New technologies are driving transformational changes in the global economy, including on how goods, services, and assets are exchanged. The development of monies and a variety of payments systems throughout history have helped to make exchange more efficient and secure. The rapid spread of Internet-based commerce and mobile technology–supported by advances in encryption and network computing–has driven the development of several innovative technologies. An important development in this process of transformation has been the emergence of cryptocurrencies.
Cryptocurrencies, in principle, question the paradigm of state-supported fiat currencies and the dominant role that central banks and conventional financial institutions have played in the operation of the financial system.
2.0. Regulatory and policy challenges
The anonymity and cross-border reach of cryptocurrencies raise genuine concerns from a financial integrity standpoint. Cryptocurrencies can be used to conceal or disguise the illicit origin or sanctioned destination of funds, thus facilitating the money laundering, terrorist financing, and the evasion of sanctions. Their traceability is limited due to user anonymity and anonymizing service providers that obfuscate the transaction chain. These vulnerabilities are not only theoretical, but have been exploited in practice.
Cryptocurrencies are often the “currency” of choice in cyber-related criminal activity.
The regulatory uncertainty and lack of transparency in cryptocurrencies create significant consumer protection vulnerabilities arising from risks relating to: Cryptocurrency systems; Cryptocurrency intermediaries and
service providers; Scams; and the irreversibility of transactions.
Cryptocurrency have a high potential as a means for tax evasion. This is because participants need not disclose their identity and transactions are peer-to-peer and can take place across borders.
Instead of purchasing foreign currency subject to government-imposed limitations, market participants can purchase cryptocurrencies on the Internet and use them to conduct Internet-based foreign exchange transactions or make capital transfers that would otherwise be prohibited.
It is important to note that the cryptocurrency landscape is still new and rapidly changing. It is therefore not possible to fully predict the future direction and importance of these evolving technologies or to identify specific longer-term policy responses. Any policy response to cryptocurrency will need to strike an appropriate balance between forcefully addressing risks and abuses while avoiding overregulation that could stifle innovation.
Article by Leonard Nkole Kalinde (Dr) (Notary Public) Partner- Equitas Legal Practitioners
Client Legal Alert – Equitas Legal Practitioners@2020
*This scholarly article is a general guide and does not contain definitive legal advice. Readers considering taking action on any of the issues discussed should speak to their legal advisors before taking any such action. Equitas disclaims any liability whatsoever arising from acting on this article.