The pessimistic and antagonistic side of the coin

The following text is a work in progress

As the popularity and usability of cryptocurrencies is growing, different international institutions are increasing their engagement, actions, and responses. This is done by organizing summits and events, and publishing statements and publications, making recommendations to national governments and other public organizations above the national level. Among the key examples of focus, actions and communication is regarding topics as sovereignty, stability, macro economy, money laundering, organized crime, terrorism, economic risks, standards, legislations, etc. For example, the FATF mentioned in 2013 “decentralized digital currencies” and their report from 2014 stated digital currencies carry several economic benefits, such as decreased transaction costs, financial inclusion for those lacking access to banking services and the facilitation of micro-transactions. At the same time warned that such currencies also carry risks of money laundering and terrorist financing and “other crime risks that must be identified and mitigated”.

One of the recent examples is that in June 2022, UNCTAD published a Policy Brief No.100 communicating about the usage of cryptocurrencies during the Covi-19 pandemic. Among other things, the policy brief states that cryptocurrencies are risky for the monetary systems of developing countries as in Africa when it comes to financial sovereignity and macro stability. UNCTAD argues that there is no “one-size-fits-all policy response” to the increase in the use of cryptocurrencies among developing countries and that governments should take a “forward-looking, holistic and innovative approach” to regulating cryptocurrencies. Among proposals are taxing crypto, regulating DeFi and creating CBDCs but also making digital wallet ownership mandatory to report and to restrict or prohibit the advertisement of crypto exchanges and digital wallets in public spaces and on social media. This behavior is opposite and in contradiction to communication from 2021 stating positive, optimistic and encouraging comments about the potential of both blockchain and cryptocurrencies for social and economic development as in Africa, including SDGs.

Another institution that during the last years has been taking more interest into cryptocurrencies is G20. In a 2018 report about crypto assets provided to G20 finance ministers by the G20 affiliate agency Financial Stability Board, the FSB report stated that monitoring of cryptocurrencies has to continue regarding “financial stability implications, market integrity and analyzing payment innovations”. Furthermore, the FSB report stated that “crypto-assets do not pose a material risk to global financial stability at this time” and also about a need for better data gathering since among other things previous FSB analyses of crypto-asset markets highlighted challenges such as rapid developments in these markets, lack of transparency including around the identity and location of token issuers and the governing law for white papers, and data gaps. Similar positions have taken place within the IMF where in 2018, an IMF internal working group discussion about crypto assets and macroeconomic statistics it was stated that at the moment there was no universal or consistent taxonomy nor guidance on how to record crypto assets in macroeconomic statistics. Because of this, the IMF together with the OECD started to explore the statistical measurement of crypto assets. It was also stated that crypto assets are a global phenomenon for which time data should be collected, particularly on those cases where the assets are acting as a general medium of exchange. Partly that information would be used for measuring money, liquidity aggregates, and international capital flows at a relatively high frequency to meet user needs. The paper also stated that in contrast to traditional components of money and liquidity aggregates, new forms of digital money, such as CBDCs and stablecoins are likely to be issued by nonresident financial intermediaries to which national compilers of macroeconomic statistics may have very limited access.

Regarding central banking and international regulations, FSB mentioned that the new innovations that might add to efficiencies at the cost of safety represent an important challenge for central banks and that cryptocurrencies “make for unsafe money” including that central banks are reviewing how to improve and modernize existing central bank operated payment systems and that central banks can encourage and catalyze improvements to current arrangements. FSB work is also interesting when analyzing one of their recent reports from 2022, that compared to earlier statements in 2018, is stating that Crypto-assets market capitalization has grown and due to the speed of development they “could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system” and there is “the need for timely and pre-emptive evaluation of possible policy responses”. At the same time, the report states that direct connections between crypto-assets and systemically important financial institutions and core financial markets are limited at the present time and that “episodes of price volatility have, so far, been contained within crypto-asset markets and have not spilled over to financial markets and infrastructures”, and that crypto-assets are not widely used in critical financial services and payments systems on which the real economy depends. The report also states that there are vulnerabilities that could undermine the integrity and functioning of crypto-asset markets such as investor and consumer understanding of crypto-assets including costs, fees, conflicts of interest and lack of redress and/or recovery and resolution mechanisms, and uncertainties around the operational resilience of some crypto-asset focused institutions.

Besides negative perceptions and experiences with crypto, there are many examples of how international institutions view the usage of blockchain. During internal tests, there have been cases of the UN staff seeing problems in the blockchain’s function om immutability and risks with disruption for which the UN staff is not able to handle as due to a lack of training and insights as regarding losing private keys and risk information about privacy and intellectual property. For example, in 2020 UN-Habitat noted that in the case of land registries, there was a high risk of blockchain-based systems entrenching unjust and inequitable outcomes, unless there were clear and enforceable measures to prevent and mitigate this. Another example is within the UNHCR where its staff members emphasized that, while blockchain was considered to be robust and safe in terms of cybersecurity risks, such risks still existed. The UN Secretariat signaled that in the potential use of blockchain, organizations should carefully consider how the new technology would operate within the current legal framework, including the financial and administrative rules. The organizations must take into account the status, privileges and immunities enjoyed by the UN and the specialized agencies. In considering blockchain solutions, they must ensure that appropriate safeguards are in place for the protection of personal and organizational data.

Much of the work the mentioned institutions is to write about crypto in relation to risks, crime, terrorism, expenditure and other aspects that are more or less considered as negative. Thereby, institutions as BiS are making decisions that are not about prohibiting or outlawing cryptocurrencies but more of a “naming and shaming” behavior, and validly or invalidly publishing negative information and publicity. According to Dimitropoulos, “traditional models of legitimacy” do not justify the widespread use of blockchain by international organizations—especially for blockchain uses that allow international organizations direct access to individuals. Therefore, it is doubtful whether the traditional model of legitimacy justifies the widespread use of blockchain by international organizations blockchain tends to trump other trust and verification systems, many of which are operated by the state, blockchain seems to be undermining the legitimacy of the state. This discussion is about conflicts and differences regarding national-international-global, as well as about the current international system and ideas of global citizenship, democracy and law. Also, it is about privatization-public and centralization-decentralization since international institutions are public but applying private and decentralized technology which also is about conversations, decision-making, and democratic processes.

One particular area where several of the mentioned international institutions as FATF and BiS are negative towards both blockchain and cryptocurrencies is when it comes to money laundering. The DLT is seen as something enabling actions for criminals, hiding information and creating “illegal” anonymity. Here, it is interesting that in 2015 the FATF recommended governments to focus on CC-to-fiat money exchanges and other ‘nodes’ in decentralized blockchain-based systems. Also, FATF did not recommend any general targeting of cryptocurrencies directly and the FATF also recommended guidance in a flexible set of informal and formal responses to the perceived challenges presented by blockchain applications to global AML governance. The FATS approach can be described as decentralized in recommending that CC exchanges themselves identify users through reliance on government social insurance numbers, internet protocol (IP) addresses, and even use Internet searches. It is only when money laundering practices might be suspected did the FATF call for “enhanced due diligence measures” by governments.

According to Campbell-Verduyn, technological change can pose varying challenges and opportunities for global governance and the case of blockchain applications since 2008 stresses how key actors in the international AML regime regarded applications of the emergent technology primarily as challenges. The institutional responses influenced the development of activities enabled by emergent technology leading also to some non-state actors changing their practices in order to remain beyond government surveillance, while others sought to comply with key stipulations of the international regime. At the same time, neither technology nor international regimes have ‘complete control’ over one another, and neither is ‘out of control’.

Thanks for reading. You can provide support and reward my work in the following ways:

Pay Pal – [email protected]

Seeds – vladlausevic

Skycoin – ZxjhWMJRbTNCRQzy5MekZzH4fhdWFCqBP8

Bitcoin 3HbxyDXE9MhNQ8RqsirqgYvFupQzh5Xby2

Swish – 0762345677

Tezos — tz1QrRzkTAKuPKF8dmGW6c1ScEHBUGvoiJBM

Cardano – addr1q9vfs6nqz4xmtnpljwhv4tukyskd2g7enxd87rpugkwwvfun5pnla5d5tes2mvurrc77e7837yd0scrfk063qlha8wgs8d4ynz