The cryptocurrencies have an international vocation
No government, in particular, owns or regulates them, thus avoiding fees for payments that cross borders
Bitcoin is a type of digital currency or unregulated cryptocurrency (decentralized, without a central regulatory bank), designed to avoid government currency controls and simplify online transactions.
The cryptocurrencies arose thanks to the birth of the blockchain, which is a technological option to ensure the integrity of the records through the web. Bitcoin is the first currency to use the blockchain globally, although the blockchain has been extrapolated for use in other industries beyond currencies.
Bitcoin is a type of digital currency or unregulated cryptocurrency (decentralized, without a central regulatory bank), designed to avoid government currency controls and simplify online transactions by getting rid of third-party payment processing. In other words, it is designed to avoid the frictions of the national and international payments or transactions, as well as the bureaucracy and intrinsic costs to this type of procedures.
Overall, Bitcoin’s blockchain is a database or ledger made up of Bitcoin transaction records.
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The blockchain revolution
Everything that is recorded in a blockchain is unalterable and there are records of where each asset has been. Among the benefits, we have the elimination of bank charges and intermediaries, reduction of time to find information, resolution of disputes, and verification of transactions. In addition, the risks of collusion, manipulation, and fraud are reduced.
Likewise, the friction inherent in transactions is eliminated, as well as the long time waiting to receive a payment in virtual currency, which can happen with traditional money transactions.
The cryptocurrencies have an international vocation. No government, in particular, owns or regulates them, thus avoiding fees for payments that cross borders.
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For example, there are countries that move high percentages of their GDP through remittances sent by migrants to their families. These remittances represent millions of dollars per year, both for the countries that receive these resources and for those entities that “facilitate” the sending of resources to other countries, changing an important commission for intermediation that can reach 5 or 10% of the amount sent.
Additionally, many projects have arisen and have been financed through crowdfunding, using fundraising platforms, having in the blockchain an important facilitator.
Therefore, intermediaries such as lawyers, brokers, and bankers might not be necessary, since individuals, organizations, machines, and algorithms would freely trade and interact with one another with little friction.
Should the cryptocurrencies be regulated?
If the regulatory body of a country decides that cryptocurrencies should be banned, prices will fall (depending on the size of the country), and blockchain technology companies will avoid installing there.
Some countries consider cryptocurrencies as a threat to the stability of the financial market, arguing the potential danger of tax evasions and contingencies. For example, the People’s Bank of China banned the country’s companies from making cryptocurrency placements. In other words, Initial Coin Offering (ICO), as a method of financing, declared them as an illegal collection of funds.
Contrarily, Japan made Bitcoin a legal method to make transactions. After the implementation of this new legal paradigm, the use of cryptocurrency was enabled in hundreds of thousands of premises. Another example is Estonia, a country that is close to issuing its own cryptocurrency.
In Mexico, the Ministry of Finance and Public Credit makes efforts to reach the Financial Technology Law, with the objective of regulating entities that buy and sell virtual assets to prevent crimes such as money laundering.
In the United States, the Securities and Exchange Commission has not taken a clear position on cryptocurrencies.
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However, in 2017, at least eight states have worked on bills that accept or promote the use of Bitcoin technology and the blockchain. For example, Arizona seeks to recognize smart contracts. Vermont seeks to offer the blockchain as evidence. Also, Delaware is pending to authorize an initiative to maintain the register of shareholders of its companies in blockchain format.
Meanwhile, in Costa Rica, the Central Bank recently took a position by pointing out that Bitcoin and other similar cryptocurrencies do not have their backing. It adds that they cannot be considered as currency or foreign currency under the exchange regime, so they are not covered by the security offered by the exchange intermediation or the free convertibility of the currency.
Therefore, we must focus on clarifying whether cryptocurrencies are securities, foreign currencies, commodities or other types of goods, and thus be able to give legal clarity to the object we intend to address.
Finally, the consensus on the legality and proper regulation of cryptocurrencies must be made through cross-border agreements because individual efforts would be sterile if in other jurisdictions circulation is left without adjusting to any parameter or regulatory criteria.
Juan Ignacio Guzmán is a lawyer and partner of Guzmán & Durán Asesores Jurídicos.