There are a number of advantages and disadvantages of digital currencies, we will review them against the following points:
Cryptocurrencies enable the direct transfer of funds between two parties without the need for a trusted third party such as a bank or credit card company. These transfers are secured by public and private tokens as well as various forms of payment systems, such as holding all trade movements.
In modern digital currency systems, the user’s “wallet” or account address contains a public code, while the private code is known only to the owner and is used in contracts and transactions. Money transfers are completed with minimal fees, so users can avoid the high fees banks and financial institutions charge for wire transfers.
The semi-anonymous nature of cryptocurrency transactions makes them suitable for a range of illegal activities such as money laundering and tax evasion, to name a few. Proponents of cryptocurrencies often value the possibility of anonymity and invoke advantages of privacy such as the protection of whistleblowers or activists who live in repressive regimes. But some cryptocurrencies are more private than others. Bitcoin, for example, is not a suitable option for doing illegal online business. There are also more high privacy coins. These include Dash, Monero, or Zycash, which are the most difficult to track.
Regulating digital currencies around the world
As technology continues to rapidly integrate into all aspects of life, regulators around the world are working to keep up with the breakneck pace of balancing technology, first with regulated traditional use.
With the technology sector in constant growth and advancement, it is imperative that regulators monitor and understand market movements in order to properly identify the needs of the industry.
One of the unique characteristics of digital currencies is that they function without a central regulator. Traditional banking runs the risk of slow approval processes and transaction fees that can take days to complete. The decentralization of digital currencies enables financial transactions to be carried out immediately with little or no fees, avoids the problems of banks and the advantage of using wallets that store digital currencies offline (cold storage). This protects consumers from data theft.
This does not mean that digital currencies are always unregulated. Perhaps because of these unique properties, regulators around the world are trying to figure out how best to apply government regulations to cryptocurrencies. In some countries like Switzerland and Malta they have already passed progressive laws regulating the legal framework for other countries setting their own rules for digital currencies, while many other countries are not yet subject to legal regulations.
There is no doubt that regulation is important for several reasons. Regulatory authorities have the right to monitor the use of cryptocurrencies in order to reduce risks such as market manipulation, hacking of customer accounts, use of cryptocurrencies for illegal activities and many more security measures. At the same time, regulators are working to figure out how best to offset the reduction in risks associated with using cryptocurrencies without reducing the automated benefits.
Regulating digital currencies around the world
Regulations for Malta and Switzerland
Malta was the first EU member state to enact comprehensive legislation regulating DLT software, VFAs and companies providing certain services related to virtual financial assets. In 2018, the Maltese Parliament passed three first laws of its kind: the Malta Digital Innovation Authority Act, the Innovative Technology Services and Arrangements Act, and the Virtual Financial Assets Act (the “VFA” Act). Issuing financial service contracts and providing certain services related to VFAs. The VFA qualifies all forms of cryptocurrencies as DLT assets and defines assets that “use ledger technology or rely heavily on it”. DLT assets can be any of the following:
Virtual symbols, also known as auxiliary symbols;
virtual financial assets;
The VFA (Malta Financial Instruments) Act also defines the Maltese Financial Instruments Test, the veis used to determine which category a DLT asset falls under and which must be carried out by all companies issuing DLT assets in or from Malta, as well as by persons who carry out activities within the scope of the Maltese Financial Instruments Act, international financial instruments or other legislation related to DLT.
In Switzerland, the Federal Council has meanwhile announced that the best current solution is to rely on token classes that the Swiss Financial Market Supervisory Authority (FINMA) introduced in its guidelines of February 16, 2018. The token classes include:
Payment tokens, which FINMA refers to as a synonym for “pure digital currencies”, digital currencies that are to be used as a means of payment for the purchase of goods or services. Compared to traditional financial instruments, these currencies are more closely aligned with currencies. It includes interest tokens that are intended to enable digital access to an application or service via a blockchain-based infrastructure. Finally, asset tokens, also known as fixed currencies, represent assets such as debt or equity claims against the issuer and are similar for stocks, bonds or derivatives. In this context, FINMA has declared that the tokens with which we can trade physical assets on the basis of the blockchain also fall into this category.
The UK and Germany are among the other countries that have introduced laws to classify cryptocurrencies under different sets of tokens. And Arensen will continue to monitor whether this new technology approach appeals to other western countries and the world at large.
Digital Currency Fraud
Cryptocurrency scams have become a common way of tricking people into sending money. Although it manifests itself in many ways, most digital scams come in the form of emails trying to blackmail someone, fraudulent online programs, or fake business and investment opportunities. According to a recent article in the Wall Street Journal, cryptocurrency scams grossed more than $ 4 billion in 2019.