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Cryptocurrencies: An Illusion or Reality? Nadine Ghosn

Cryptocurrencies: An Illusion or Reality? Nadine Ghosn

Nadine Ghosn

“Cryptocurrencies are the NEW Hedge Against the DYING Dollar” – Robert Kiyosaki

“It is not a durable means of exchange, it’s not a store of value” – Warren Buffett

Since its creation, cryptocurrency has sparked intense controversy and disagreement. As a result, financial firms, central banks, regulators, investors, and governments all rethink how cryptocurrency technologies change the globe.

For instance, cryptocurrencies offer users a cheaper and faster way to conduct international transactions. Yet, on the other hand, the crypto sector facilitates criminal activity, such as money laundering and terrorist financing — a serious problem that continuously increases worldwide.

What Is Cryptocurrency?

To begin with, a cryptocurrency is a form of payment for exchanging goods and services online. Specifically, companies issue their own currencies called tokens. Accordingly, holders of these tokens can use them to buy goods or services from the issuing company.

Furthermore, cryptocurrencies operate through a technology called Blockchain — a decentralized technology installed on many computers that control and document all transactions.

What Makes Cryptocurrencies So In Demand?

Consequently, cryptocurrencies attract many people because:

First, advocates believe these tools will become the future currency and race to buy them now before prices rise.
Second, some speculators prefer cryptocurrencies for their rising value, not as a way to transfer money.
Finally, other promoters focus on blockchain technology — since it offers a decentralized system and greater security than conventional payment systems.

Advantages of Cryptocurrencies

Moreover, cryptocurrencies offer many advantages, such as:

User Autonomy and No Intermediation: Users can control their spending, sending, and receiving payments without dealing with an intermediary authority like a bank or government, and without requiring approval from any external source.
Discretion: In addition, crypto transactions can be anonymous and untraceable.
No Banking Fees and Low Transaction Fees on International Payments: Because crypto transactions occur without intermediary institutions or government involvement, transaction costs stay very low. Thus, users avoid banking fees.
Swift Transactions: Also, cryptocurrency transfers happen very quickly, removing authorization delays.
Mobile Payments: For example, users can pay anywhere with Internet access. Unlike online payments or cards, personal information is not necessary to complete any transaction.

Challenges Cryptocurrencies Create for Authorities

Nevertheless, cryptocurrencies present major challenges to government authorities, mainly because they are difficult to regulate. Specifically, criminals use them, and they help nationals evade capital controls.

Similarly, like any new financial product or technology, cryptocurrencies carry significant money-laundering risks. For instance, they are subject to fraudulent activity, and their operation lacks clarity. These risks arise mainly from:

Transaction anonymity
Vulnerabilities in cryptosystems
Malicious software (ransomware)
Opaque sources of cryptocurrency funds, where customers hide the origin of their money

What Are Regulators Doing to Eliminate These Risks?

To stay ahead, regulatory bodies introduce legislation to prevent money laundering through cryptocurrency exchanges and custodians, and to detect suspicious activity in the crypto sector. For example:

European Commission: Three months ago, the EC announced plans to end anonymity in cryptocurrencies and establish a new anti-money laundering (AML) agency to impose stricter rules on financial criminals. As a result, all cryptocurrency service providers must verify the identity of people sending and receiving transactions. In addition, the EC prohibits anonymous crypto asset wallets and forbids cash payments above €10,000.
U.S. Department of the Treasury (OFAC): Similarly, OFAC issues recommendations to help the virtual currency industry mitigate crypto risks. Consequently, crypto industry members must ensure they do not engage — directly or indirectly — in transactions that OFAC sanctions prohibit, such as dealings with blocked individuals, entities, or properties, or prohibited trade or investment transactions.
U.S. Federal Reserve Chairman Jerome Powell recently announced he has no intention to ban cryptocurrencies.
Chinese regulators, however, united their forces months ago to eliminate crypto by declaring all cryptocurrency-related transactions in China illegal and banning all crypto mining activities.

Why Do Different Regulators Take Different Approaches?

Thus, cryptocurrency pressures countries and regulators to choose between banning, tolerating, or cooperating with the crypto industry. Therefore, the question remains: Why do different regulators take different approaches to regulating cryptocurrency?

In fact, understanding the real reasons behind the different regulatory approaches and their effects on the market and investors will enable us to solve the riddle of regulating the crypto market efficiently.

As a final point, time is vitally important. Hence, regulators should take immediate synchronized action worldwide to benefit from the advantages of the crypto industry, while at the same time handling all its deficiencies.

“I’ve always believed it’ll be made illegal somewhere like China made it illegal, so I think it’s a little bit of fool’s gold; it’s got no intrinsic value. And regulators are going to regulate the hell out of it.” — Jamie Dimon

By Nadine Ghosn Eid, Director – Head of Compliance at areeba, Anti-Money Laundering Specialist

To know more about the author, visit this link. For the full one-on-one interview with Nadine, click here.