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The Predicted End of Fiat Currencies

April 2019 - TMT ( Technology, Media & Telecoms). Legal Developments by Gauci-Maistre Xynou.

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Billionaire and crypto investor Tim Draper envisages a radical overhaul in payment systems; predicting that cryptocurrencies will replace fiat currencies within the next five years.

Billionaire and crypto investor Tim Draper envisages a radical overhaul in payment systems; predicting that cryptocurrencies will replace fiat currencies within the next five years.  Following the unprecedented announcement by the first major bank to have ever created its own digital coin, the ‘JPM Coin’, one wonders whether such an endorsement of blockchain technology by a credit institution is the first step in a series of events which will ultimately lead to Draper’s prediction becoming a reality in the not so distant future.

This prediction was expounded during an interview held on 18 February, 2019 with American financial news TV channel Fox Business [1] during which Draper explained that cryptocurrencies will be used for any day-to-day mediocre transactions, emphasizing that only criminals will want to continue in dealing in cash. As a result, fraudsters and criminals resorting to cryptocurrencies will end up being caught since only cash offers total anonymity.  The notorious Silk Road case[2] amply demonstrates that cryptocurrencies, despite having gathered negative money laundering connotations, are nowhere close to being as anonymous as any liquid cash.

In fact, in an attempt to ensure that cryptocurrencies do not bypass legislation, the European Securities and Markets Authority (‘ESMA’) while pointing out money laundering amongst one of the significant risks of crypto-assets, believes that all crypto-assets and related activities should be subject to anti-money laundering regulation[3]. Such a regulatory measure would rubber stamp Draper’s prediction.

Another praiseworthy characteristic of cryptocurrencies noted by Draper, concerns the security surrounding cryptocurrencies.  Draper observed that cryptocurrencies are more secure than money stored in banks, given the fact that banks are constantly under hack attacks.  The very recent BOV cyberattack in February and its far-reaching potential repercussions serves to strengthen such an argument.

Despite the 2018 cryptocurrency crash, Draper assertively predicts that “the future is Bitcoin and other cryptocurrencies”.  The projected change within payment mechanisms is far from being Draper’s first astounding prediction.  Less than a year ago, Draper had anticipated that governments would be going virtual within the next five to ten years as a majority of governmental services will be provided virtually due to blockchain technology and cryptocurrencies. Given the capability of blockchain technology to affect the largest regulatory authorities in the world, Draper had envisaged governments to start utilising blockchain technology in an attempt to “compete for us”.

Without going into the issue of whether governments will indeed go virtual it is worth observing that governments have already started shifting their focus to consider possible uses of blockchain so as to provide citizens with more effective governmental services.  Potential uses for blockchain technology by governments include supply chain, health records, transportation and voting.  Meanwhile, the European Union Intellectual Property Office (‘EUIPO’) is currently investigating the process of combating counterfeiting through blockchain[4].

On a local level, in the 2019 Maltese Budget a commitment to continue building on the strategy for blockchain technology was announced.  Furthermore, moving on from last year’s hype of the ‘blockchain Island’, the government’s focus is now shifting towards providing a regulatory framework for Artificial Intelligence (‘AI’).  In this respect, the government will be enacting a bill giving a decentralized autonomous organization (‘D.A.O.’) its own legal personality; another innovative first which will be attributed to the blockchain Island.

In light of such initiatives, Draper’s prediction of virtual payment systems does not remain otherworldly. Nonetheless, the prediction has undoubtedly been met with mixed reactions. While governments may be in a rush against time to adequately cope with this revolutionary prediction/reality, crypto investors are at a loss as to whether transferring Bitcoin into fiat currencies is the equivalent of “transferring gold into shells”[5].

[1] https://www.foxbusiness.com/business-leaders/billionaire-tim-draper-reacts-to-jamie-dimon-launching-his-own-cryptocurrency

[2] Decided on 31st May 2017 by the United States Court of Appeals, Second Circuit:

https://caselaw.findlaw.com/us-2nd-circuit/1862572.html> accessed 11th March 2019

[3] European Securities and Markets Authority, ‘Advice – Initial Coin Offerings and Crypto-Assets’, [2019]

[4] https://euipo.europa.eu/ohimportal/en/news/-/action/view/4963920> accessed 22nd February 2019

[5] Fox Business (n1).