TrustCloud's VideoID has introduced the HelpMe button, providing real-time assistance to customers facing difficulties during onboarding.
The cryptocurrency market is instantly adapting to an environment where many people still don’t know what it is. Even when there is a notion about the nature and objectives of cryptocurrency, doubts arise regarding its security or regulatory framework.
espite the doubts cryptocurrencies still raise, they are the most popular virtual asset, with a global reach that surpasses even the censorship barriers. They can be used by anyone, anywhere in the world. Cryptocurrencies are a type of currency that, thanks to the use of blockchain, is protected against fraud, counterfeiting and the so-called “double spend”, a kind of attack that occurs when the same asset tries to be spent by two different people. Cryptocurrencies have been created to maintain their value over time, unlike traditional money, which suffers the fluctuations of inflation. This is so because they are not linked to a particular economy or currency and because there is a series of preset limits that prevent them from getting out of control. For example, bitcoin has a global limit and Ethereum an annual one.
The double-edged sword of decentralisation
The anonymity that comes from being decentralized is the great virtue of the crypto world; an example of freedom in its purest form that connects with that once pioneering internet that promulgated plurality and belonged to its users, both creators and consumers simultaneously. Investment in cryptocurrency is, however, an exercise in responsibility that must bear in mind that if access credentials are lost, the collected assets will be lost as well. Their existence is a genuine challenge for the authorities, who are trying to control their operation in one way or another. The unique and revolutionary character of cryptocurrencies is above central banks and the traditional power logics.
If we listen to the media, substantial changes in the foundations of cryptocurrency seem inevitable, but we cannot ignore that a regulatory framework would bind it into an old-style economy configuration with taxes, possible “real” backing currencies, tracking of movements, identification of customers, etc.
Jurisdictions at stake
Government agencies are playing the money laundering card to put an end to this field of progress, magnifying the dangers and shading its great advantages. Cryptocurrencies can perhaps boast of greater transparency and security than traditional financial institutions. The blockchain infrastructure on which they are built ensures that the content stored on various computers is out of reach of hackers. In addition, entries recorded on the blockchain can no longer be deleted. Crypto guarantees a unique strength, one which cannot be violated and is part of its essence. Of course, like any investment, it has certain risks, but it can also lead to great profits that no ordinary financial product could ever aspire to.
The supervision of this activity is leading to the emergence of jurisdictions across the globe, with very different perspectives. With the IMF pushing for globalization of its regulation, we find nations that have decided to apply restrictive rules or prohibit its use and others that have opted strongly for free circulation or have simply not taken a position.
In 2021, China began by putting spokes in the wheels of banks when offering products or services aimed at the cryptocurrency market, and in a short time declared cryptocurrency transactions illegal. Algeria and Bolivia also have very restrictive regulations on their use, while Israel or the United States are much more open-minded. Some apply taxes and AML (anti-money laundering) rules, while others don’t or directly do not specify them at all1. There is a clear gap between legislation and technology, and while citizens are barely interested in having their freedom curtailed outside the banks, prohibitions are imposed in one territory, causing changes in the rest.
Economist and consultant Roselyne Wanjiru, in a recent article for Forbes, expresses her doubts on the possibilities of regulation of cryptocurrencies. As Wanjiru explains, the very idiosyncrasy of cryptocurrencies prevents the scope of their application from being limited. Cryptocurrencies were born to be used between individuals. Their own subjectivity makes them unsuitable to fit into rigid schemes, with clear-cut responsible parties. The example of El Salvador reveals much about this perspective. The Central American country approved the use of bitcoin as legal tender in September 2021. Months later, the currencies acquired by the government lost 60% of their value, a consequence of trying to make them fit into the conventional market. The objectives that the president, Nayib Bukele, had set for himself of attracting foreign investment and promoting the financial inclusion of the most deprived, were diluted. The initial investment, of no less than 15% of the annual budget, served to get 30% of adult Salvadorans to download a cryptocurrency payment application. However, a short time later, barely 10% were making transactions in this manner. The lack of incentives after the initial reward of $30 for those who installed the app or the difficulties executing a correct KYC protocol, led to the failure of the project. In addition, fraud attempts were not long in coming. Many people offered $5 in cash to users who transferred their virtual $30. These are loopholes in the system that cannot be foreseen. The IMF was quick to urge the government to suspend its plans.
Diversity of actions
In Australia, its Securities and Investments Commission is also trying to restrict crypto limits and in mid-October suspended three funds for failing to meet “target market determinations.” In India, as recently reported by its finance minister, Nirmala Sitharaman, a plan is being developed to standardize the use of these assets. Sitharaman intends to complete her plan by the end of 2023, coinciding with the end of the Asian country’s presidency of the G20, and has argued that they are a risk to financial stability. The European Union has already made several moves to control this market. One of the latest is the proposal to apply energy efficiency labels for blockchains, arguing that energy prices are runaway and that cryptocurrencies cannot be insensible to the regulation of consumption, as they form part of the technology sector.
The metaverse as context
Meanwhile, many experts see the future of crypto assets in the metaverse as their natural environment. The concept of the metaverse has gained traction in recent months and the link between it and cryptocurrencies seems reasonable. This fusion of physical reality, increased reality and the internet, needs its own codes where everything is digital, including cryptocurrencies. Metaverse and cryptocurrencies are similar in that they do not need complicated infrastructures or traditional regulators. As the metaverse grows, so will the need for access to free and frictionless payment methods in the physical world.
1 Regulation of Cryptocurrency Around the World | Library of Congress. November 2021.