Urgency for Clearer Rules for Cryptocurrency
A report has been prepared for EU finance ministers advising them that there is a need to create a set of common guidelines to regulate the digital currency market.
The report was created by Brussels-based think tank Bruegel which believes the time has come for tighter EU regulation, especially for cryptocurrency exchanges and initial coin offerings (ICOs), in a bid to prevent the technology from being exploited and reducing the risk of fraud, tax evasion, and money laundering.
ICOs have been a playground for scammers as most involve utility tokens where future services are promised in exchange for payment and there have been cases where innocent investors have been conned out of their hard-earned cash.
The Bruegel report will be presented at a meeting of EU economic and financial affairs ministers in Austria this week where they will discuss cryptocurrency investments and taxation of the digital economy. Until now, EU authorities have avoided regulating the crypto market because low volumes of Bitcoin, the most popular cryptocurrency, bought with Euros have little impact on the economy.
There is also the fact that it would be difficult for the EU to regulate cryptocurrency directly due to its virtual and intangible nature. However, Bruegel believes that it would be possible and beneficial to enforce legislation for organisations dealing with crypto, such as exchanges and ICOs and has suggested strict rules be imposed with a potential ban if breached.
As cryptocurrency expands throughout Europe accounting for 30 per cent of the global market, there has been a need for Belgian authorities to get involved and issue warnings against fraudulent crypto exchange websites and blockchain start-ups, not to mention the high risk of volatility. In the report, Bruegel suggests the EU adopts the Chinese approach to cryptomarket regulation where mining farms are forbidden.
It also advises the EU to tolerate cryptocurrency exchanges and investigate the best solutions for harnessing the potential of fast-developing blockchain technology.
Some European leaders, particularly in Germany and France, have been asking for the issue to be discussed. Rules are different in each country and leaders feel there is a need for Europe-wide legislation. Earlier this week, members of the EU parliament met with blockchain technology gurus to talk about regulating ICOs, highlighting current problems cropping up in the industry.
There will no doubt be some interesting conversations taking placing at the summit in Vienna on Friday and Saturday as all 28 member states explore digital currency possibilities, speculating risks and discussing ways to regulate them.
However, the regulations will not be coming into force any time soon. Introducing regulations would make it easier to identify unscrupulous cryptocurrency trading entities but it will take two years at least for the new rules to be put into action and it is expected to come into play in 2020.
By Joy Lewis.