G20 finance ministers and central bank governors stated in July 2018 that “crypto-assets lack the key attributes of sovereign currencies”. As mentioned by an article published in Bloomberg, the shift from using the term “cryptocurrencies” to “crypto-assets” was as a result of the G20 countries deciding that “cryptocurrencies aren’t money after all, but an asset”.

To follow up from the statement made by G20 leaders — a drive for better clarity and security of investors — Japan’s Financial Services Agency (FSA) has planned to label cryptocurrencies as “crypto-assets”.

Japan’s FSA to Classify Cryptocurrencies as Crypto-assets and Regulate ICO’s

The Japan News published an article on December 15, 2018, reporting that Japan’s FSA has decided to classify cryptocurrencies such as Bitcoin as “crypto-assets”. The reason for this is that people may believe cryptocurrencies to be “legal tender recognized by the government”.

The article further elaborates on the nature of decentralized cryptocurrencies, stating that they have no clear issuer, “no evidence of value”, and carry financial risks as they “fluctuate widely”.

Moreover — as mentioned by Jiji press — Japan’s FSA announced on December 1 (2018), that it would introduce regulatory frameworks for Initial Coin Offerings (ICO’s):

“In view of a number of possibly fraudulent ICO cases abroad, the financial regulator plans to limit individuals’ investment in ICOs for better protecting them…” — Jiji Press, 2018

Initial Coin offerins (ICO’s)

ICO’s dramatically extended fundraising methods by allowing anyone to participate and invest in a project. Investors or supporters of a project could invest by using cryptocurrencies, like Bitcoin or Ether, in return for the projects own tokens or cryptocurrency — like EOS or aeternity.

Anyone in the world can participate and invest in an ICO, and automatically receive their share of tokens. This seems a much better approach than the traditional private investment options offered to privileged groups, or fiat based crowdfunding methods. ICOs align with the principles and benefits of decentralized systems.

However, ICOs opened the door to a lot of scammers who, through creatively written white papers — technical documents outlining the projects proposal — as well as well marketed claims, sought to gather money for projects which did not perform as promised. In a way, the scammers wanted the gold medal based on theories describing how they would win the race, though when it came to the race, they simply did not show up, resulting in losses for investors.

As time went by, Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) laws were introduced so that the investors could be identified. However, these laws were not designed to protect the investors, but rather to identity the source of the investment itself.

This is why Japan and other nations are seeking to introduce laws which would require companies offering cryptocurrencies and ICO tokens to register themselves:

“The FSA will require business operators that issue their own cryptocurrencies to be registered with the agency… To introduce the regulations, it plans to submit bills to revise the financial instruments and exchange law and the payment services law to next year’s ordinary parliamentary session starting in January.” Jiji Press, 2018

Bahrain’s Cryptocurrency Regulation

After announcing the first cryptocurrency exchange in the Persian Gulf region regulated by a central bank in October 2018, Bahrain has moved forward to create a new framework for crypto investors and innovators.

On December 13, 2018, the central bank of Bahrain published its regulatory framework draft “Crypto-asset Platform Operators”:

“The CBB has recognised that the market for crypto assets has been growing globally and people around the world and in Bahrain are currently dealing, buying, selling or otherwise holding positions in crypto-assets. The CBB’s rules are aimed at minimising the risk and, in particular, the risk of financial crime and illegal use of crypto-assets.”

According to the published draft, a licence will be needed to operate within the “crypto-assets” industry — as the operator of an exchange, a project launching an ICO, and some other activities related to “crypto-assets”. This also applies to an “operator” that accepts, stores or holds “crypto-assets” on behalf of clients.

As mentioned in a cover letter, the draft is open for feedback from “licensees and interested parties” until January 13, 2019.

This can be seen as a first implementation of the conclusions of the G20 meeting, mentioned earlier in this article.

The Netherlands Seeking to introduce Crypto Licensing

De Telegraaf, the largest Dutch daily newspaper, recently published an article announcing plans of the De Nederlandsche Bank (DNB) — Dutch Central Bank — to monitor cryptocurrency transactions in an attempt to prevent money laundering.

The source of the news is founds in an article published on December 11, 2018, by the government of The Netherlands, on an open consultation for a draft bill. This has been proposed by government in an attempt to apply the national Wwft act — Money Laundering and Terrorist Financing (Prevention) — to cryptocurrency service providers. As translated from the source:

“The anonymous nature of virtual currencies is likely to be used for money laundering or terrorist financing. The bill therefore stipulates that providers of services with virtual currencies, such as providers of exchange services and custody vouchers, must carry out customer due diligence and report unusual transactions… Furthermore, the legislative proposal provides for more public parties to exchange information, not only within the Netherlands but also between member states” — Rijksoverheid, 2018

The bill is open for discussion until January, 2019. Some of the comments already made are very interesting. I will leave you with one as food for thought (my translation, with help from Google):

This is wasted energy, and the community would laugh out loud with this proposal. I think you do not quite understand how the system around Bitcoin and blockchain is built, because I will tell you that you will never get an insight into that. All you can do is draw information from Dutch exchanges, from people who buy coins through the bank, nothing more!… There are also hardware wallets, paper wallets and wallets on decentralized exchanges that can be used worldwide on both desktop and mobile. Buying coins can be done via ATM devices worldwide with cash, via your telephone, via OTCs [Over-the-counter], via the deep web, internet, marketplace, peer 2 peer. Bitcoin tracking on the blockchain also makes little sense, since you can convert it into an anonymous currency such as Monero, Dash, Pivx, Deeponion and, if you wish, convert it back to Bitcoin via another wallet (with a different address), wiping the entire history. How do you want them to do customer research, if they operate themselves from all corners of the world… You make yourself look so ridiculous with this kind of future music, unless of course you shut down the internet! Get well soon! — Freek Brandt, internetconsultatie.nl, 2018

Image from Pixabay.