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In a recent speech at Columbia University in New York, Fabio Panetta, a member of the Executive Board of the ECB, expressed all his worst concerns about cryptocurrencies. Cryptocurrencies are a new gold rush, an unregulated Wild West that would betray Satoshi Nakamoto’s anarchic utopia.
The downside of crypto according to Panetta’s study
The paper is full of references to Ponzi schemes and mistrust of efficient payments, the opacity of the system, and their alleged use for criminal and terrorist activities. According to studies cited by Panetta, 23% of transactions are associated with criminal activities. Not to mention their use in ransomware and to circumvent sanctions imposed at international level against North Korea and, although this has not been concretely proven, the risk that they may be used to circumvent sanctions imposed on Russia.
There was also a reference to the environmental risks of energy consumption and hardware production.
In short, cryptocurrencies would be a threat to financial stability and the security of savers, requiring massive regulatory intervention on four crucial fronts:
- stricter rules to prevent money laundering and terrorist financing;
- appropriate tax rules consistent across all jurisdictions, with systems to identify who holds them and how much they hold, possibly with punitive forms of taxation for PoW-based assets;
- introduction of reporting and disclosure requirements for financial institutions and an increase in the investigative capacity of supervisory authorities;
- adopting rules to protect non-professional savers through transparency obligations on professional operators.
One could discuss at length how questionable the assumptions of the reasoning are, starting from the questionability of the data on which they are based. But there is another matter.
Two opposing factions on the subject of crypto regulation
Unquestionably, the regulation of cryptocurrencies and cryptoassets is a divisive issue.
Conceptually, cryptocurrencies were created precisely for the purpose of not being subject to any external regulation, to transfer economic values on the basis of the free consent of a community of individuals who also freely determine themselves to be part of that community.
From this perspective, decentralized technology is only a means to this end.
It is thus quite legitimate that those who support this type of model experience with a certain impatience any form of intervention aimed at regulating something that they perceive as belonging to the most intimate sphere of the individual’s freedom to dispose of his or her goods and assets.
On the other hand, the perspective of governments and sovereign states is that, even when they have to deal with phenomena that fall within the sphere of expression of individual freedoms, these translate into a possible threat to legal goods that, on the basis of the sensitivities of a particular jurisdiction, deserve particular protection or safeguard. They must then intervene to harness that phenomenon in order to contain its hypothetically harmful or dangerous effects.
Is this right? Is it wrong? It’s a dynamic inherent in the state of things. People have to deal with it, whether they like it or not.
It is worth bearing in mind that almost anything can lend itself to good and positive use just as much as to malicious use. A good bottle of wine can be the perfect accompaniment to a romantic evening, just as it can be used as a sharp object. Nuclear energy can be used for life-saving therapy, or for making devastating weapons, and so on.
Cryptocurrencies “threaten” the financial system
In the case of cryptocurrencies and cryptoassets, the threats that many legal systems see in a deregulated use of these instruments concern very important legal goods, such as the protection of savers (especially the weaker ones, i.e. non-professional investors) or the prevention of the financing of illegal and terrorist activities.
But these legal assets, which undoubtedly deserve the utmost protection by the legal systems, are counterbalanced by others, which are equally deserving of attention and respect by the same systems. These belong to the sphere of the fundamental freedoms of the individual: from the freedom to dispose fully of one’s assets and financial resources to the protection of privacy.
With respect to these values, which are protected in practically all the constitutional charters of modern systems that aspire to define themselves as democratic, but also in the charters of fundamental rights of supranational organizations, it is imperative that the adoption of legislative and administrative measures that entail a significant compression be proportionate and limited to what is strictly necessary.
The concerns raised by Panetta point in the opposite direction, and it is to this kind of preconception that we owe the production of regulations which, on the pretext of protecting savers, severely restrict their freedom, or which place terrorists and traffickers on the same level as small investors who use legitimately earned resources to obtain what banks, government bonds and institutional speculators are unable to offer them.
In many of the provisions that make up a legislative and regulatory framework that is overall chaotic, incomplete and detached from reality, from the structure and the actual functions of the cryptographic instruments applied to finance, it is difficult to find traces of that principle of proportionality enshrined in that same European order that sanctions, as a fundamental value of the European Union, the prohibition to impose restrictions on capital movements and payments between Member States, as well as between Member States and third countries in Article 63 of the TFEU.
But if this multitude of individuals decides to embark on completely deregulated operations and platforms, without the protective net of the apparatus, instead of relying on the protected market of conventional finance, there must be some reason and perhaps it should be taken into consideration.
Because that saver who today, when it comes to cryptocurrencies, claims to defend with all the arsenal of restrictions, anti-money laundering measures and so on and so forth, naturally wonders where these grim guardians were when the subprime tragedy and the Lehman Brothers crash broke out, burning the savings of millions of individuals, some of whom found themselves on the street. Not to mention Parmalat, Cirio, Monte Paschi, Banca Etruria, Banca Marche, Popolare di Bari and so on.
All these events took place in the “protected” enclosure of institutional finance and traditional banks, which were terrified to death by the prospect of a legitimately disintermediated finance.
A protected enclosure in which, not by chance, those same savers are often contemptuously referred to as the “sheeple”.