Cryptocurrencies 2018 special report

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RACONTEUR.NET 03 /cryptocurrencies-2018 A ccording to Microsoft pres- ident Brad Smith: "If you create technology that changes the world, the world is going to want to govern you; it's going to want in some measure to regulate you." This is certainly the case with cryptocurrencies. When things go wrong, they attract the interest of regulators, and some things have gone wrong in crypto with warnings of cyber - theft, trading outages or allegations of market manipulation. The two big regulatory questions are how and when. Events have led to a handful of outright bans and a few enthusiasts jockeying for juris- dictional position, but for most mar- kets the approach is optimistically cautious. Regulators around the world are trying to figure out how they should treat cryptocurrencies, while the industry wonders when they can expect firm regulations. John Salmon, partner at law firm Hogan Lovells in London, says: "What is driving regulation is the worry about scams, terror - ism, anti-money laundering laws, know your customer and so on, and there is also the concern about investor protection." The regulators want protection against risks, while the industry wants innovation. Ryan Zagone, director of regulatory relations at Ripple, says: "What we are seeing is a global conversation about the bal- ance between risk and innovation." Coming to terms with the issues requires education for regulators and industry. However, the issues need to be put into the perspec- tive that the size of the cryptocur- rency market is considerably less than its reputation and headlines. These headlines cast a giant shadow and there is a danger of seeing the threats as being greater than they are, which will destroy the benefits. Mr Salmon explains: "The mar- ket is less than 1 per cent of GDP, so regulators aren't so concerned about financial resilience effects." However, he says: "Scams are out there, they need to be addressed and everyone knows this, but we don't want to stifle the industry, and if regulation comes too early then we could end up with bad regulation." The benefits to regulation are clear in the certainty of use and value, good consumer protection, excluding bad players, and ensuring cryptocurrency is used for legiti - mate and good economic reasons. Understanding how regulation will evolve requires viewing the chal- lenge in three dimensions: eco- nomic, technological and legal. The economic question is why have there been so many booms and busts in cr y ptocurrency? The simplest answer comes from econ- omist Nouriel Roubini of Roubini Macro Associates and New York University's Stern School of Business. He criticises bitcoin and other cr y ptocurrency as the "big- gest bubble in human histor y", comparing it to the 17th-centur y tulip crisis. However, Dr Roubini, also known as "Doctor Doom", is prob- ably off the mark. As Dr Andrei Kirilenko, director of the Centre for Global Finance and Technology at Imperial College Business School in London, notes: "There have always been booms and busts in various financial markets, especially as new assets are invented." Mary Starks, director of com- petition at the Financial Conduct Authority, says: "Most people now view bitcoin and other such coins as an asset class rather than a means of payment, hence 'crypto assets', which is probably both cause and effect of swings in the value." She adds: "This has a range of public policy implications." The good news is regulators and industry want the same thing: certainty. Turning to the technology, Ms Starks says: "We will need to under - stand this technology, its strengths and its vulnerabilities, and its impli- cations for competition, much bet- ter before we are comfortable to entrust it with significant swathes of our financial infrastructure. We need to ask ourselves as regulators what we should do so that we are not inhibiting the benefits nor overlook- ing the risks." The evolution of cryptocurrency will continue in a process of trial and error as the user experience and understanding improves, which brings in the legal aspects. The chal- lenge regulatory authorities and the industry face is that cryptocur- rencies are so new that they do not fit neatly into laws that were passed decades ago prohibiting misconduct in the securities and commodities markets. "It will take time for those regulations to catch up," says Paul Anning, financial institutions group partner at law firm Osborne Clarke in London. Market participants are cam - paigning for regulation because it brings the much-needed benefit of certainty. Mr Salmon explains: "The priority is dealing with the uncer- tainty and to achieve this the indus- try needs a consistent taxonomy to deal with the problem of differ- ent terms being used." Mr Zagone agrees: "Regulatory certainty is needed and greater co-ordination. Self-regulation works where you have a mature industry and strong governance. This technology is at an early stage, so it is too early to be an option, but could be in the future." With legal certainty comes the ben - efit of confidence. Matt Bisanz, finan- cial services regulatory and enforce- ment associate at Mayer Brown in Washington, says: "Safeguards and protections will inspire confidence. We've seen this with other tech- nology developments, like online grocery delivery. When it was first launched there were doubts, but it happened in incremental steps and we are now comfortable with it. There was trial and error. The same will happen here." The snapshot of cryptocurrency regulation is that much discovery work is being done this year, which will create the foundation for mak - ing 2019 the year of cryptocur- rency regulation. The G20 expects to have proposals out next month, and other national and industry bodies are mulling their options. There is a global process of learn- ing and ref lection to ensure reg- ulatory goals are achieved, while making sure innovative energy is not quashed. "I'm more optimis- tic now than I've ever been," Mr Zagone concludes. Bringing law and order to a new frontier 64% 63% CRYPTOCURRENCIES @raconteur /raconteur.net @raconteur_london Coindesk 2018 think decentralised exchanges will gain traction as they are much more difficult to regulate of cr yptocurrency investors believe exchanges will become increasingly regulated Bitcoin and other cryptocurrencies seem on the cusp of revolutionising global finances, but regulators are unsure of how to deal with such an innovation FIONA BOND Freelance financial journalist, she was commodities editor at Interactive Investor. JOEL CLARK Freelance financial writer and editor, he covers workplace issues, technology, regulation, risk management, capital markets trading and derivatives. DAVID COWAN Author and editor-at-large of The Global Legal Post, Dr Cowan specialises in a range of legal and economic issues, and is a regular contributor to The Times Literary Supplement. OLIVER PICKUP Award-winning journalist, ghostwriter and media consultant, he specialises in technology, business, sport and culture. SAM SHAW Formerly an editor at FT Business, she is now a freelance writer on a range of topics, including business, finance, marketing and technology. FINBARR TOESLAND Freelance journalist, he specialises in technology, business and economic issues, and contributes to a wide range of publications. BURHAN WAZIR Award-winning journalist and editor, he has worked at The Observer, The Times and Al Jazeera. Distributed in DAVID COWAN CONTRIBUTORS S3studio/Getty Images REGUL ATION raconteur.net Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 3877 3800 or email info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. © Raconteur Media Publishing manager Reuben Howard Digital content executive Francesca Cassidy Head of production Justyna O'Connell Design Grant Chapman Kellie Jerrard Samuele Motta Production editor Benjamin Chiou Managing editor Peter Archer Head of design Tim Whitlock 48% believe jurisdictions will be entrepreneurial and aim to lure exchanges and businesses with attractive regulatory regimes

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