By: Hadar Jabotinsky
Have you heard of Ether, Bancor or Bitcoin? These are all names of electronically generated and stored currencies, by which users can trade either real or virtual objects with one another, bypassing traditional central clearinghouses. This technology is driving a change in the global economy, in business and finance. 1 As cryptocurrencies become more popular, the number of the people using them grows. Their attractiveness results in part due to their decentralized peer-to-peer construction. This makes them an alternative to national currencies which are controlled by central banks. So much so that in times of financial instability an increase in the use of cryptocurrencies is already visible.2 However, their value depends not only on the value of the currency, but also on security issues. As these coins exist in the virtual world the sites on which they are traded are sensitive to hackers. Thus, even if hacking the network of the coin itself is difficult, other sites such as stock exchanges of Coins are more vulnerable to theft. Vulnerability also occurs during the process of Initial Coin Offering (ICO), where real money is exchanged in return for the token. Given that these cryptocurrencies are already replacing some of the “regular” national currencies and financial products, the question then arises: should they be regulated? And if so, how? Although the technology behind them is very similar for most cryptocurrencies, the logic behinds them differs. This interesting phenomenon might actually cause some cryptocurrencies to be viewed as closer to real national currencies while others are closer to financial products (such as securities or derivatives). Questions of discloser are specifically interesting with regards to issues relating to the “safety” of these coins – should disclosure requirements revile also issues concerning cyber security? Are investors equipped with the right tools to assess cyber issues with regards to cryptocurrencies? This leads to the main research question of the study: how should cryptocurrencies be regulated, and how much disclosure should be demanded from the corporations who issue them?
1 IMF STAFF DISCUSSION NOTE, VIRTUAL CURRENCIES AND BEYOND: INITIAL CONSIDERATIONS (2016).
2 See Maureen Farrel, Bitcoin Prices Surge Post-Cyprus Bailout, CNN MONEY (Mar. 28, 2013), http://money.cnn.com/2013/03/28/investing/bitcoin-cyprus/index.htm