Cryptocurrencies: Case for curated regulations

MUCH ink has been spilt in connection with the good and evil of cryptocurrencies. Cryptocurrencies use data encryption techniques to regulate the generation of currency units and verify fund transfers, independently of financial institutions. While still at a nascent stage of development, there are signs of its emergence as an asset class. Price volatility and uncertainty are typical birth pangs in the evolution of any asset class and we are witnessing these in the development of cryptocurrencies.

Globally, governments and regulators are forced to react when cryptocurrencies come into focus due to success or scandal. The upside of using unregulated or loosely regulated cryptocurrency networks to effect illegitimate fund transfers and the anonymity they offer are not lost on the miscreants. Systems and block-chain networks supporting the creation, storage and trading of cryptocurrency remain primarily in the hands of private enterprises. The sustainability and resilience of such systems and networks remain largely untested.

As a form of virtual money, cryptocurrencies present massive potential and can play an integral part in payment and settlement systems, the disintermediation of financial middlemen, the lowering of transaction fees and effecting cross-border money transfers. In many developing countries, where massive populations have no access to banking services and where there may be confidence issues about the domestic currency, the digitisation of money presents opportunities for financial inclusion.