The control authority assesses risks and opportunities of cryptocurrencies
The control authority assesses risks and opportunities of cryptocurrencies

The control authority assesses risks and opportunities of cryptocurrencies

By Fabio Lugano - 31 Oct 2018

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Bank of England, the Financial Conduct Authority and the Treasury of London have published a report related to the study of virtual currencies.

It is a rather complete study that, starting from a definition of blockchain technology and cryptocurrencies, explores the risks and opportunities of this new financial world.

Unlike many other public documents, the overall view is rather optimistic and the positive aspects of the introduction of DLT are highlighted, which are summarised as follows:

  • Possibility to carry out more efficient monetary transactions, with extreme ease in reconciling balances and payments;
  • Possibility to carry out more complete and in-depth controls and audits, thanks to the immutability of the blockchain;
  • Possibility to use more efficient automated procedures thanks to smart contracts;
  • Possibility of tokenizing existing assets, thus making their transfer simple and immediate.

Unfortunately, the introduction of these technologies also presents challenges and risks. The challenges are related to technical problems not yet fully resolved, such as:

  • Problem of reconciling performance, privacy and robustness of the blockchain;
  • Problems in implementation and application, related to the understanding of the technology itself, its ability to interface with existing systems, its governance, understood as the relationship between centralization and decentralization, and its relationship with existing banking regulations.

Obviously, the report also highlights the risks, which are essentially related to:

  • Illegal use of virtual currencies by criminals;
  • A complex tool, not suitable for final consumers, for whom it can entail great losses;
  • Markets can be manipulated, and therefore lead to losses for users; linked to market stability as soon as the use of digital activities becomes widespread and relevant.

To meet these challenges, the regulatory authority, the FCA, must intervene with a set of regulations that are capable of minimising risks and creating an environment consistent with the growth of these currencies.

If this step is taken, it will be possible to achieve a great impact both in payment systems, as a tool for raising capital, and as an investment tool, achieving positive goals in terms of innovation and efficiency.

Fabio Lugano

Graduated with honors from Bocconi University, Fabio is a consultant for companies and wounded shareholders of the Banche Venete. He is also the author of "Scenari Economici", and lecturer and analyst of cryptocurrencies since 2016.

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