Marco Nie 1 U2NESCO 2019 CHAIR REPORT Committee: Group of 20 Summit Agenda: On measures to promote and regulate the use of cryptocurrencies and blockchain technologies Officer: Marco Nie Introduction: There is a significant trend in the development of cryptocurrency in the entire world. This is more or less seen in the spectrum of economic disruption in the United States. However, the now famous Bitcoin, the first decentralized cryptocurrency, was developed in Japan by a single or group of people known as Satoshi Nakamoto. Even before the introduction of the now famous term, Bitcoin, there were similar forms of crypto-simulations. These were seen from examples such as David Chaum s ecash -later implemented into a system known as Digidash- in 1983, and Wei Dai s distributed electronic cash system known b-money. Now, with this trend in cryptocurrency, altcoins (alternative digital currencies) have been rising up in order to join in on decentralized currency. You may very well ask, as any person not economically knowledgeable about cryptocurrency may, what this phenomenon (introduction of decentralized currency) means on an macroeconomic scale. Well, what does a decentralized currency even mean? It is basically like the U.S.-dollar, or any form of paper currency for that matter (including credit). The truth is, the U.S. dollar, RenMinBi (Chinese Yuan), Japanese Yen, Korean Won, and other currencies around the world are literally just paper money (surprise!). As you may or may not have realized, all of your so-called cash is just printed paper produced by a mint (where the central bank produces cash). Well, how does random paper distinguish itself and develop value? What is the difference between money printed from the mint and money printed from you performing a copy-and-paste operation on a 100-dollar bill you got from Google images? Well, first of all, your inability to print the right size of the money is one of them. In fact, there are a lot of factors that allow a someone to easily identify real and fake money. Probably the most important factor of all is a hidden color that can be seen in a-for this example we ll use the U.S. dollar-by shinning a UV light on it. Now you may ask, well, what if I just made a new form of currency and I ll print it out and distribute it to everyone (it ll be called marcocoin for example purposes). You can actually use marcocoin now, in your little circle of friends you most likely don t have. Now you can trade marcocoin with your friends who have goods and are willing to trade them for your marcocoin. But what makes them do that. Why would they trade printed cash from you and not someone else? The answer is very simply, confidence. This is confidence that the marcocoin can be respected by everyone, and can be utilized in order to trade the goods and services you wish to have. Hence, from this definition,
Marco Nie 2 we can see that the U.S. dollar or any other currency for that matter, is established based on the confidence that the U.S. dollar has value. This means that if suddenly, the entire world lost trust and belief in the U.S. dollar, then the U.S. dollar will be worthless. Bitcoin and other cryptocurrencies have the same function. Their initial value is worthless, until it gains confidence and more people use the cash system. If more people use Bitcoin, more people will value it as a reasonable currency. This is also the reason why these cryptocurrencies are known as decentralized systems. They move away from the central bank (or whoever controls the monetary policy of the country) and use their own system of currency. Putting all the introduction to cryptocurrency aside, let s talk about the significance of these systems. Since cryptocurrencies are decentralized forms of cash, they cannot be tracked. There is no central authority governing the currency. This leads to potential crimes such as but not limited to intercontinental drug trade, child trafficking, and political corruption. I won t go any more specific in terms of the operations of Bitcoin and other similar cryptocurrencies, but one information you should know is that the creation of Bitcoin is through a process known as mining, which is when users insert mathematical inputs in order to get a possible output. In any case, the topic at hand is to regulate cryptocurrency because we are all delegations of major countries or intergovernmental organizations. The following are some of the problems that may rise up with cryptocurrency and block-chain technologies: transactions and exchange of cryptocurrency may be unstable, loss of electronic wallet, and unstable Initial Coin Offerings (ICOs). Key Terms: Anti-Money Laundry: Set of procedures and legislation on monetary actions aimed to stop the act of illicit actions. Bitcoin: A form of decentralized cryptocurrency where digital currency can be transferred from one person to another without a intermediary. Cryptocurrency: Digital form of currency that is encoded with blockchain technology. Initial Coin Offerings: When new cryptocurrencies are launched. (Fun fact, you can make your own cryptocurrency here: https://cryptonotestarter.org. Tell me if you actually make one!) Block-chain Technology: Technology used as a digital book that can record financial
Marco Nie 3 transactions. Ledger: Public blockchain that records all financial transactions of cryptocurrencies. Historical Events & Past Actions: Date Event January 3 rd, 2009 First cryptocurrency, Bitcoin, invented by an individual of group of people under the pseudonym of Satoshi Nakamoto. First ever Bitcoin created on January 3 rd, 2009. 2011 Altcoin emerges as competition to cryptocurrency market. 2014 Mt.Gox, a Japan-based largest Bitcoin exchange company went bankrupt, declared that $473 million worth of Bitcoin was stolen, which was approximately 7% of all Bitcoins in the world. 2015 Homero Josh Garza, founder of GAW Miners and ZenMiner pleaded guilty to a pyramid scheme involving wire fraud. November 2017 Tether Cryptocurrency was hacked, losing $31 million. January 2018 UN initiative known as Climate Change Coalition created, which is a blockchain technology that is utilized to promote applications on climate change. May 2018 Bitcoin Gold was hit by an unknown attacker and lost an estimated $18 million. June 2018 Korean exchange Coinrail hacked, resulting in $37 million lost. Major Parties Involved: European Union: With cryptocurrency being used in many European countries as well, as of July 5 th, 2016, the European Commission has proposed that the wallet providers of virtual currency platforms, such as Ethereum, would have to abide by the rules under the Anti- Money Laundering Directive (AMLD). This means that any terrorist financing, money laundering, or any action that does not align with the policies of the AMLD must be reported.
Marco Nie 4 However, it can be reasonably inferred, from the response made by the European Supervisory Authorities for securities (ESMA), banking (EBA), and insurance and pensions (EIOPA) have all condemned and warned about the destabilized and dangerous nature of cryptocurrencies that the European Union may have a relatively negative viewpoint on cryptocurrency. The President of the European Central Bank even stated that these cryptocurrencies are very dangerous assets. However, even when it seems as if the EU is against cryptocurrency usage, it s not illegal at all. United Nations: As seen before in the Historical Events section, the United Nations seems to be utilizing cryptocurrency in a very efficient manner. They have produced a variety of programs and initiatives surrounding the basis of cryptocurrency as a means to advance agendas on climate change, charity, and sustainable development. China: As of September 4 th, 2017, seven governmental agencies have issued a statement concerning initial coin offerings and have considered them necessary to be banned from the People s Republic of China. The act of public financing without approval, which in turn means government monitorization, is illegal. Seven banking and monetary policy-related governmental organizations in china have released joint statement, within the past few years, concerning the risks of cryptocurrency, especially targeting Bitcoin. While there is a slightly different regulatory situation in Hong Kong, it seems to be that the mainland is reluctant to have a positive viewpoint on the fluidity of cryptocurrency. United States: The United States has a very confusing stance on cryptocurrency. The Securities and Exchange Commission (SEC) has identified cryptocurrencies as securities, while the Commodities and Future Trading Commission (CFTC) has classified it as a commodity. However, part of the dispute between regulation in cryptocurrency does not exist in the federal government, but in the different states. The regulations of cryptocurrency depend primarily on state policy. Russia: Russia s stance on mining is based on its definition of utilizing computing power for cryptocurrency gain. This act is classified as an entrepreneurial act and is regarded as taxable if the miner exceeds a certain energy consumption limit. Due to Russia s leniency towards regulating but not completely banning cryptocurrency, it seems as if the country is going to maintain a regulation but legal standpoint on cryptocurrency usage.
Marco Nie 5 Possible Solutions: It is important to realize that there are many different solutions to the regulation of cryptocurrencies. However, in order to fully encapsulate the situation one should ask, do we even agree with the issue at hand? Should we even regulate cryptocurrency and block-chain technologies? The impasse is clear, whether cryptocurrency should be regulated or not. Of course, for the consumer anonymity and a decentralized currency should be mostly a positive factor, judging by how there is a huge movement on privacy issues (while there isn t much complaint on financial transactions). Governments should incentivize on establishing regulations for cryptocurrencies because they are all about stabilizing and protecting the economy. The unrest on Bitcoin has prompted a phenomenon of what seems to be a Bitcoin bubble (if you don t know what a bubble is, just know it isn t going to be good for anyone). Nevertheless, with the possibility of illicit transactions through cryptocurrency, wouldn t there be an even higher incentive for governments to regulate cryptocurrency? Well you could argue, if you re a country like San Marino, that the effects of cryptocurrency on capitalization is good and that the consequences, whether illegal or not, are secondary to economic development. While that may prove to be a possible argument, governments do have certain principles that engage the rule of law as opposed to economic efficiency, something a fully capitalistic country or desperate to get out of poverty country like North Korea may be interested in doing. With this being addressed, a number of countries have already banned cryptocurrency circulation in their country. These countries include but not limited to Egypt, Colombia, Saudi Arabia, Iran, Bangladesh, the People s Republic of China (mainland), Cambodia, and Indonesia. In order to regulate cryptocurrency, countries can employ different measures in the form of monetary policy. -First, monitoring of cryptocurrency could be done through means such as coming to an agreement with the nation s cryptocurrency mining and exchange companies in order to monitor activities in those platforms. The consequence of this is that the government or central bank will serve as an organization that will be able to record any suspicious activities that may be the result of illicit financial transactions. The only negative aspect of this integration is that the government or central bank should not breach the anonymity of the individual because that would be dismantling and undermining the fundamentals of cryptocurrency and blockchain technology. -Second, countries can implement legislation similar to that of the European Union in the form of Anti-money laundering (AML) laws. A number of countries, such as the United States, Canada, and Argentina have already implemented this policy.
Marco Nie 6 -Third, tax cryptocurrency and view them as goods. One notable country that institutes this policy is the United Kingdom. -Fourth, issue license for bitcoin mining, platform, or usage. This is very harsh but it is definitely a possible solution in the form of regulating the circulation and operation of cryptocurrencies. -Fifth, complete shut-down or integration of cryptocurrencies. This means either letting the cryptocurrency be fully banned or be fully implemented into the economic system of the country. Of course, not all of these possible solutions can be implemented at once. In all honesty it seems like the chronological order of the five solutions above seem to be in the order of least severe to most severe. Countries in the G20 Committee must realize the implications of implementing and not implementing policies against cryptocurrencies. Moreover, choosing which level of integration the country wants in relation to a form of cryptocurrency is highly important and may affect the entire spectrum of monetary policy and the economy of the country. Stating the obvious, technology will be a vital part of the future of cryptocurrency. Countries willing to explore that may look into quantum technologies and cybersecurity as alternative solutions as well.
Marco Nie 7 Bibliography: Auer, Raphael, and Stijn Claessens. "Regulating Cryptocurrencies: Assessing Market Reactions." Bis.org. N. p., 2018. Web. 17 Dec. 2018. "Crypto Regulations In The United States." Comply Advantage. N. p., 2018. Web. 29 Dec. 2018. "International Decentralized Association Of Cryptocurrency And Blockchain IDACB." Idacb.com. N. p., 2018. Web. 17 Dec. 2018. Kennedy, Joseph. "7 Ways The UN Is Using Blockchain & Cryptocurrencies Effectively." Crypto Radar. N. p., 2018. Web. 17 Dec. 2018. Loc.gov. N. p., 2018. Web. 17 Dec. 2018. "Regulation Of Cryptocurrency Around The World." Loc.gov. N. p., 2018. Web. 17 Dec. 2018. Si-journal.org. N. p., 2018. Web. 17 Dec. 2018. "What Is Blockchain Technology? A Step-By-Step Guide For Beginners." Blockgeeks. N. p., 2016. Web. 17 Dec. 2018. " What Is The Future Of Cryptocurrency Regulation? - Cryptoticker." CryptoTicker. N. p., 2018. Web. 17 Dec. 2018. Contact Information: Below are some contacts; please contact if inquiries arise: Marco Nie- President Chair 25198@shenzhen.qsi.org marco@mymun.com Wechat: 13923768748 Jessica Kang Secretary General unesco@utahloy.org/bosun104339@gmail.com Wechat: Jessicakang0308 Gregory Peebles Director of U2NESCO gpeebles@uiszc.org