Plans to create an international regulatory framework for cryptocurrencies like Bitcoin moved one step closer to reality at the G20 Leaders Summit in Argentina this past weekend.
The leaders of 19 of the advanced and developing nations with the world’s largest economies, plus the European Union, met to discuss economic issues ranging from the U.S.-China trade war to climate change. Founded in 1999, the G20 is a forum for member-state’s leaders and central bank governors intended to promote international financial stability.
Among the issues addressed in the G20 Leaders’ declaration announced on Sunday is a commitment to regulate cryptocurrencies as part of its goal of creating “an open and resilient financial system” to “support sustainable growth.”
Speaking about the need to address “emerging risks and vulnerabilities in the financial system,” Section 25 of the declaration reads, in part: “We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated. We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with Financial Action Task Force standards and we will consider other responses as needed.”
The ability of anonymous cryptocurrencies to be abused by bad actors has long been a concern of financial, legal and tax authorities, and creating a framework to address these issues is key to expanding acceptance of Bitcoin and its competitors in the broader marketplace.
But bad actors are not necessarily the biggest concern, long term. A regulatory framework is necessary just to allow governments and regulators to understand the size and potential impact of cryptocurrencies on the financial markets.
Such a framework was suggested by the FSB in July, Forbes reported. “Monitoring the size and growth of crypto asset markets is critical to understanding the potential size of wealth effects, should valuations fall,” it quoted the FSB as saying.
While noting that, “[t]echnological innovations, including those underlying crypto-assets, can deliver significant benefits to the financial system and the broader economy,” a communique issued by the July 21-22 G20 Finance Ministers & Central Bank Governors Meeting in the run-up to this weekend’s conference stated that, “[c]rypto-assets do, however, raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Crypto-assets lack the key attributes of sovereign currencies. While crypto-assets do not at this point pose a global financial stability risk, we remain vigilant. We welcome updates provided by the G20-created Financial Stability Board and its Standard Setting Bodies and look forward to their further work to monitor the potential risks of crypto-assets, and to assess multilateral responses as needed.”
Attacking Bad Actors
As Modern Consensus reported, the U.S. Treasury Department last week took the historic step of placing sanctions on digital wallets alleged to belong to a pair of Iranian men accused of having used Bitcoin to collect payments from a ransomware scheme.
Those wallets, according to the Treasury Department, were used “to process over 7,000 transactions, to interact with over 40 exchangers—including some US-based exchangers—and to send approximately 6,000 Bitcoin worth millions of USD, some of which involved bitcoin derived from SamSam ransomware.”
SamSam “victimized numerous corporations, hospitals, universities, and government agencies and held over 200 known victims’ data hostage for financial gain,” the Treasury Department added.
In covering that story, Foreign Policy reported noted that while cryptocurrency wallets are anonymous, the open nature of blockchain tracking information means that digital forensics and some detective work often allows investigators to figure out who owns a particular digital wallet.
More importantly, it also cites a former CIA analyst who says that “sanctions on the accounts effectively make transactions with the targeted accounts illegal, and cryptocurrency firms could face legal penalties if they don’t prevent payments to and from the two wallets.”
Of course, as we noted, both wallets were empty, making the value of the sanctions somewhat dubious in this case.