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Why it’s in everybody’s interests to regulate cryptocurrencies

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There are growing calls for regulation of the cryptocurrency market, which is rapidly approaching a market capitalisation of $1 trillion. But there’s little agreement about the forms this should take.

If the case for government regulation is strong, the case for a clear, coordinated regulatory approach is even stronger. It would increase the flow of institutional capital into cryptocurrency markets. And that would further strengthen corporate governance in cryptocurrency companies.

The trick for regulators is to balance investor protection and systemic stability with the need to protect innovation and encourage capital formation in different legal systems.

At present the regulatory environment is a muddle because there’s rapid divergence in the regulation of cryptocurrencies across jurisdictions. Countries like Japan, while thorough, have a more open approach. China is more strict.

Sovereign governments need to develop coherent frameworks for cryptocurrency oversight. But solutions will only be found through international cooperation in this cross-border market.

READ MORE: Bitcoin, Blockchain And Billions

Growing concerns

Cryptocurrencies originated as an alternative payment mechanism to traditional currencies. But they are now also traded on spot exchanges as highly speculative investment assets.

Recent spin-off crowd funding opportunities such as initial coin offerings have become a particular cause of concern. These involve start-up cryptocurrency companies offering initial investment stakes in new token issues. China and Vietnam have banned them. Japan has taken a friendlier attitude while the UK and the US have adopted a wait and see approach. South Africa, like many other developing countries, offers zero protection to investors in initial coin offerings.

These different responses are due to different legal definitions of cryptocurrencies. The rapidly evolving technology behind them doesn’t help the situation either.

The precise nature of an initial coin offerings depends on its structure as well as its context which can change quickly and have hybrid characteristics of financial instruments.

The definition, and hence legal treatment, of the tokens issued under an initial coin offering can be as diverse as a currency, commodity, security, property, loan, deposit, derivative or forex contract. Agreeing a taxonomy of cryptocurrencies defined by how they’re used is clearly one of the most urgent tasks facing regulators.

READ MORE: Forbes’ First List Of Cryptocurrency’s Richest People: Meet The Secretive Freaks, Geeks And Visionaries

Towards a taxonomy of cryptocurrencies

Cryptocurrency expert Lawrence Wintermeyer has argued that distributed ledger technology powered digital assets could be organised into three potential buckets: cryptocurrencies, cryptocommodities, and cryptotokens.

But the lack of harmonisation across jurisdictions is a wider problem than nomenclature.

Cryptocurrency companies sometimes use the distributed nature of these assets – which sit on digital ledgers held by multiple token holders – to argue that there is no issuer. They also sometimes argue that these assets are not securities, and that they should therefore not be subjected to a particular jurisdiction’s securities laws.

There are also clear cross border regulatory gaps. What makes it difficult to reconcile these is that the assets can easily be transferred and their origins are difficult to trace. Tokens could be issued in a more token-friendly jurisdiction like Japan. The same tokens could land up in the hands of unassuming retail investors in stricter jurisdictions such as the US.

READ MORE: Bitcoin Mining Uses As Much Power As Ireland. Here’s Why That’s Not A Problem

Avoiding money laundering and financial crime

This cross border confusion allows token companies to pick and choose jurisdictions with favourable rules. This could make money laundering easier.

There are a few steps governments can take to close these gaps.

They should support investment in technology that makes the provenance of tokens clearer while preserving their encryption. Regulators could then enforce an “indicator of origin” as a standard. This would make it less easy for the assets to be transferred illegally.

Offshore centres like Jersey have got a lot of bad press in recent the backlash against international financial centres. But there’s a great deal to learn from well-regulated offshore jurisdictions. They are beginning to take the lead with potential applications of international best practice and corporate governance for cryptocurrencies. They offer investors in digital assets an extra set of gatekeepers’ eyes, and potentially, a more calculated risk.

In jurisdictions like Jersey issuers of initial coin offerings have to jump through quite a few hoops. This includes using a regulated service provider which has to make an application to the Jersey companies registry for a consent. The service provider is among a number of requirements that provide checks in relation to anti-money laundering and countering the financing of terrorism.

READ MORE: The Emperor’s New Coins

Current frameworks and global co-ordination

But what could a coordinated global regulatory approach to cryptocurrencies look like?

Harmonisation via a code of conduct or voluntary signatory to a global compact could certainly stop token companies from cherry picking jurisdictions to their advantage. Not being signatories to the codes would place token companies outside the market.

A multilateral code of conduct or global convention or compact, such as those administered by the inter-governmental Financial Action Task Force on Money Laundering, or a United Nations co-ordinated approach could be model solutions.

Standard regulatory codes are particularly critical for some pockets of the investment community. For example, there has been a significant surge in the establishment of investment funds looking to invest in initial coin offerings on behalf of sophisticated investors.

Standard codes for institutional investors in the first instance, could help both regulation as well as innovation. Institutional investors, unlike retail investors, can withstand, and even benefit from, the upside of volatility over time.

For now, the poorly regulated speculative hoarding of cryptocurrencies reduces the potential of assets like this to become a public good. This ultimately affects the potential value of the tokens by amplifying volatility.

Paying attention to this is important for investors and regulators as well as issuers. There will also have to be a degree of self regulation by issuers as global regulators get up to speed. – Written by Desné Masie, Visiting Researcher in International Political Economy, University of the Witwatersrand

This article was originally published on The Conversation.

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A Country On A Roll

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The tiny country of Rwanda is now producing factory-fresh Volkswagen cars from its rolling hills. Next up are ride-hailing and public car-sharing services by the German carmaker.

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The Heroes Among Us

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Heroes exist in history, on celluloid, in pop culture or in these digital times, at the forefront of technology. These are the mighty who shine on the front pages of newspapers, as the paradigms of victory and virtue. But every day in public life, surrounding us are some of the real stars, the nameless, the faceless we don’t recognize or celebrate. In the pages that follow, we look at some of them, exploring the exemplary work they do, from the war zones to your neighborhood streets. They are not flawless, they are not infallible, but they are heroes.

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The Power, Humour And Anger Of Mandela

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It is a century since Nelson Mandela came kicking and screaming into a world that he would change.

In one hundred years, his name has been spoken with pride from the paddy fields of Vietnam, through the savannahs of Africa to the smoky steak houses of New York. His legacy appears more contested with every passing year.

I was fortunate to have a front row seat in the Mandela years and saw the power, humour and anger of the man. I used to feel 10 feet tall at press conferences when he used to greet my questions with: “Mr Bishop, how are you?” Once I was walking to a TV interview with him, at an African Union summit in Harare, the day after I had ruptured my knee playing football, he noticed I was hobbling far behind – something he was not used to. He turned and inquired of the cause of my pain.

“May I suggest you take up boxing, it’s safer!” says the old man with that million dollar smile. I shall take the warmth of that smile to my grave.

Make it clear, I am no Mandela worshipper. He was no saint and certainly didn’t want to be one: he could be angry and petulant with the best of them; his past was chequered by domestic troubles; a man of the people, yet distant from his own family, according to many close to him. A man who promoted press freedom, yet like many of the lesser politicians who followed him, wanted his picture on every page of the morning newspaper. Mandela drew the line at the sports page – he joked that he didn’t want to risk being associated with losers.

The greatest fear Mandela had was that his ideals – not his name – would be forgotten after his death. Not for Mandela the greed of rule, nor the trappings of power.

Yet it is very fashionable these days to run Mandela down as something akin to a sell-out. Those who claim, erroneously, that Mandela sold out his people. They say he didn’t stop poverty overnight nor right the wrongs of the past with the wave of his wand. They need to talk to those who were there in the negotiations for a new free South Africa.

“People say we gave up too much in negotiations yet we had nothing to start with,” Denis Goldberg, a man who faced death with Mandela at the Rivonia Trial in 1964, once told me.

READ MORE: Mandela Through Their Eyes

The negotiations with an entrenched elite – that held most of the cards and only grudgingly acknowledged Mandela and his comrades – were difficult to say the least. Mandela’s African National Congress (ANC) could not even threaten to go back to war because the depleting arms of its military wing posed little or no threat to the state.

Even so, a deal was hammered together somehow. In the next two years, in the run-up to the 1994 elections, Mandela won his leadership spurs as he steered South Africa away from the civil war that many feared was inevitable. He flew to Durban and told bloody-thirsty faction fighters to throw their weapons into the sea and they listened. When revered freedom fighter Chris Hani was gunned down on his front drive, in 1993, many were ready to take the law into their own hands.

Mandela barged into the SABC studios in Johannesburg that night and made a broadcast to the nation to calm down and put its weapons away. He wasn’t even in Parliament then and I wonder to this day how many lives that broadcast saved with this canny display of leadership.

Then, when into power with a virtually bankrupt Treasury, Mandela steered the National Development Programme that built millions of homes and schools; electrified the homes of legions of poor people and rolled out roads to connect the nation. Yet, the money was never going to stretch far enough and millions still have no roof over their heads and too many schoolchildren attend classes under trees.

It is fashionable these days to say the majority of South Africa must rise in a civil war in which the nation will be cleansed of its past, restored of its land on the path to righteousness. It probably sounds even better after a few drinks.

READ MORE: Celebrating Mandela From Where It All Began; Soweto

I say this is bunkum and anyone who has ever seen or smelt a civil war will agree with me. How a vile, stinking trail of dead fathers, raped women and children, destruction and disorder, can lead a country to the light beats me. Those who scream for war have clearly never seen it.

The first time I clapped eyes on the great man, at the Harare Agricultural Show, on his first foreign visit to Zimbabwe in August 1994, he walked alone, without a security man in sight. I didn’t ask for a selfie – they didn’t exist then, anyway – I was tongue-tied. We merely smiled at each other in passing.

So when people in political circles told me that South Africa’s new president Cyril Ramaphosa didn’t care for wealth and power – he merely wanted to put his name up there with Mandela – I smiled like I did on that August day in Harare.

This does seem feasible as President Ramaphosa – a millionaire in his own right – was the man who stood next to Mandela, holding the microphone, on the town hall steps in Cape Town, on February 11 1990, during his famous address on release from 27 years in prison.

“I stand here before you not as a prophet but as a humble servant of you, the people,” said Mandela to deafening cheers on that bright summer’s day.

Clearly this humility and willingness to serve rubbed off on President Ramaphosa on that fateful day in 1990. In his first 100 days, he has made manful attempts to stop the rot in South Africa by merely enforcing the rule of law. A course of action he made no secret of even before he took power on February 15.

“There are no holy cows. Anyone who is caught doing wrong things will end up behind the bars of a jail,” says Ramaphosa, with microphone in hand and humble service in mind at the World Economic Forum in Davos, Switzerland, in January.

True to his word, Ramaphosa cut swathes through the corruption of the past. Former president Jacob Zuma ended up in the dock on corruption charges something that many – including me – thought they would never see in their lifetime. He removed the rookie finance minister Malusi Gigaba and replaced him with the people’s choice Nhanlha Nene who has staved off more downgrades of the economy. A clean-up of the state-owned enterprises and the institutions is underway and many who thought they were invincible six months ago have been cut down to size.

I am sure the old man, who must have been spinning in his grave over the last few years, would approve.

“Never, never and never again shall it be that this beautiful land will again experience the oppression of one by another,” says Mandela at his inauguration at the Union Buildings in Pretoria.

As we mark 100 years since his birth, it is time for cool heads and clear thinking to make sure this utopian ideal of liberty and tolerance lives on after his death. Our grandchildren will judge us harshly if we don’t.

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