Current Status and Outlook for Cryptocurrency Regulation by Hongcheng Chen, Creative Investment Research

On April 1, "The People’s Bank of China (PBOC)’s Institute of International Finance" identified "cryptocurrencies as a top priority for 2018,": citing the potential systemic risk that "widespread retail investment into cryptocurrencies" posed to the Yuan. The article below summarizes the Mandarin-language only report.

Status and Outlook

(1) Status Quo

• Global cryptocurrency is growing explosively. As of March 10th, 2018, there were more than 1,500 types of cryptocurrency, totalling $389.1 billion in value. The market value for the top 10 cryptocurrencies stands at $321.1 billion and accounts for 80% of the total cryptocurrency market value.
• A wide variety of institutions are involved in the issuance of cryptocurrency. Private sector players include financial institutions and large e-commerce platforms. On a national level, Tunisia, Senegal, Ecuador and Venezuela have issued legal cryptocurrency.
• Existing problems: the issuance of cryptocurrency is not guided by a clear credit foundation and thus its value is exposed to huge volatility. This negatively affects the cryptocurrency financial marketplace; some fear that anonymity means the currency may be used for money laundering or other financial crimes related to a desire to avoid monitoring and tracking by regulators; the computer based nature of cryptocurrency means it is exposed to a hacking risk and a risk of being stolen due to an immature cryptocurrency system infrastructure; insufficient and inefficient monitoring and regulation.

(2) Global Regulation of Cryptocurrency

• There is movement to clarify the legal status of cryptocurrency through legislation. Japan legalized cryptocurrency as a means of payment on May 25th, 2016.
• Several countries seek to regulate cryptocurrency trading though agents (such as exchanges). The Financial Service Agency of Japan has granted licenses to 16 cryptocurrency exchanges. South Korea regulates cryptocurrency trading through the banks providing account service to exchanges.
• Taxes on cryptocurrency trading and exchanges. The National Tax Agency of Japan has imposed a capital gains tax on cryptocurrency trading. South Korea imposed a tax of 24.2% on Exchanges.
• Strengthening global cooperation. Finance Ministers in Germany and France have called for a discussion on establishing global cryptocurrency regulation at the G20 Summit this year.
• Research and development of cryptocurrency. At the Gold and Silver Currency Teleconference on March 28th, the People’s Bank of China implied that they will focus on both rectification and, research and development of cryptocurrency this year.

(3) Recommendations for Government

• Specify the essential nature of cryptocurrency through legislation. Governments should define the nature of cryptocurrency from the legal perspective.
• Strengthen regulatory cooperation and establish a global cryptocurrency regulatory framework. Governments should explore the establishment of a global cryptocurrency regulatory framework, share cryptocurrency transaction information, fight crime and protect consumers.
• Actively participate in the global governance of cryptocurrency. Governments should take the initiative to get involved in cryptocurrency governance and strive to play a decisive role with respect to cryptocurrency development and regulation.

Translation by Hongcheng Chen, Creative Investment Research. Edited by William Michael Cunningham.

Edward Snowden on Identity

In what must be considered a successful and interesting approach, the KNOW Identity Conference focused on identity related issues and identity related investment opportunities.

The first speaker was Edward Snowden, appearing via Skype from an undisclosed location. Mr. Snowden made a number of interesting comments.

He noted the government’s primary role in the provision of authenticated documents relating to identity. Indeed, supplying “identity” is one of the core functions of a modern government. Mr. Snowden suggested that governments focus on enabling people to interact with one another, secure in the knowledge of true identity. This needs to be facilitated both locally and globally, that is, you need to communicate securely (secure with respect to knowing the identity of the other person) over both great distances and/or over a shop counter.

As a way of facilitating this thinking, Mr. Snowden noted that one of the core ways to enhance identity is to have governments ask the question when focusing on identity data, “what do we really need?” Mr., Snowden suggests that citizens demand governments acknowledge that identity data will definitely be misused. The question then becomes what governments do under that eventuality. In other words, citizens need to ask governments what they (governments) will do when (not if) that data misuse happens?

As part of this focus, a recognition that people rarely need precise data to validate identity is helpful. In other words, to cash a check, you don’t need to know my blood pressure, height (to the centimeter), or exact weight (to the ounce). You may need approximations of this data, but you do not need exact numbers. The implication is that we should only use role or transaction specific and appropriate data. This data requirement changes with the nature (age, size, geographic location of the parties, time) of the transaction the identity data is (or will be) used for.

Mr. Snowden ended with more comments of the nature of the identity challenges faced in the modern age. He pointed out that dumb terrorists tend to be weeded out/captured quickly.

All in all, an engaging and thought provoking discussion.