise concerns if they become more widely used. If the number of payments using
cryptocurrencies substantially increase, the demand for traditional central-bank-issued cash and
reserves will decline, diminishing central banks’ ability to monitor payment systems. In the extreme,
central banks may lose control over both currency supply and credit. It would also limit their ability
to provide lender-of-last-resort support and to coordinate responses to temporary economic shocks
and business cycle fluctuations.
5. Japan leads by example
The development of effective regulatory responses to the continued evolution of cryptocurrencies is
at an early stage. Work remains to be done to put in place effective frameworks that regulate virtual
currencies in a manner that guards against their risks whilst providing morally acceptable incentives
for financial practice that do not stifle innovation.
Accepting the inextricable codetermination of technology and regulation, Japan adapts to FinTech’s
creative, yet potentially disruptive, monetary and payment system changes. Leading by example, the
Japanese government has set forth a set of comprehensive bills that establish a positive regulatory
structure for the cryptocurrency landscape within its borders. Such measures spur financial
technology innovation within the Japanese private sector and allow its banks to cope with the
growth of digital currencies and to capitalize on them in the competitive and fast-moving Fintech
world market. Japan’s positive regulatory structure consists of regulations applicable to all service
providers operating inside the cryptocurrency ecosystem rather than just regulating the asset
(Bitcoin) itself. The rationale is that, by regulating the whole range of companies in the
cryptocurrency space, the regulatory structure can build consumer trust at every level of the
cryptocurrency market-chain.
6. To regulate or not to regulate?
Former Barclays CEO Antony Jenkins has repeatedly predicted an oncoming tidal wave of FinTech
creative destruction, potentially disrupting the banking industry through reductions in banking
installations and employment by as much as 20-50% within the next decade. For Jenkins,
cryptocurrencies like Bitcoin are just the beginning of the transformation in banking, powered
through tools such as the blockchain. He argues that banks need to keep up with new FinTech if they
are to survive. Jenkins sees regulation as a means to help banks expand their information technology
capabilities and help bring cryptocurrency use into the mainstream.
The main argument in favor of cryptocurrency regulatory frameworks is they set the stage for the
legitimization of cryptocurrencies such as Bitcoin. Through structured regulation, orthodox
authorities acknowledge cryptocurrencies’ function in society, thus validating their value. Opponents
of regulation like the Bitcoin Foundation and the U.S. Electronic Frontier Foundation (EFF) argue that
regulation inevitably restrains innovation to the detriment of the public and industry. They point to
the forgone efficiency and cost reductions in financial services, the relinquished financial access and
inclusion benefits for unbanked vulnerable populations, and a prolonged reliance upon
untrustworthy authorities.
Nonetheless, regulation can gauge the resilience of cryptocurrency counterparties, markets, and
infrastructure to build confidence for more mainstream adoption of cryptocurrencies and to allow
innovation. The IMF recognizes as technology alters financial market structures and attributes,
financial regulation adapts to maintain secure and effective markets (IMF, 2017). A lack of trust in
financial intermediaries and processes hampers the functioning of financial markets. Yet,
technological change cannot eliminate the need for trust, as some Bitcoin pundits argue.
Japan provides a precedent for other countries on how to confront this fact. Indeed, Japan’s positive
regulatory approach, encompassing all market participants, signals the critical role effective
regulation plays in nurturing trust in the cryptocurrency ecosystem. Japan nurtures this trust by
ensuring market participants’ financial positions are sound, accurately represented, and meet
prudential standards. It also confirms that governance risk management practices in the virtual
currency space meet regulatory requirements.
6. Cryptocurrency-specific regulatory principles
In traditional financial market operations, regulation serves to: (1) provide incentives for institutions
to be accountable for systemic risk, (2) protect consumers where information is hard or costly to
obtain, (3) support competition and prevent oligopolistic behavior, and (4) enable flexibility and
regulatory arbitrage to ensure systemic risks are contained and the goals of regulation are sustained
(IMF, 2017).
Analogously, the purpose of cryptocurrency regulation is to preserve financial stability and consumer
protection whilst promoting innovation and developing consumer trust in new currency types and
new payment systems technologies.
Through the group C4, startups and engaged FinTech developers and participants have established a
Code of Ethics. C4 provides certifications so that professionals can assert their knowledge of
cryptocurrencies in the same way as other financial market analysts. The C4 Code of Ethics provides
a blueprint to ensure certified practitioners do not breach agreed-upon industry standards and that
their certificate is not revoked. Its three main canons are: (1) apply decentralization to client
problems when appropriate, 2) protect clients and the local and global neighborhood in which
practitioners thrive, and 3) commit to complete honesty across all interactions and time.
7. How would the future regulatory landscape for cryptocurrencies look?
• The decentralization and migration of services from intermediaries to networks, triggered by
cryptocurrency design protocols and blockchain applications, will require regulators to rely less on
entity-based regulation (as it is in traditional financial regulation) and shift their focus toward
activity-based regulation.
• Privacy and transparency are constituent elements for building trust in a financial service.
However, emerging technologies that distribute information across networks, such as distributed
ledger technologies, challenge the right balance between the two. Shared data, in an open network
lacking a controller, makes it more complicated to simultaneously protect cryptocurrency user data
and enable access to the financial information required by transparency stipulations. Regulators will
need to develop an approach to facilitate both privacy and transparency requirements.
• Oversight and regulation of algorithms underlying FinTech innovations will be needed to
build consumers’ confidence in the systems that rely on these algorithms, such as cryptocurrencies
and payment infrastructure. Regulators will need to ensure that algorithms are designed and
operate in a way that does not expose consumers or the financial system to undue risk.
• As of today, there is little consistency in cryptocurrency regulatory approaches across
countries. This undermines regulation at the national level, incentivizes regulatory arbitrage, and
creates loopholes between regulatory jurisdictions. Greater international cooperation and
harmonization of standards will be essential to stave off systemic risks, especially as blockchain and
distributed ledger technologies continue to expand and cryptocurrencies gain more mainstream
acceptance.
• Proliferation of Central Banks Digital Currencies (CBDC)
Several outlines for CBDC designs have been proposed since 2014, with Fedcoin, a U.S. Federal
Reserve-managed cryptocurrency ledger, showcasing one of the first CBDC sketches. According to
journalist Wendy McElroy, in June 2016, central bankers from 90-some countries met with IMF,
World Bank, and Bank for International Settlements senior officials to discuss potential issuance of
CBDCs.
Advocates argue that CBDC would allow central banks to maintain their essential functions despite
technological disruption. These functions include include: maintaining their oversight role to ensure
effective payments infrastructure, coordinating the issuance of currency, protecting their monetary
policy transmission mechanisms, diluting private cryptocurrencies’ centralization of power, and
enacting their lender of last resort function as needed. CBDCs would also entail savings to
governments by gradually eliminating the maintenance and replacement costs of bank notes and
coins.
Critics point out that schemes such as Fedcoin would centralize the control of the economy to an
unprecedented extent and surrender people’s monetary autonomy to political control. CBDCs could
enhance the ability of both central banks and the government to track wealth and could ultimately
become an engine of social control.
RECOMMENDATION
CONCLUSION
Money as a media of exchange, or conversely, as a relational process, has shifted a couple of times
historically. Its newest iteration takes the form of ledger-based electronic systems that have started
a revolution in financial markets. The current natural selection of banking and financial market
participants pushes them to surf new waves of FinTech architecture. Yet, the adage that regulation
stifles innovation seems to lose ground in the cryptocurrency ecosystem. Without regulation, users
are vulnerable to financial integrity theft, suspicion, and speculative bubbles. An unregulated
ecosystem also gives users a limited scope of cryptocurrencies as payment means.
At the same time, if regulatory bodies (including central banks) adopt cryptocurrencies’ underlying
technologies via the issuance of CBDCs, it would defeat the original purpose of cryptocurrencies like
Bitcoin. Have we really come full-circle in the cryptocurrency saga?
Time will tell whether Fedcoin and other CBDCs gain traction. Nonetheless, now and then, the
regulation of cryptocurrencies can add value to financial market participants as they embrace
change. Rapid change tends to confound our ability to reason morally. However, well-designed
ethical regulatory frameworks can provide guideposts for cryptocurrency users and FinTech
developers. These guideposts can help evaluate both the moral quality of principles motivating the
development and improvement of cryptocurrency designs, as well as the morality of transactions
and the decisions of cryptocurrency users and regulators.
REFERENCES
https://money.cnn.com/infographic/technology/what-is-bitcoin/index.html
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