Regulatory challenges posed by the evolution of cryptocurrencies

Abstract

“Yet, while bitcoin and its cousins are something of a mirage, they might be an early sign of change, just as Palm Pilots paved the way for today’s smartphones. Cash will not be king forever, even though it still rules in many parts of the world … and the iGeneration is more likely to reach for a payment app than a purse. To their children, banknotes and coins may look like museum exhibits”1 The evolution of cryptocurrencies is posing a significant threat to the traditional financial system and regulation thereof. Cryptocurrencies are designed to be self-governing, decentralized, and to provide anonymity. Currently there is no single definition or position regarding cryptocurrency. Furthermore, the legal status of cryptocurrency remains largely disputed. Cryptocurrencies provide a platform for those who seek to evade the cumbersome challenges of complying with the financial laws. In general, laws are enacted and enforced with the purpose to regulate social order and bringing harmony between persons. As a result, numerous agencies are appointed by their respective states to regulate the daily business dealings of persons. Regulations make payment processes to be administrative, expensive and time consuming. Cryptocurrencies are a form of peer to peer payment which provide solutions to traditional payment challenges. In South Africa Cryptocurrencies are not a legal tender therefore they cannot be used as a substitute for fiat money. The use of crypto currency challenges does not only challenge the traditional form of banking and payment. It makes it difficult to regulate and identify the individuals who use it to attain criminal objectives. It is a primary legal risk to Anti Money Laundering and terror financing laws, furthermore it may have tax implications and ultimately on state coffers. Cryptos bring a horizontal dimension to the regulators because they cut across payment, securities and commodities laws. The dissertation therefore investigates these matters in view of the regulatory challenges posed by cryptocurrencies.