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Cryptocurrencies and state authorities : a viable cohabitation ?
On the 31st of October 2008, an entity by the name of Satoshi Nakamoto is going to change the world of finance by sending Bitcoin’s white-paper via a mailing list. Bitcoin is considered like a currency UFO because it is virtual and decentralized. Most importantly, it is not subject to any national jurisdiction and is not controlled by any country or international authority. The creation and the quick growth of Bitcoin has encouraged the birth of many virtual currencies. By the way, they will be called “cryptocurrencies”. You can find, for example, coins such as Ethereum, Ethereum Classic, Beam, Grin, etc… And these new currencies are not especially accepted by state authorities…
In this article :
Mistrust and dislike from the authorities
The spread of cryptocurrencies and the explosion of their market caps have provoked many negative reactions from some politicians and financial authorities. Mistrust and dislike for this technological and financial revolution have emerged for several reasons.
Firstly, the most obvious reason is that a cryptocurrency is not controlled by a government or an international authority. It’s a real problem for governments, especially when it’s a big company that wants to develop its own currency, like Facebook’s Libra project.
Libra is a stable cryptocurrency project promoted by Mark Zuckerberg and his company, Facebook, and supported by about twenty major companies and NGOs such as Spotify, Uber, Coinbase, etc. Libra aims to encourage the development of a currency and financial infrastructure that could serve billions of people.
The French Finance Minister, Bruno Le Maire disapproves of the development of the stable coin Libra. He denounces the fact that a cryptocurrency puts in danger the financial and currency sovereignty of countries.
The fear of Bruno Le Maire, but also the Vice-Chancellor of Germany, Olaf Scholz, is that a big corporation like Facebook will become as powerful as a country. Having its own currency would allow this corporation to become a country in its own right.
The other reason why the authorities are suspicious of cryptocurrencies is also due to the lack of state control on the currency, but this time it is more for a security aspect.
Indeed, many scams and hacks are freely circulating on the Internet. Moreover, 2019 has been a year full of scams and hacks with a total of 4.5 billion dollars in cryptocurrencies reportedly stolen by hackers.
Many scams are also done through ICO. An ICO, or more precisely Initial Coin Offering, is a fund-raising method that allows the release of digital exchangeable assets for cryptocurrencies during the start-up phase of a project. The last ICO that is controversial is the TON project and its GRAM token. TON also knew as Telegram Open Network, is an ICO powered by the famous messenger service, Telegram. Through its Initial Coin Offering, the Russian company was successful in raising $1.7 billion.
This fundraising has immediately alerted the SEC. The SEC or Securities and Exchange Commission is the U.S. federal agency that regulates and supervises financial markets. This financial authority manages and regulates the US financial market in order to protect investors. On October 11, 2019, the SEC decided to simply ban and block the sale of Telegram’s GRAM token in the United States.
Since that time, a long legal battle continues between Telegram and the U.S. Financial Police. A face-to-face that disrupted and delayed the launch of the TON project.
The cryptocurrencies have also been subject to heavy bashing, due to its innovation and the lack of knowledge of the ecosystem by the general public. This bad reputation that sticks to the skin of cryptos has mostly been spread by governments, finance and mainstream media. However, their arguments are easily debatable, which is why we have written an article on why cryptocurrencies have such a bad reputation.
Governments and financial authorities interests about cryptocurrencies
Despite the mistrust of governments and financial authorities regarding cryptocurrencies. They are still of interest to them for a few reasons. Cryptocurrencies bring many benefits to the authorities and they are not afraid to take advantage of them.
First of all, the countries see a financial interest… obviously. Indeed, government authorities are generally reluctant or even condemn crypto-currencies but do not bother to recover and tax the funds of crypto-addicts.
That’s why some European countries do not hesitate to highly tax cryptocurrencies, like the Nordic countries with Norway, Sweden and Finland or France which takes back 30% of your cryptocurrencies profit.
Map of taxes on cryptocurrency sales in Europe
Secondly, some countries see technological interest. More and more state services are turning to cryptocurrencies and blockchain technology. This is the case, for example, for France. Since September 2019, the French police cyber crime department has been using the Tezos blockchain to validate and store legal costs involved in an investigation.
Also, France is working on the creation of a digital currency for its central bank. The objective is to reach at a first test from now until the first quarter of 2020.
Autre sujet crucial : l’éventuelle création d’une monnaie digitale de banque centrale. « Nous devons apporter notre pierre à l’édifice de cette innovation, mais de manière sérieuse et méthodique », François Villeroy de Galhau à la conférence de l’#ACPR cc @ACPR_actu— Banque de France (@banquedefrance) December 4, 2019
Political and economic figures also support cryptocurrency projects and initiatives. This is the case of Christine Lagarde, former Managing Director of the IMF, the International Monetary Fund, and current President of the European Central Bank. She finds it damaging that cryptocurrencies are seen through the prism of insecurity and money laundering and is a strong supporter of the tokenization of the economy. Moreover, she does not want to discourage private cryptocurrency projects and initiatives, such as the Libra, for example.
State cryptocurrencies, the best compromise ?
The various interests of states and some politicians have made it possible to consider the idea of a national or even continental cryptocurrency. This is the case of China which is developing a crypto-Yuan as well as the European Union which, under the encouragement of Christine Lagarde, is developing a crypto-Euro.
However, it is possible to question the legitimacy of countries in the creation of a cryptocurrency. It can be suggested that it is an admission of weakness on the part of the state authorities, due to their media bashing. Indeed, the technological benefits that cryptocurrency and blockchain bring to the financial sector are so important that countries are forced to use this ecosystem in the future.
The other point, which is not negligible, is that countries are not going to use cryptocurrencies as it was originally thought. The blockchain and cryptocurrencies are one of the main spearheads of cypherpunk thinking and ideology. The cypherpunk ideology, which comes from the contraction of the word cypher and punk, aims to ensure privacy through the proactive use of cryptography. We can suspect and be afraid of the intentions of the governmental authorities in the creation of their own virtual currency, which will be far from the libertarian ideals of the cypherpunk movement. There is a risk of jeopardizing the confidentiality of their future users.
Some actors in the cryptocurrency industry are wondering about these states neo-currencies, such as Vitalik Buterin, one of the founders of Ethereum. He wonders about the interoperability of future states cryptos, in order to know if the transactions issued on these networks will be cryptographically verifiable on public blockchains such as Ethereum.
Important tech question about these CBDCs that are starting to pop up (CC @mg0314a): will transactions be cryptographically provable? That is, if I send you N coins, can I generate a cryptographic proof that this happened that can be verified on the ethereum chain? ...— vitalik.eth (@VitalikButerin) February 4, 2020
If crypto-Euro or crypto-Yuan transactions can be verified on public blockchains, this could allow a better cohabitation and exchanges for these cryptocurrencies on various decentralized exchange platforms.
If yes, then this opens the door to interesting possibilities regarding CBDC <--> cryptocurrency DEXes.— vitalik.eth (@VitalikButerin) February 4, 2020
We will have to wait for the release of these states cryptocurrencies to have an answer to these questions…
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Eric - Marketing & Growth
I’m in charge of Marketing at Cruxpool and of course it includes writing for this blog about cryptocurrencies. I also love the NFL and Fantasy Football