Chaired by Mark Stephens CBE, we were joined by Professor Keith Pilbeam, professor of International Economics and Finance at City, University of London and James Wingfield, legal director at Howard Kennedy LLP in Commercial Disputes and International Arbitration. Below are some of the key points discussed by the panel and those in attendance.
Beauty is in the eye of the beholder
Although essentially a piece of computer code, some economists are wrong to suggest that cryptocurrencies have no value. It is a voluntary exchange of assets between two people that perceive value in them. With that said, a key issue facing issuers and investors is the lack of stability of this value. Shops are not obliged to accept it, so the uptake of cryptocurrency use is still limited; for example the current global cryptocurrency market is valued at around £108 billion, which is dwarfed by the £6 trillion foreign exchange market. Also mining costs have increased, as miners now require sophisticated and thus expensive processors and IT equipment.
Property v currency
Categorising cryptocurrencies has provoked much academic debate. It was argued that they are intangible forms of property, which is a view echoed by the Treasury Select Committee, who prefer the term 'crypto-assets' as they do not consider that they exhibit the essential characteristics of fiat currency. Prof. Pilbeam described them as a voluntary currency; whilst they are not legal tender, they can still perform in very similar ways to currency.
Theft of cryptocurrencies
James Wingfield outlined the interim remedies available if your cryptocurrency is stolen:
- Freezing Injunction – where the identity of the person/entity holding the cryptocurrency is known
- Injunction Against Persons Unknown – this can prohibit the dissipation of your cryptocurrency despite a lack of visibility
- Search Order – an expensive and draconian measure, but it would allow entry to the premises to seize the relevant computer. However there may be only a 50% chance of an expert being able to obtain the private key to access the stolen cryptocurrencies
Regulating exchanges – a race to the bottom?
High-profile failings of cryptocurrency exchanges (e.g. Mt. Gox and more recently Quadriga CX) have prompted regulatory action. Exchanges and wallets will be included within the definition of "obliged entities" under the EU's 5th Anti-Money Laundering Directive. This was considered a positive step by the panel, as it obliges due diligence and KYC checks to be undertaken at the point of exchange to fiat currency. Implementing this standard across EU member states creates a harmonised approach, but may create a race to the bottom in other less-regulated jurisdictions, as fraudsters seek to avoid traceability.
Stable Coins and the future
Cryptocurrencies' longevity has been best epitomised by the U-turn of JP Morgan's CEO, Jamie Dimon. Once opposed to the concept, the bank has introduced JPM Coin – a digital coin linked to the US Dollar. Asset-backed cryptocurrencies have grown in popularity (e.g. Tether) and offer greater certainty for investors. With other banks such as Goldman Sachs looking into a similar concept, in addition to the Chinese government exploring a state-backed cryptocurrency, there is palpable faith in cryptocurrency in an increasingly cashless society. The big challenge for regulators will be to keep pace with such financial innovations.