In the contemporary era, nations open their doors to other nations to carry out economic transactions globally. That is why international trade law is being developed. In this sense, economies tend to be cashless, which leads to being digital in every aspect. As a result, Cryptocurrency is one of the examples of such digital tendency (Gamble, 2017).
However, its dynamic development in value makes these currencies subject to greater scrutiny and pressure from international regimes and many regulatory authorities. Particularly, when some governments are looking to introduce legislation that will make cryptocurrencies such as Bitcoin as legal tender alongside the U.S. dollar. For instance, recently, in a video broadcast to Bitcoin 2021, a multi-day conference in Miami being billed as the biggest bitcoin event in history, President of El Salvador announced its aim for sending to congress a bill that will make bitcoin a legal tender (CNBC, 2021).
Therefore, the question that arises in this context is whether such a decentralized market requires a response by the international community to form a uniform international framework with regulatory bodies.
Origins and Definition of Cryptocurrency
The history of these coins began in 1983 when David Chaum developed a cryptographic system called eCash (Daviescoin, 2020). He developed another system, DigiCash, that used cryptography to make economic transactions confidential twelve years later. However, in 2009, a person who is known as Satoshi Nakamoto and his real identity is still secret created the first cryptocurrency, Bitcoin. The intention behind such invention was to create a new option for payment that could be used internationally, decentralized, and without prior approval of any financial institution. Also, the big economic crisis in 2008 drove him to create this cryptocurrency (Ibid).
Generally, Cryptocurrencies provide a peer-to-peer type of payment that allows a person to send or receive electronic payment. Cryptocurrency is a decentralized digital currency that secures a transaction through encryption. This technique leads to control of the creation of monetary units and to verify the transfer of funds. Technically, Cryptocurrency operates on blockchain technology. By Using this technology, users can confirm transactions without providing approval from a central bank (Morton, 2020).
Until August 2021, the total number of existing cryptocurrencies is 5840 (Statista, 2021). Among these various currencies, Bitcoin is considered as the leading one which contribute for almost half of the entire value of the cryptocurrency market (Coinmarketcap, 2021).
In other words, Cryptocurrencies are based on three elements. First, the “protocol,” which is a computer code determining the way transactions are made. Second, a ledger that can be regarded as a file that records the history of transactions. Third, a decentralized web of users that update, store and read the ledger of transactions according to the rules set out by the protocol (Ligot,2019).
Nevertheless, the main challenge is the so-called “spending problem.” I.e., How is it possible to ensure that the same cryptocurrencies are not spent twice (Ibid). In order to prevent this, one needs trust. However, instead of trusting a third accountable party, like a central bank, to keep the ledger, cryptocurrencies resort to a distributed. This means that an up-to-date copy of the entire ledger is kept by each participant. This is what makes it a distributed ledger, through which everyone keeps an eye on everyone else (Ibid).
Challenges of Cryptocurrencies to the international community
The rapid growth of cryptocurrencies has led to diverse legislative and regulatory approaches. On the one hand, some international bodies react with the acceptance of cryptocurrencies’ functioning. On the other hand, other national jurisdictions prohibit and limit the usage of cryptocurrencies and blockchain technology. Therefore, such variance is evidence of inadequate governance. In particular, the lack of a precise legal class for cryptocurrencies is a fundamental issue that could lead to differential treatment by financial institutions and governments (Morton, 2020).
Besides, several states have opposed cryptocurrencies, as they could be used for illegal activities. These states argue that criminals and terrorists can use cryptocurrencies to carry out certain transactions, and with no central authority, there is no oversight to police the perpetrators (Ibid).
As stated above, given the fact that cryptocurrencies are going to be an impartible part of national economies in the future and there is inconsistency towards these coins, states must come together to expose options for regulatory frameworks in an international framework.
In this sense, two approaches could be recommended. First, an international agreement on blockchain under the auspices of the United Nations would provide a certain level of uniformity across jurisdictions and urges countries to develop their regulations to the newly created international norms. Nevertheless, it must be kept in mind that establishing such a framework would not be an easy task. Second, Model Laws that international organizations draft could be used as a way for regulatory convergence in this field. The advantage of this way refers to the fact that such model laws are categorized as Soft law and would not have any binding force on states. Therefore, states would contribute to the process of drafting such documents.
To conclude, it must be kept in mind that the cryptocurrency market enables its users to exchanges in any country. Without regulatory uniformity, the marketplace remains out of control which gave money launderers, tax evaders, and terrorists to take advantage. as a result, states and governmental authorities are recommended to come together and decide on this issue.
Bibliography
CNBC, 2021, “El Salvador looks to become the world’s first country to adopt bitcoin as legal tender”, accessed September 20 2021< https://www.cnbc.com/2021/06/05/el-salvador-becomes-the-first-country-to-adopt-bitcoin-as-legal-tender-.html >.
Coinmarketcap, 2021, “Bitcoin”, accessed September 20 2021< https://coinmarketcap.com/currencies/bitcoin/ >.
Daviescoin, 2020, “A short history of cryptocurrencies”, accessed September 20 2021< https://daviescoin.io/blog/a-short-history-of-cryptocurrencies >.
Ligot, 2019, “Legal Challenges of Cryptocurrencies: Isn’t It Time to Regulate the Intermediaries?”, European Company and Financial Law Review.
Morton, 2020, “The Future Of Cryptocurrency: An Unregulated Instrument In An Increasingly Regulated Global Economy”, 16 Loy. U. Chi. Int’l L. Rev. 129.
Statista, 2021, “Number of cryptocurrencies worldwide from 2013 to August 2021”, accessed September 20 2021< https://www.statista.com/statistics/863917/number-crypto-coins-tokens/ >.
By Mahmoud Refaat: The European Institute for International Law and International Relations.
