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< | -- By RaulMazzarella; 4 Jan 2020 | >
> | -- By RaulMazzarella; Final version | | | Privacy in the online financial system | | | To the contrary, privacy cryptocurrencies use the same blockchain technology, but try to go one step further, concealing information about senders and receivers during transactions through a variety of technical methods. The most famous of these coins are Monero, Zcash and Verge. | |
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< | The law in most places, including the U.S. doesn’t prohibit the use of cryptocurrencies and neither privacy cryptocurrencies and, in some jurisdictions, they follow collectibles rules for tax and other purposes, just like it happens with the ethanol tax credit.
Effectively, the use of this kind of cryptocurrencies nowadays may be the only way to completely “escape”, the financial system control ensuring full and complete privacy to any user than want to make an online transaction. | | | The issues | |
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< | Due to its intrinsic characteristics, private cryptocurrencies have been subject to controversies for their relation to ransomware attacks, hacks, money laundering, bribery and terrorism financing. For these reasons, some cryptocurrency exchanges are delisting this type of coins and even some countries like Japan and France are banning these kinds of crypto assets entirely. Moreover, this is one of the easiest ways to achieve financial secrecy and licensed tax evasion by the world’s rich, which is a big economic issue for States that are always trying to collect the maximum amount of taxes permitted by law. | >
> | Due to its intrinsic characteristics, private cryptocurrencies have been subject to controversies for their relation to ransomware attacks, hacks, money laundering, bribery and terrorism financing. For these reasons, some cryptocurrency exchanges are delisting this type of coins and even some countries like Japan and France are banning these kinds of crypto assets entirely. | | | | |
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< | Taking these factors into consideration, the cure may be worst than the disease. The risk of letting unregulated and uncontrollable digital assets take control of the financial system is too high to be allowed, reason why my view is that this kind of assets should be regulated and controlled in the only instance that is possible: within the cryptocurrency exchanges at the moment of its conversion to a traceable cryptocurrency or fiat (regular) money. The users of these assets should justify a general reason for its use just to discard the abovementioned risks as much as possible, following the anti-money laundering/combating the financing of terrorism (AML/CFT) standards and regulations. Of course, this will limit the privacy that these crypto-assets intend to have, but I believe this is the only reasonable way to keep them under control. Therefore, I believe that complete privacy within the financial sector is impossible to achieve to its full extent due to the risks associated with this specific sector. | >
> | However, if we compare the amount of money that the world’s wealthy obscure using traditional vehicles that make it difficult, if not impossible, to identify the true owners of wealth, this new technology appears to be only a child’s game. Some even state that the traditional “dark wealth” hides many of the richest people in the world. Additionally, we have to take into account that some researchers have calculated that the U.S. Dollar is used 800 times more than Bitcoin in money laundering activities, which reminds us that it is extremely difficult to have complete control over financial activities in general. Additionally, we cannot forget that criminals use every new technology in their favor. Shockingly, criminals use cars, mobile phones and the internet itself. Finance and tax law can deal with other similar schemes of collectibles of inherently limited quantity in the world financial system and private cryptocurrencies are not more dangerous nor obscure than these schemes. | | | | |
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< | Now, on the other hand, we cannot forget that criminals use every new technology in their favor. Shockingly, criminals use cars, mobile phones and the internet itself. Additionally, we have to take into account that some researchers have calculated that the U.S. Dollar is used 800 times more than Bitcoin in money laundering activities, which reminds us that it is extremely difficult to have complete control over financial activities in general.
Conclusion | >
> | Regarding the regulation, I believe that a ban on this kind of asset is not necessary. If we look at the Ethanol Tax Credit and its administration system you can question yourself why private and non-private cryptocurrencies couldn’t be regulated in some similar manner regarding tax and financial matters. The Ethanol Tax Credit was born to subsidize farmers to grow corn and convert it eventually to ethanol and gasoline. This was attested by a nineteen digit number that identifies each gallon of ethanol subject to tax credit so, this was really similar to a cryptocurrency based in an income source in the American tax law in which at least, in theory, the token represents a physical object with a price, just like in an Initial Coin Offering or ICO of a new cryptocurrency. The difference is that it did not use blockchain technology and was authenticated by the government itself. Investment companies used this scheme to surreptitiously invest in commodities, which they could not do directly. | | | | |
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< | This paper discussed privacy concerns in the financial system, analyzing its current status, the potential future of the same, and the options for privacy that currently exist. There are people that have begun to apply solutions to these concerns within the boundaries of the technology that we have today, but with severe issues on the way to achieve this. | >
> | For this reason, my view is that this kind of assets should be regulated in a similar fashion than the aforementioned other collectibles and regulatory schemes that are analytically closely-related but using an additional control within the cryptocurrency exchanges, specifically at the moment of its conversion to a traceable cryptocurrency or fiat (regular) money. The users of these assets should justify a general reason for its use just to discard the abovementioned risks as much as possible, following the anti-money laundering/combating the financing of terrorism (AML/CFT) standards and regulations. Of course, this will limit the privacy that these crypto-assets intend to have, but I believe this is the only reasonable way to keep them under control. | | | | |
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< | As a matter of public policy, governments should implement the strictest privacy laws to ensure that the “standard” online financial system protects this important right. In the way to accomplish this, the academy and the general population should help letting the governments know of their interest in this human right.
Regarding privacy cryptocurrencies, they should be regulated within the context of the cryptocurrency exchanges, applying to them AML/CFT policies, but trying to preserve the privacy of the users as much as reasonably possible, to avoid the risks associated with them.
I believe that it is impossible and dangerous to achieve complete privacy within the online financial system for the reasons stated, but we, as a society, should do everything at our disposal to reasonably protect the privacy of the users of the same. | >
> | Conclusion | | | | |
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> | This paper discussed privacy concerns in the financial system. There are people that have begun to apply solutions to these concerns within the boundaries of the technology that we have today, but with severe issues on the way to achieve this. | | | | |
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> | As a matter of public policy, governments should implement the strictest privacy laws to ensure that the “standard” online financial system protects this important right. In the way to accomplish this, the academy and the general population should help letting the governments know of their interest in this human right. On the same note, the transaction obscuring within the traditional system for illicit purposes should be discouraged. | | | | |
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< | I made a couple of suggestions: (1) that private cryptocurrencies are neither more opaque nor more dangerous to the world financial system than other collectibles of inherently limited quantity, which finance and tax law seem to be able to deal with; (2) that other regulatory schemes are analytically closely-related, and that you might want to look at the administration of the ethanol tax credit; and (3) that all the cryptocurrency privacy in the world doesn't amount to anything compared to the forms in which the world's wealthy really do their hiding and transaction-obscuring. Each of these resulted not in learning for you, but merely some shout-out in the next draft. This was unfortunate. Those were illustrations of points to think about, not tokens to be cashed in by reference. | >
> | Regarding privacy cryptocurrencies, they are an interesting experiment to try to solve the privacy problem within the financial system and they should be regulated similarly as other collectibles and regulatory schemes of similar nature (such as the Ethanol Tax Credit) adding further controls within the context of the cryptocurrency exchanges, applying to them AML/CFT policies, but trying to preserve the privacy of the users as much as reasonably possible, to avoid the risks associated with them. | | | | |
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> | I believe that it is impossible and dangerous to achieve complete privacy within the online financial system for the reasons stated, but we, as a society, should do everything at our disposal to reasonably protect the privacy of the users of the same in the traditional financial system and in the cryptocurrency world. | | |
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