Regulation of cryptocurrencies : a critical analysis

Abstract

The 21st century is characterized by the intensification of the phenomenon of globalisation, due to the enlarged use of internet and the introduction of new technologies, which have increased the possibility to exchange information and to make investment on a worldwide basis. This means that on one side the barriers between Countries are becoming thinner and on the other side the access to good and services is coming to be easier. However, the more the market is big and easily accessible, the more the control over it is harder to be managed by any single State. It's time to make the EU's single market fit for the digital age by tearing down the internal regulatory walls and moving from 28 national digital markets to a single one. Both the economy and society in Europe need to take as much advantage as they can of digital1. Thus, The European Commission announced its long-awaited Digital Single Market strategy in 2015 in an effort to strengthen Europe's role in a global economy driven increasingly by technology and innovation by facilitating the access to digital goods and services2. Europe needs new economic momentum to help its economies to exit from the economic and financial crisis and to boost long-term growth rates and competitiveness3 . One of the factors which can lead to development of EU digital single market is cryptocurrencies if we consider one of the pillars of the Digital Single Market strategy being the maximization of the growth potential of the digital economy. That is why cryptocurrencies and blockchains may have a key role in order to increment the idea of conducting business through markets based on the internet, which is the basis of the concept of New Economy. Looking at a new concept of currency system as an alternative to the well known fiat currency could be necessary in order to penetrate deeper into both the routine transactional business and the market exchanges, since our nowadays life is characterised by being faster and territorially larger than it used to be. Hence the consequent need of having a payment tool which would be as fast and large as the contemporary epoch is. However, if on one hand the cryptocurrencies could likely fulfill the purpose of being the above-mentioned alternative, on the other hand they may be more vulnerable to be subject to a large scale corruption, cyber economic crimes, funding of terrorist operations. The main reason behind those issues could be the lack of regulation of this new-era currencies. Anyhow, the analysis of what cryptocurrencies are, what shortcomings there are in relation to them, how and if they should be regulated are going to be discussed further in this paper. I will highlight only few aspects of the problems related to the use of the cryptocurrencies, such as the lack of legislation to safeguard the investors and the possibility to apply the existent KYC, AML and CFT standards. Additionally, I will analyse the attempts which have been already taken in order to build up a regulation on this theme in Europe, particularly by examining in depth the situation in Malta. Furthermore, I will describe how the cryptocurrencies have been qualified in order to be regulated, which are the consequences of this classification and which regulation would apply, if any. In my conclusions it will be discussed whether the securities regulations shall apply or not, which are the distinctions between security cryptocurrencies and non- security cryptocurrencies, the way how the cryptocurrencies are actually bypassing the existing rules and a forecast and alternative qualification of them.