Home ›› 05 Aug 2022 ›› Opinion
Cryptocurrency is one of the most viral words in the currency systems in the recent days. Cryptocurrency works invisibly. Many studies have been made regarding crypto and still studies are going on in many countries. That’s why this currency is a matter of great interest to us. Many questions have arisen about it. It is also a matter of concern to our currency regulatory bodies. In the meantime, El Salvador a country in Central America, has introduced this currency as a legal tender in September, 2021. There are two legal currencies in El Salvador, namely-Bitcoin and the US dollar.
Experts define cryptocurrency as “a decentralized digital currency that can be transferred on the peer-to-peer crypt network”.
Crypto currency transactions are verified by network nodes through cryptography and recorded in a publicly distributed ledger called a blockchain. The cryptocurrency was invented in 2008 by an unknown person or a group of people using the name Satoshi Nakamoto. The first wallet program, simply named Bitcoin, and sometimes referred to as the Satoshi client, was released in 2009 by Satoshi Nakamoto as open-source software.
Bitcoin and Blockchain are interrelated, thus a clear concept is needed about both of these. The Bitcoin protocol is built on a blockchain.
The definition of blockchain “A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralized database managed by multiple participants is known as Distributed Ledger Technology (DLT)”.
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.
Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where document time stamps could not be tampered with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.
Central to the appeal and functionality of Bitcoin and other cryptocurrencies is blockchain technology. As its name indicates, blockchain is essentially a set of connected blocks or an online ledger. Each block contains a set of transactions that have been independently verified by each member of the network. Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories. The contents of the online ledger must be agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger.
Experts say that blockchain technology can serve multiple sectors, such as supply chains, and processes such as online voting and crowdfunding. Financial institutions such as JP Morgan Chase & Co. (JPM)) are testing the use of blockchain technology to lower transaction costs by streamlining payment processing.
The real distinction of fiat money and Bitcoin is “Money is any item or a verifiable record that is generally accepted as the payment of goods and services and repayment of debts such as taxes in a particular country or socioeconomic context. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value. On the other hand, “Bitcoins have three qualities useful in a currency, they are “hard to earn, limited in supply and easy to verify”. According to some researchers, Bitcoin functions more as a payment system than as a currency.
Bitcoins can be bought on digital currency exchanges. Digital Currencies Exchange or Cryptocurrencies Exchange is a business that allows customers to trade cryptocurrencies or digital currencies for other assets such as conventional fiat money or digital currencies. Exchanges may accept credit cards payment, wire transfer or other forms.
Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it. Most modern paper currencies are fiat currencies, including the US dollar, the euro, and other major global currencies that derive their authority as mediums of transaction from the government or monetary authorities. For example, each dollar bill is backstopped by the Federal Reserve.
But cryptocurrencies are not backed by any public or private entities. Therefore, it has been difficult to make a case for their legal status in different financial jurisdictions throughout the world. It doesn’t help matters that cryptocurrency have largely functioned outside most existing financial infrastructure. The legal status of cryptocurrencies has implications for their use in daily transactions and trading. In June 2019, the Financial Action Task Force (FATF) recommended that wire transfers of cryptocurrencies should be subject to the requirements of its Travel Rule, which requires AML compliance.
Japan’s Payment Services Act defines Bitcoin as legal property.
Cryptocurrency exchanges operating in the country are subject to collect information about the customer and details relating to the wire transfer. China has banned cryptocurrency exchange mining within its borders. India was reported to be formulating a framework for cryptocurrencies in December.
Cryptocurrencies are legal in the European Union. Derivatives and other products that use cryptocurrencies will need to qualify as “financial instruments.” In June 2021, the European Commission released the Markets in Crypto-Assets (MiCA) regulation that sets safeguards for regulation and establishes rules for companies or vendors providing financial services using cryptocurrencies. Within the United States, the biggest and most sophisticated financial market in the world, crypto derivatives such as Bitcoin futures are available on the Chicago Mercantile Exchange. The Securities and Exchange Commission (SEC) has said that Bitcoin and Ethereum are not securities.
Although cryptocurrencies are considered a form of money, the Internal Revenue Service (IRS) treats them as a financial asset or property. And, as with most other investments, if you reap capital gains in selling or trading cryptocurrencies, the government wants a piece of the profits. On May 20, 2021, the US Department of the Treasury announced a proposal that would require taxpayers to report any cryptocurrency transaction of and above $10,000 to the IRS. How exactly the IRS would tax proceeds—as capital gains or ordinary income—depends on how long the taxpayer held the cryptocurrency.
Shanghai vows to take the lead in supporting the development of Non Fungible Tokens (NFT) as the municipal government voiced its ambition in a recently released official guideline.
The Shanghai municipal government said it “supports leading enterprises to explore and establish NFT trading platforms,” according to the city’s 14th Five Year Plan on digital economy development published this week.
The guidelines came as China has been unequivocal in criticizing NFTs. In April, China’s top financial associations published a notice warning the financial risks involved with blockchain-based digital tokens and NFTs.
However, Shanghai aims to promote the city as one of the first Chinese cities to test NFT digital assets and related industries with a focus on exploring business models and its application for intellectual property protection.
In a section on enhancing digital infrastructure, the guidelines said the city should “accelerate the exploration of digital transformation and digital technology applications in the fields of virtual digital assets, artworks, intellectual property, and games.”
The guidelines also mention cultivating metaverse-related businesses, promoting research into core technologies such as avatars, virtual reality, mixed reality and 3D scanning. Virtual live shows, virtual idols and other forms of digital entertainment are also encouraged.
According to the plan, the city aims to increase the value of the digital economy by RMB 3 trillion ($446 billion) by the end of 2025, with aims to have it account for more than 60 percent of the city’s overall economy.
Beside Shanghai, South African Central Bank plans to look at regulating crypto. The country may also issue a central bank digital currency. South Africa will look to introduce a regulatory framework for cryptocurrencies, said Kuben Naidoo, Deputy Governor of the South African Reserve Bank (SARB). “Our view has changed and we now regard it [cryptocurrency] as a financial asset and we hope to regulate it as a financial asset,” he said at a PSG Think Big webinar. “There has been a lot of money that has flowed in, and there is a need to regulate it and bring it into the mainstream.” Regulations, he said, could take 12 to 18 months, but some know-your-customer (KYC) rules and licenses for exchanges can be implemented earlier.
The writer is a banker. He can be contacted at badrul01913@gmail.com
