Yesterday European officials met in Brussels to discuss the developments of virtual currencies.
The event, titled ‘Opportunities and Risks’ demonstrated a growing understanding of the disruptive potential of cryptocurrencies. Valdis Dombrovskis, Commission Vice-President in charge of Financial Stability and Chair of the event recognized that technological developments in this area are affecting many areas of the economy, including finance. The meeting concluded with three central points.
Firstly the commission emphasized the need for “market integrity and financial stability”. It is not entirely clear what achieving this goal will entail, as cryptocurrency markets are largely speculative and highly volatile. Cryptocurrencies operate on entirely different systems to centralized currencies, being non-inflationary, and surely pose a destabilizing threat to fiat financial systems.
Secondly the meeting identified the use of virtual currencies by criminals. Currently some virtual currencies offer a degree of anonymity, which allows for tax avoidance, fraud and direct funding of criminal activity. The Commission will likely attempt to tackle this challenge with increasing regulation and Know Your Customer enforcement.
The Commission also identified the risk of ICOs, or Initial Coin offerings. Whilst they identified the opportunity that ICOs hold for innovative startups, Dombrovskis outlined that the lack of transparency and accountability posed a threat to investors.
Moving forward officials say they will investigate how virtual currencies match up with existing European laws, with legislative changes likely to follow.
Europe is not alone in paying attention to cryptocurrency developments. Last month virtual currencies were the subject at a Senate hearing in the United States, where officials were shocked that to date zero ICOs were registered with the SEC (Securities and Exchange Commission). Whilst Europe and America have kept their fingers off the legislative buttons so far, China has enforced strong regulations and bans on cryptocurrencies. Last September all crypto exchanges in the nation were forced to close.
Although we are still in the early days of blockchain and cryptocurrency technology, the disruptive potential of decentralized ledger systems is becoming increasingly apparent to centralized authorities. The coming years will be crucial for the technology’s success.