During the G20 meeting in Buenos Aires, Argentina ending on December 1st, it was agreed to regulate cryptocurrencies according to the Financial Action Task Force (FATF) standards. Let’s dig deeper into how power and control is at play.
G20 agrees to regulate “crypto-assets”
The G20 forum of nations came together for their annual meeting over the last weekend in Argentina. In the one of the sessions, it was decided that a collective reform is necessary to the regulation of the growing digital economy:
“We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated. We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.”
It was also said that we can expect a follow-up report agreements on taxation of “crypto-assets”:
“We will continue to work together to seek a consensus based solution to address the impacts of the digitalization of the economy on the international tax system with an update in 2019 and a final report by 2020.”
This is one of the biggest, global moves towards the regulation of cryptocurrencies. The Financial Action Task Force (FATF) is an inter-governmental body. On its website, it defines its objectives, according to which the regulation will take place:
“The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is, therefore, a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.”
Regulation: For good and for bad
Like any issue, the regulation of cryptocurrencies has two sides. On one hand, regulation allows the mass public to be convinced that cryptocurrencies are not just for criminals, as has been common belief for many years. For the public which trusts its government, regulation makes cryptocurrencies more accessible.
Furthermore, Brookings Institution writes that comprehensive regulation of cryptocurrencies and ICOs is a good thing: “A cryptocurrency market that is effectively regulated will mean a decrease in the herd-driven volatility exciting the market—even as the value of cryptocurrencies continues to rise.”
US Secretary of Treasury, Steven Mnuchin, claims that bitcoin trading firms are obliged to track bitcoin transactions. Earlier this year, he said: “We can track those activities. The rest of the world doesn’t have that, so one of the things we will be working very closely with the G20 is making sure that this doesn’t become the Swiss bank account.”
At the G20 this year, it was reported that Mnuchin said the US favored a broad approach to dealing with digital economy taxation issues.
However, on the other hand, regulation limits innovation which is at the core of the movement. Bitcoin was designed to be borderless, censorship-resistant and politically neutral. Also anonymity, in transactions and ownership, is a critical part of Satoshi Nakamoto’s philosophy, as depicted by the inventor’s pseudonym itself.
Bringing in government regulation is contradictory to the whole idea which made cryptocurrencies appealing in the first place – an independence from the traditional financial system. Banking and government institutions are very much capable of causing massive disasters, such as the 2008 crash, corruption, or financial and political instability as seen in Zimbabwe and Venezuela. In this case, it is a great advantage to be able to rely on an alternative network. It is empowering to people as individuals rather than centralized powers.
In addition, regulation seriously limits the innovation taking place in the cryptospace. A great advantage of the open source and unregulated space of blockchain technology is fast-paced and dynamic nature of growth which allows. Another danger is that it pushes a part the movement underground, out of regulation’s reach, making development off this space riskier and harder to access.
The issue is that many of the people who are putting their money into cryptocurrencies now are not attached to the philosophy on which the technology is based, but are rather looking to increase wealth. Regulation is then a form of capital protection, which is favored.
A play of power and control
The fact that right now currency exists outside of a central authority such as a bank, a state or a ruler, is unprecedented in human history. And the G20 knows it. It is only natural for people to be skeptical of such radical changes. It is even more natural for institutions in power to assert their influence to be able to survive the wave for as long as possible.
Using the ubiquitous reason that regulation is against crimes such as money laundering and terrorism, government institutions can always justify their intervention into the business of cryptocurrencies. Although it includes a certain degree of truth, governments are still using this as an excuse to exert their power and influence in areas which they are faltering to control.
A report from July 2018 gives a comprehensive overview of every country and their existing policies. It shows that by now every country has taken a stance in legal policy on cryptocurrencies. From being banned in Iraq, to being accepted as accepted as tax payments in some parts of Switzerland. These are different approaches in which governments can control cryptocurrencies; either from within, or not allowing it in at all.
In either regards, we are seeing the traditional financial system and the new digital financial system intertwining more and more deeply. The relationship is progressing fast and in many different directions simultaneously. Keep your eyes open!