Written By: Phil Kabler
Cryptocurrencies are private electronic exchange currencies, and do not involved the direct intermediation of central banks. (“Direct intermediation” is used here because there is increasing regulation of tax and securities regulations and overlay of contract law.) The total amount of cryptocurrencies are limited to the amounts retrieved through ‘mining’ (which occurs through the process of solving complex algorithmic calculations), and their valuations flow from the demands of the end-user/investor/speculator marketplace. Transactions are anonymous, and are recorded on the blockchain which is an always on online distributed spreadsheet.
Due to the anonymous nature of cryptocurrency transactions, the market is rife with potential for nefarious uses. Meaning illegal, unethical, and immoral uses. As a consequence, governments – the effective ‘nemesis’ of the privacy-centric cryptocurrency ecospace – are paying attention.
The spotlight on cryptocurrencies have most recently been raised during the confirmation hearings of Dr. Janet Yellen to be the U.S. Treasury Secretary].
The following is Dr. Yellen’s written statement on the matter to the Senate’s Finance Committee:
Bitcoin and other digital and cryptocurrencies are providing financial transactions around the globe. Like many technological developments, this offers potential benefits for the U.S. and our allies. At the same time, it also presents opportunities for states and non-state actors looking to circumvent the current financial system and undermine American interests. For example, the Central Bank of China just issued its first digital currency. Dr. Yellen, what do you view as the potential threats and benefits these innovations and technologies will have on U.S. national security? Do you think more needs to be done to ensure we have appropriate safeguards and regulations for digital and cryptocurrencies in place?
Answer: I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system. At the same time, we know they can be used to finance terrorism, facilitate money laundering, and support malign activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems. I think we need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities. If confirmed, I intend to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for these and other fintech innovations.
To read Dr. Yellen’s full 114-page written statement, and particularly page 93.
The markets have specifically picked-up on her use of the word curtailing in her statement
As a consequence, those involved with or considering becoming involved with cryptocurrencies should pay careful attention to the development of national, state, and even international regulations and regulators, permitted and proscribed uses, and valuations as they emerge over time. Interested individuals and businesses should consult with their attorneys and accountants.