The past year of 2017 can be called the year of prosperity of the ICO. And the current 2018 is likely to become the year of regulation of the cryptocurrencies. Today most countries are trying to figure out the status of virtual coins and determine their place in the world financial system.
There is no single position whether it is currency, property rights or goods. A means of payment or exchange? Should the cryptocurrency exchanges license their activities? Positions of regulators vary in each country. Key issues remain unanswered until now, and this creates problems in law enforcement. It is even impossible to talk about taxation of income received in the form of a cryptocurrency, without determining the legal status of digital money. The cryptocurrency is in a legal vacuum, this is clearly understood by everyone, but the matter could not be solved quickly. On the one hand, the appearance of the blockchain and the cryptocurrency is called a technological breakthrough. On the other hand, new opportunities have been created for money laundering obtained by criminal means. And this fact gives concerns to the governments of many countries.
The most powerful regulators in this niche are the US and the EU countries, looking at which the whole world is making decisions. But even in the United States there is no single approach to regulating cryptocurrencies. The U.S. Securities and Exchange Commission (SEC) declares that the acquisition of tokens and cryptocurrency for the purpose of generating revenue in the future is the conclusion of an investment contract and, accordingly, the acquisition of securities. Therefore, such transactions should be conducted in accordance with the securities legislation, as well as the issue of such tokens and cryptocurrency. That is, based on the statements of the SEC, the latter considers crypto-currencies in its majority as securities. Likewise, cryptocurrency exchanges on which cryptocurrency – securities are traded must be registered under United States law and act exclusively within the law.
The Commodity Futures Trading Commission (CFTC) has designated cryptocurrency as a commodity and became the first US regulator to allow its employees to trade publicly in crypto-currency derivatives, while prohibiting investing in bitcoin futures.
Cryptocurrencies have been also designated as commodity by American votaries of Themis. U.S. Federal Judge from the Eastern District of New York, Jack Weinstein, ruled that cryptocurrencies should be treated as commodities, than set a precedent and confirmed the conclusions of the CFTC.
In 2017, the European Union amended the Fourth Anti-Money Laundering Directive, adopted in 2015, adding Bitcoin and its associated business to the list, which presupposes a two-year registration process for companies with a view to simpler regulation by the EU authorities. It is planned to introduce requirements, according to which crypto-exchange platforms will have to perform a comprehensive audit of their customers and report on suspicious transactions.
Calls for increasing regulation of cryptocurrencies are reflected throughout Europe. On January 15, French Minister of Economy Emmanuel Macron announced the creation of a working group on the regulation of cryptocurrencies, and a representative of the German Federal Bank called for the regulation of digital currencies on a global scale.
At the G20 summit, they decided to prepare recommendations for unified regulation of crypto currency by June 2018. World leaders promise to apply the standards of the International Financial Abuse Control Group (FATF) to the crypto-currency market. The G20 statement, released on March 20, says:“We commit to implement the FATF standards as they apply to crypto-assets, look forward to the FATF review of those standards, and call on the FATF to advance global implementation. We call on international standard-setting bodies (SSBs) to continue their monitoring of crypto-assets and their risks, according to their mandates, and assess multilateral responses as needed.”
Obviously, the states are trying to get the circulation of the cryptocurrencies under their control, turning the whole idea of the blockchain into fiction. Everyone understands that the centralized regulation of a distributed system is a paradox. No central bank can regulate currency circulation, which it does not issue. It turns out that the regulation of the crypto currency in the customary format is impossible, and the need for a new – transnational regulation is brewing. By the way, enthusiasts are already making attempts to create such an infrastructure, and we will see the first solutions very soon.
For example, in February, the Hypercube Ventures fund began financing Blockchain 3.0 – a platform with the possibility of creating a decentralized notary and arbitration. This, according to the authors of the project, will provide an opportunity to establish freely cross-border companies and integrate them with real business. The test launch of the project is planned for the autumn of this year.
The appearance of blockchain is one of the consequences of the growing social demand for global reforms. The level of citizens’ trust in state institutions falls around the world every year. Somewhere more, somewhere less, but the trend is obvious. The loud corruption scandals regularly found in the media only speed up this process. The results of the US presidential election are indicative, as an example of growing mistrust. The state machine with its multiple bureaucratic procedures looks morally obsolete in today’s dynamically changing world. The most progressive part of society is determined if not to dissolution of the state as such, then to replace it with a group of technocrats working on a competitive basis or an electronic government.
The development of technologies in the field of IT, machine learning, and artificial intelligence is approaching the day when a team of three people will lead the state. All routine work will be delegated to the machines, and the adoption of responsible decisions is transferred to the community in the form of electronic platforms for voting. In this case, the need for parliament in the traditional form is lost. The e-parliament will be able to create smart laws that specify the program code for the entire public relations system, in which the system will not be able to perform an action not specified in the code. This excludes the possibility of manifestation of corruption, even in the most minimal form.
In this context, serious changes are expected not only the social contract, but also the international legal system as a whole. And it is decentralized systems that are one of the main tools on the way to such evolutionary changes. The future has already come …
Victor Sobor – Managing Partner of HyperCube.Fund