Financially Ever After

FINANCIALLY EVER
AFTER:
A Thesis On Cryptocurrency Regulation and The Global Financial Economy.
MENSAH, Eunice | June, 2020

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MENSAH, Eunice E.A 
June, 2020.
*This thesis is dedicated to all families who lost loved ones during the coronavirus (COVID-19) pandemic.
Cover Art credit: European Parliament TAX 3 Study on Cryptocurrencies and Blockchain .

Bachelor of Laws (LLB), Barrister and Solicitor of the Supreme Court of Ghana, Master II Degree in Business, Law and Economics (cand.).

European Parliament, TAX 3 Study on Cryptocurrencies and Blockchain Legal context and implications for financial crime, money laundering and tax
evasion. Policy Department for Economic, Scientific and Quality of Life Policies Authors: Prof. Dr. Robby HOUBEN, Alexander SNYERS Directorate-General
for Internal Policies PE 619.024 - July 2018

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TABLE OF CONTENTS
STATEMENT OF GOAL ............................................................................................................................................ 4
Disclaimer ............................................................................................................................................................ 5
LIST OF ABBREVIATIONS ....................................................................................................................................... 6
ABSTRACT ................................................................................................................................................................. 8
Chapter 1: AN INTERNET OF VALUE HAS ARRIVED ........................................................................................ 9
Introduction: Once Upon a Revolutionary Time… ................................................................................................... 9
The rise of the token economy ............................................................................................................................11
Distinguishing between tokens and cryptocurrencies .........................................................................................12
A Potentially Disruptive Digital Currency On the Move ........................................................................................12
A ‘crypto’ revolution has begun .........................................................................................................................14
A digital safety deposit box.................................................................................................................................14
A Cataclysmic Cocktail of Cryptocurrencies ..........................................................................................................17
Bitcoin .................................................................................................................................................................17
Ethereum ............................................................................................................................................................19
Ripple ..................................................................................................................................................................19
Litecoin ...............................................................................................................................................................20
Monero ................................................................................................................................................................20
Libra ....................................................................................................................................................................21
Chapter 2: CURRENCY & CRYPTOCURRENCY ..................................................................................................22
Introduction: A trust-based economy.......................................................................................................................22
Money makes the world go round… .......................................................................................................................23
And round… ............................................................................................................................................................24
The Dicey Lever of Monetary Activism ..................................................................................................................25
Cryptocurrencies and the emerging FinTech landscape ..........................................................................................28
Matters arising with current cryptocurrency framework .....................................................................................29
Chapter 3 : REGULATION. SPECULATION. FRUSTRATION. ............................................................................31

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Introduction: Chasing the Wind?.............................................................................................................................31
The race for regulation ............................................................................................................................................32
Complexities and challenges ...................................................................................................................................34
Anonymity: a feature or a bug? ...........................................................................................................................35
Territorial rules for extra-territorial problems .....................................................................................................35
No central intermediary in direct transactions ....................................................................................................36
Sophisticated masking tools ................................................................................................................................37
The Benefit of Hindsight .....................................................................................................................................37
Chapter 4: THE CPA FRAMEWORK .......................................................................................................................40
Introduction: To State or not to State? ....................................................................................................................40
Creating the CPA coin .............................................................................................................................................41
The RSCoin Model .............................................................................................................................................43
The Social Bitcoin...............................................................................................................................................45
Exploring RegTech alternatives ..........................................................................................................................46
Integrating the CPA Coin ........................................................................................................................................48
Other note-worthy attempts.................................................................................................................................57
Regional attempt by the ECCB ...........................................................................................................................61
Regulating the CPA coin .........................................................................................................................................62
Abecedarian overview of some regulatory approaches in selected countries .....................................................63
A Better Money .......................................................................................................................................................71
Chapter 5: THE FOGGY FRONTIER OF FINANCIAL TECHNOLOGY ..............................................................74
Introduction: Before we sprint. ................................................................................................................................74
Considerations for sustainability .............................................................................................................................75
Considerations for Data Protection .........................................................................................................................76
Considerations for criminality .................................................................................................................................77
Conclusion: A wind of change ................................................................................................................................78

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STATEMENT OF GOAL
This thesis is a five-chapter paper which started out as a recommendation for state regulation and has
gradually evolved into a three-step framework for financial revolution. The main purpose of this thesis is
to provide a deductive analysis of the advent of cryptocurrencies as potentially disruptive within the
current financial regime, appreciating its impact and exploring solutions for efficient regulation.
While seeking to draw attention to pertinent issues arising in the financial landscape particularly in relation
to the regulation of cryptocurrencies, it explores the legal and economic ramifications of this newcomer
on the global financial landscape. An effort has been made to illustrate with practical examples, suggest
reasons and recommend solutions for this within the skeletal framework of the Competitive Popularity
Approach (CPA Framework) - a concept conceived by the present author.
Chapter 1 addresses the onset of blockchain as an Internet of Value that has emerged on the technological
front. It highlights its unique position as the technology likely to have the greatest impact on the next few
decades, illustrating with examples why this is the case. It covers the rise of the token economy that is
accompanying this development, carefully distinguishing between tokens and cryptocurrencies. It zeros
in on cryptocurrencies and their emerging impact on the financial landscape creating what is effectively a
crypto revolution and gives examples of some of the cryptocurrencies, noting their features and
characteristics.
The dichotomy between currencies and cryptocurrencies is tackled in Chapter 2, tracing the history of
money and the development of monetary creation and control in regulating fiat currency. It also addresses
the emergence of FinTech and the current role of cryptocurrencies within that framework analysing the
benefits and considerations for the financial sector in the long run.

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In Chapter 3 the regulatory challenges and emerging issues in the legal sector are discussed with its
ensuing complexities and challenges.
In Chapter 4, the framework of the CPA Framework is discussed in greater detail. It begins with
proposing a framework for a coin, making suggestions on how it can be integrated and reconciling it with
the regulatory challenges mentioned earlier in Chapter 3. In coming to these conclusions, it provides a
glimpse at country-specific approaches giving commentary where necessary on the feasibility or otherwise
of these approaches while noting some steps States have already taken in integrating their own digital
currencies.
The paper finally concludes in the fifth and final chapter, Chapter 5, which discusses some of the
considerations for the future in light of the changing trends, advocating for a cautious yet progressive
mind-set in the face of these uncertainties as well as throwing light on considerations for sustainability,
data protection and criminality.
Disclaimer
The present author has no responsibility for the persistence or accuracy of URLs for external or third-
party Internet Web sites referred to in this publication and does not guarantee that any content on such
Web sites is, or will remain, accurate or appropriate.

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LIST OF ABBREVIATIONS
AI - Artificial Intelligence
AML - Anti-Money Laundering
BSN - Blockchain Service Network
BVN - Bank Verification Number
CEO - Chief Executive Officer
CFT - Combating the Financing of Terrorism
CNIL - Commission Nationale De L'informatique Et Des Libertés
CPA - Competitive Popularity Approach
CRA - Canada Revenue Agency
DC/EP - Digital Currency Electronic Payment
DLT - Distributed Ledger Technology
ECCB - Eastern Caribbean Central Bank
ECCU - Eastern Caribbean Currency Union
EU - European Union
GDP- Gross Domestic Product
GDPR - General Data Protection Regulation
ICO - Initial Coin Offering
IMF - International Monetary Fund
IP - Internet Protocol
ITO - Initial Token Offering
KYC- Know Your Customer
MDIA - Malta Digital Innovation Authority
MFSA - Malta Financial Services Authority

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ML - Machine Learning
MOU - Memorandum of Understanding
MUFG - Mitsubishi UFJ Financial Group Inc,
NFC - Near Field Communication
NLP - Neuro-Linguistic Programming
PBOC – People’s Bank of China
PRC – People’s Republic of China
RMI Republic of the Marshall Islands
TAS - Innovative Technology Arrangements and Service
UAE - United Arab Emirates
UK – United Kingdom
UN - United Nations
USA - United States of America
VFA - Virtual Financial Assets
VPN –Virtual Private Network

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ABSTRACT
This paper reveals the struggle for regulatory balance between ensuring progressive innovation and
stifling fraudulent sophistry in the emerging disruptive blockchain economy. With a particular focus on
cryptocurrencies, it envisions a practical solution in technological advancement that combines economic
considerations and monetary policy in the roll-out of and implementation of a framework for the health
of the financial economy - the Competitive Popularity Approach (CPA).
The CPA framework is a three-part framework that draws from elements of market capitalisation,
competitive business strategies and technological advancement to encourage innovation while
maintaining regulatory supervision over the financial sector. It considers the possibility of harnessing
technological advancement by providing a theoretical incentive for developing a multi-dimensional,
self-regulating ecosystem through the promising potential of blockchain technology in order to achieve
a semblance of the balance we desire.
With the state adoption of the core tenets of this framework on a sufficiently international scale, the
financial sector may witness an exponential transformation for the better.
The framework essentially directs us to create, integrate and regulate. This may sound simple but is in
fact a complex, intricate web of details which are not as easy to achieve. The paper discusses this
framework in a manner that is neither perfect nor complete. At best, it could be described as skeletal.
This is necessarily the consequence of the relatively nascent state of the technology in spite of its
ground-breaking potential. There is still a lot about the technology that we have to uncover, uncertainties
about the effectiveness of legal manoeuvres we have to experiment, and a number of factors we may
have not even foreseen yet to even regard as worth considering.
The debate has only just begun. Whether or not the blockchain economy will live up to the revolution
it is predicted to create is still riddled with uncertainty. Yet regardless of what policymakers ultimately
decide, there is no denying that this phenomenon is not disappearing anytime soon. It is hoped that the
CPA framework will jumpstart a chain reaction for a discussion that will inspire us to take a step towards
a bold new normal financially ever after.
Key words: Cryptocurrency, Regulation, Blockchain.

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1
AN INTERNET OF VALUE HAS ARRIVED
The technology likely to have the greatest impact on the next few decades has arrived and it is not social
media. It is not big data. It is not robotics. It is not even Artificial Intelligence.…it’s the underlying
technology of digital currencies like Bitcoin. It’s called the blockchain. –
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Don Tap Scott, 2016.
Introduction: Once Upon a Revolutionary Time…
The World Wide Web revolutionised our information economy. It enabled us to send copies of the
‘originals’ of information as a form of democratized information. Thus, it is possible to send electronic
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mail to any part of the world in mere seconds. Today, another baffling technology with similar
revolutionary appeal has emerged - blockchain technology.
Blockchain technology, the technology on which the legacy of Bitcoin was built, has since been deployed
or is under active development in virtually every industry from finance to healthcare, energy, capital
markets, and many more.3
The impact of this technology has crossed geographical boundaries creating novel solutions, sophisticated
problems and establishing its place as a relevant actor in today’s global economy.
In spite of all the popularity, extraordinarily broad application and media attention, many still struggle to
understand the underpinnings of the technology and its implications for policy making.4
The technology can be structured to be accessible by anyone with a computer or smartphone or only
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accessible by those having particular credentials. This diversity of implementations and use, together
with misguided statements espousing “absolute truths” about the technology, have further compounded
the confusion surrounding how it should be implemented. 6
The blockchain is akin to an Internet of value through a vast, global, distributed ledger running on millions
of computers which is easily accessible. Nonetheless it is not equivalent to the invention of the internet as

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the history of the technology behind blockchain, cryptography, pre-dates the creation of the internet.7 It is
still considered to be an internet of value because it is intimately linked with the technology of the Internet.
This Internet of Value has the potential to significantly reduce government involvement in our everyday
lives. Major financial institutions such as JP Morgan Chase and Nasdaq have announced plans to develop
blockchain technologies.8
Money, music, real estate and practically any kind of asset can be tokenized and put on the blockchain
where it can be stored, moved, managed, transacted and exchanged without rent-taking middlemen. These
rent-takers act as middlemen authenticating, identifying, clearing and settling transactions as well as
keeping records. 9
This Internet of Value also enabled the building of smart contracts – contracts which self-execute and can
be programmed to handle, the enforcement, management, performance and payment in a transaction.
These contracts typically have bank accounts details embedded in them to facilitate this.
It has also created tensions within the field of regulation particularly capital-raising and money
transmission. Policymakers are grappling with applying laws crafted decades ago and built on assumptions
which are now being challenged by the technology. One such assumption is intermediation of market
participants which blockchain technology has rendered obsolete. On the international front, some nations
have sought to foster the growth of the technology, others have sought to eliminate the technology from
their jurisdiction and quite a number are uncertain on how to proceed. This uncertainty has created grey
areas and doubts about the viability of this technology in the long run. 10
This paper recognises that while it is important to eschew the criminal activity that the current regime has
facilitated, the revolutionary nature of this technology is worth exploring in order to harness its potential
in the most economically-efficient and legally-compliant way.
While recognizing the need to avoid over-regulation, it is argued that an optimal amount of regulation is
necessary to sustain the technology in the long run. In order to achieve this, a blueprint for regulators and
policymakers that combines both legal and economic principles is set out as the main highlight of this
paper in a framework based on the Competitive Popularity Approach (CPA framework).
This progressive approach, though skeletal at best, is an option worth considering in light of the challenges
on the financial landscape.

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The rise of the token economy
With the rise of blockchain technology, the potential of the token economy, has also evolved dramatically
with significant potential to disrupt. As a concept, tokenization was first introduced in 2001 by
TrustCommerce to replace cardholder data with a unique identifier known as a token. It has since evolved
as the process through which an underlying asset is digitized and recorded on the blockchain. 11
After an asset is tokenized, that token can be traded without friction peer-to-peer, with each transaction
being recorded in the immutable ledger and without any degree of human influence (assuming the token
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was created on a permissionless network).
In 2015, The World Economic Forum published its report, Technological Tipping Point, a global survey
of approximately 800 CEOs who were asked to estimate the timing of 21 major technological shifts, with
the adoption of cryptocurrencies and blockchain technology being one of them. 13
The results were staggering. It revealed a forecast that, by 2027, 10% of the world’s GDP would be
recorded and stored on the blockchain. Furthermore, 58% of those surveyed responded that this threshold
would be achieved by 2025, now only five years away. This optimism though merely subjective does
point to an interesting dynamic on the emergence of blockchain by the global community. This is
particularly interesting at time where the inherent advantages that could be achieved through tokenization
processes in blockchain technology are yet to be proven at an institutional scale. 14
By providing an immutable, auditable and transparent transaction human and machine risks are removed,
including errors, frauds and biases. It also enables a further democratization of investing, through
fractional ownership as compared to more traditional securities which can restrict certain investors from
participating. It has the potential to remedy issues in the validity of land title by allowing of fractional
ownership of land especially in tenuous disputes. This in the long run fosters economic mobility because
valid land title ownership allows a person to borrow against the land. Land titles registered on a blockchain
are immutable and cannot be hacked.15
There is also the issue of creators who do not receive compensation because of issues with the enforcement
of intellectual property rights primarily as a result of the Internet of information. A typical example is the
music industry where musicians are not adequately rewarded for their input. This has inspired musicians
like Imogen Heap to explore the potential of blockchain in altering this narrative by using the technology
to protect her intellectual rights with its near-guarantee immutability from hacking. 16

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This explores using smart contracts to regulate different aspects of intellectual property rights
distinguishing listening from using the song in a movie or in a ring tone. In this sense the song becomes a
business and markets itself while protecting the rights of the author because the song has a payment system
in the sense of a bank account. This allows all the money to flow back to the artist who is now in control
as opposed to these powerful intermediaries. This does not only apply to song writers but all types of
content creators like art, inventions, scientific discoveries, journalists and the like. This gives them the
opportunity to get fair compensation for their work.
Platforms like Uber, AirBnB, TaskRabbit, and Lyft are market leaders in what is known in today’s world
as the sharing economy. They are based on the brilliant concept that allows peers to come together to
create and share wealth. These companies have harnessed the power of platforms to create network effects
by aggregating services together and selling them. The blockchain has the potential to change this by
allowing for the execution of smart contracts built around specified tokens as representatives of an
investment in the company. 17
There is also greater market efficiency because tokens can be traded 24/7 on existing global exchanges
making it possible to imagine a future where the secondary market will operate round the clock in spite
of time differences and geography. The global trading windows can be totally redesigned such that details
like local market-specific calendars contracts will no longer dictate international trade. 18
Distinguishing between tokens and cryptocurrencies
Tokens represent an asset such as property or utility or act as securities. Like most coins, their value is
based on what the investors attribute to it. They are fungible and may offer income or rewards. They are
used by start-up companies to raise capital for technology being developed by coders. To date billions of
dollars have been invested in ICO tokens for start-up companies. There is no uniform definition for a
"cryptocurrency." It has been loosely referred to as "virtual currency," "digital asset," "digital token,"
"crypto-assets" or simply "crypto."19 All cryptocurrencies are, in fact, tokens. However not all tokens are
necessarily designed as cryptocurrencies. Ethereum, for instance, offers “tokens” whereas Bitcoin offers
“coins”.
A Potentially Disruptive Digital Currency On the Move
Digital currency as a medium of exchange does not exist as a physical construct. 20 The term “digital
currency”, though often used synonymously with virtual currency, comprises all types of currencies that

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21
have an electronic format. Its intended use and application relies on its ability to retain value in an
intangible form.22 Yet, by not existing purely in a physical space, there is a real risk of it being fraudulently
used more than once; a concept known as double-spending.23 This implies that assets like money, stocks
and bonds are prone to this double-spend problem once they are traded in a digital economy.
This has necessitated a reliance on financial intermediaries like banks, government, big social media
companies, credit card companies and the like to establish the trust that is at the core of our financial
economy. Using these intermediaries slows things down drastically, for while it can take an email to go
round the world in a matter of seconds, it may take days or even weeks for money to move through the
banking system across a city. These intermediaries also take a huge commission for their painfully slow
services sometimes charging as high as 10% to 20% to send money to another country. They also capture
our data which deprives us of the ability to monetize it or use it to better manage our lives undermining
our privacy.
Due to their centralised nature they are easily hacked as was seen in the case of JP Morgan, the US Federal
Government, LinkedIn and Home Depot. It has also contributed to the gross inequalities in the society by
appropriating the largesse of our digital economy asymmetrically to exclude billions of people from the
global economy because they do not have a bank account. 24 All these and more have contributed to why
a decentralized currency is considered a welcome addition to the financial sector with the potential to
change the way we transact exponentially.
With the blockchain, the questions are intimately profound in nature. As the technology is adopted by
commercial banks and financial institutions we are forced to ask ourselves: What does this mean for the
rest of society? Will this technology provide us with greater transparency, democracy and savings? Can
it be used to create a better vision of capitalism? And if so, then how?
It is therefore important to understand not only blockchain but also the other technologies that are currently
changing the way finance and economics is defined.
By reviewing the past and current ideas, policies and technologies that are challenging the functionality
of the complex and dynamic system of modern day capitalism, we may able to get a better glimpse of
these notions. Nonetheless, this is not the scope of this paper.
Financial innovation has often led to exponential growth in the past. However, this growth has had a
curious effect on the redistribution of risk, transforming risk into a product that can be sold as an actual

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good. This resulted in increasingly complex derivative products, masked the complications associated
with them and culminated in the global financial crisis of 2008. In light of this catastrophic effect, and the
role of rent-taking middlemen in this bundle and sale of risk, this paper instead seeks to opine that it may
be worth considering the potentially disruptive nature of cryptocurrencies and devise progressive means
of regulating it.
A ‘crypto’ revolution has begun
The concept of cryptocurrencies was first introduced in a paper authored by Satoshi Nakamoto in 2008.25
Satoshi Nakamoto proposed the first cryptocurrency, Bitcoin, as a solution to double-spending.26 To date,
it is unclear if this name represents a group or one person. 27 The inventor’s apparent preference for
anonymity appears to be consistent with the foundational framework with which the system operates.
Cryptocurrencies use cryptography to validate the transfer of transactions in a blockchain enabling peer-
to peer transactions without the need for financial intermediaries. 28 As a result, trust is established not by
a rent-taking middleman but by collaboration and cryptography in what some have referred to as a trust
protocol. 29
A digital safety deposit box
Assets are tokenized and distributed across a global ledger using the highest level of cryptography. When
a transaction occurs, it is registered globally on millions of computers which collectively manage this
ledger. A group of people called miners with massive computing power operate a network of nodes that
create the “blocks” in the “chain” – the blockchain. These computing systems are 10 to 100 times bigger
30
than all of Google worldwide. These miners validate the blocks in the transaction by establishing a
consistency in the chain when they are able to crack the code to allow the block to be registered on the
chain. They are rewarded for this with cryptocurrency.
Each block is time-stamped akin to a digitalised wax seal. This time stamp gives it immutability. It implies
that in order to hack the block you would have to compromise not only that block but all the preceding
blocks, the entire history of commerce on that chain, not only with one miner but across the millions of
computers operated by different miners simultaneously using all the highest levels of encryption.

The speculations still remain. For more see Who Is Satoshi Nakamoto? Bitcoin Dumps 7% After 50 BTC Transaction | Ethereum Dangerous To Own? at
https://www.youtube.com/watch?v=U9to38G-538

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This makes it infinitely more secure than most of today’s computer systems with the payment and
settlement being the same activity.
Source: “'Technology: Banks seeks the key to blockchain”, by J. Wild, M. Arnold and P. Stafford, 1 November 2015, Financial Times at
https://www.ft.com/content/eb1f8256-7b4b-11e5-a1fe-567b37f80b64?segid=0100320#axzz3qK4rCVQP
They also offer the security of a difficult to penetrate system for financial safety and guaranteed anonymity
which is lacking in traditional banking services while eliminating the inconvenience of dealing with
cash.31 The current system of payments by cash, credit cards, automated teller machines (ATMs) and the
like are prone to security risks like hacking and tampering with personal information.
Nonetheless, while most of the current cryptocurrencies rely on a decentralised community of miners,
nodes and users in a form of DLT, it is possible to model a cryptocurrency which is centralised to some
degree.32 This possibility refutes earlier notions that cryptocurrencies were by nature decentralised and
ought to remain so. Indeed, reports indicate that of the top twelve coins by market cap, at least 5 of them

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are ran 100% centrally by the founding organizations: Ripple, NEO, Cardano,Stellar  IOTA and
NEM, as at May 28,2020. 33
A lack of centralised control has often been touted as the reason why blockchain is so popular. Evidently,
the technology has developed beyond its reliance on cryptocurrencies or crypto-assets in the form of
private or permissioned blockchains. These new developments are not distributed among the users of the
network but rather centralised in that entity or those entities which together control that blockchain. This
has inspired some cryptocurrency start-ups to caution that they should not be painted with a “broad brush”,
challenging the preconceived perceptions of the success of cryptocurrencies being in its decentralisation.34
Even if cryptocurrencies fade out, the technology will still be exponentially relevant because the existence
of the blockchain technology is not dependent on it. Hopefully, this observation puts into clearer
perspective the possible transient nature of cryptocurrencies in the long run notwithstanding their
popularity today. It justifies the position that cryptocurrencies in spite of their ingenuity are dispensable
and if we do not take active steps in integrating them they will go out of style like a fashion trend that is
out of style.

The Ripple company decides who validates the network

There are 7 trusted nodes controlled by a single party

In the "Bootstrap Era" before target dPoS.
Delegated Proof of Stake (dPoS) is a consensus algorithm developed to secure a blockchain by ensuring representation of transactions within it. It is designed
as an implementation of technology based democracy using voting and elections processes to protect the blockchain from centralisation and malicious usage.
Source: BitcoinWiki at https://en.bitcoinwiki.org .
The Bootstrap era is the period of Cardano SL existence that allows only fixed predefined users to have control over the system. Source: Cardano.org at
https://docs.cardano.org

This merits further research as there is no striking evidence of centralization. Stellar evolved significantly and changed its consensus along the way. It appears
to be a Web-of-Trust with the trust firmly anchored in Stellar Development Foundation. Stellar documentation underlies legal compliance and not censorship
resistance. The Stellar Whitepaper states: "In practice, the top tier could consist of anywhere from four to dozens of widely known and trusted financial
institutions"

Sometimes referred to as the "Coordinator"

The Network Infrastructure Server (NIS) is not open source

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A Cataclysmic Cocktail of Cryptocurrencies
Cryptocurrencies come in different shapes and forms; some have referred to them as mere digital
currencies (Argentina, Thailand and Australia), others have called them a virtual commodity (Canada,
China and Taiwan). Still others have referred to them as crypto-tokens (Germany) or even payment tokens
(Switzerland). They have also been referred to as cyber-currencies (Italy and Lebanon) or basically as
electronic currencies (Colombia) as well as virtual assets (Honduras and Mexico). Nonetheless, all these
varying nomenclature point to the different features that operate with the underlying blockchain
technology. 35
There are approximately 5,392 cryptocurrencies being traded with a total market capitalisation of $201bn
(as at April 22, 2020).36 These cryptocurrencies offer competing and varying alternative products. Among
them are ZCash, Ethereum (ETH), Ripple, Litecoin (LTC), Dash ,Monero, Hyper ledger, Chainlink
(LINK) Fabric , Intel Sawtooth and Corda.37 A number of cryptocurrencies are gradually being accepted
as virtual legal tender for products and services.38 Most of them are decentralised, open source and offer
a secure access that is difficult to compromise. 39
Bitcoin
Bitcoin was introduced in 2009. It was the first major effort to encompass blockchain attributes. There
was wild speculation over the identity of Satoshi Nakamoto, the creator of Bitcoin.40
It is the most commonly known cryptocurrency and has received a lot of global attention. Since then, it
has inspired the creation of other cryptocurrencies like Litecoin and Ripple. In November 2015, Bitcoin
held a market capitalisation of 4.8 billion USD. 41
Bitcoin is a decentralised virtual currency whose protocol allows for the storage of bitcoins in digital
wallet. The digital wallet is identified by and uses a public key. This public key allows bitcoins to be
transferred anonymously without a central authority or other intermediary to oversee the transaction. 42

See Appendix for Market Capitalisation of Top 12 cryptocurrencies as at June 1, 2020.


It was even rumoured to be Nick Szabo because he was the one who first used the expression smart contract based on his polymath and legal background.
And also based on his lectures on Block chain and bitcoin and their supposed attribution to the writings of Friedrich Hayek and Ayn Rand who were famous
for their antipathy to government interference in economic and social life.

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Its value is based on the free forces of demand and supply. It is not influenced by the input of external
forces such as central banks, financial institutions or other governmental authorities. It does not have a
physical form. There is no insurance. There is no government backing. 43
How Bitcoin works? 44
Bitcoin can be purchased online with the digital version of fiat money. Considered by many as the next
evolution of another payment system, it provides a censorship resistant-transfer of value with higher
productivity and an open source protocol.
Transactions in bitcoin are accomplished by the use of the Internet and are based on the principles of
cryptography. Therefore, each coin is encrypted with a unique identity. The time and amount of each
transaction is recorded on a decentralised blockchain ledger. This ledger is visible to all computers using
the network but reveals no personal information about the parties. It is essentially a record of truth.
Each bitcoin is divisible to eight decimal places. This makes it highly fractionalised and enhances
extensive use. The transaction is also irrevocable and the use of cryptography ensures against wrongful
intrusion. In order for a user to transfer bitcoins to the receivers , the receiver provides the bitcoin address
and the sending user authorises the transaction by the use of a private key which is a random sequence of
64 letters and numbers which unblocks the digital wallet.45 Nevertheless, it is limited in scope and size.
It was set up to be issued every 10 minutes while the total supply is 21 million bitcoins. There are three
main ways to obtain a bitcoin. Firstly, by using one of the legally registered exchanges. Secondly, by
mining new bitcoins. Mining is the process of adding transaction records in the form of new blocks to a
public ledger of past transactions known as a blockchain. It is a concept unique to cryptography. It
encourages persons either alone or with other individuals to solve computational problems. The reward is
a block of newly minted bitcoins. There are also transaction fees for the successful endeavour. The reward
began at 50BTC in 2009 for every 210,000 blocks mined. It has since decreased by half. Thus, it is now
25BTC for every 210,000 blocks mined. It has been reported that it will halve again on May 12, 2020.46
Thirdly, bitcoin can be obtained by exchanging goods and services for bitcoins.
The public ledger is important because it prevents forgery or counterfeiting and eliminates the need for a
third party to verse the transaction. The proof-of-work relates to miners who find a random number known
as a nonce which when inserted into the current block makes the hash fall below the current target. It is
then sent around the network where other miners check by hashing the block and checking the result. It is

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very difficult to accomplish this whole complex process which requires large amounts of computational
energy and electricity. This difficulty may be an intentional feature to prevent inflation. As more miners
attempt to join, the difficulty of the rate of block generation increases. The same is true for the difficulty
to compensate in order to reduce the rate fo block creation. Adjustments typically occur every two weeks.47
Ethereum 48
The Ethereum blockchain was developed by a Canadian named Vitalik Buterin as co-founder with three
others. Buterin was highly critical of the limited use of Bitcoin. He sought to enlarge the capability of
blockchain technology to encompass numerous additional features.
Ethereum is transaction-based encompassing a broad spectrum of account balances, reputations, trust

arrangements and almost anything that can emanate from a computer. 49 Ethereum has the potential to not
just disrupt currency , but also disrupt equity.50 It can remove third parties from many forms of financial
transactions such as Uber, Airbnb , eBay etc resulting in lower costs for participants at a faster rate, with
limited collusion.51
Ethereum is also decentralised. It runs on smart contracts and allows numerous other applications.
Ethereum’s reward consists of 5 Ether which is the “fuel” for operating the Ethereum platform. It remains
the same and does not diminish overtime. There is also an additional 1/32 ether per uncle block. 52
Today, on the Ethereum blockchain, there are projects underway from creating a new replacement for the
stock market to new models of democracy, where politicians are accountable to citizens.
Ripple
Started in September 2013, by Jed McCaleb, Ripple is a payment network that is currently being used by
many banks such as the Bank of America, Santander, American Express, and UBS. 53
Its code is not open-sourced but rather is privately owned by Ripple.54 Ripple, unlike most blockchains is
centralised. Only the Ripple Foundation may issue units which they do at their discretion. 55
It is scalable, secure, and interoperates different networks. Its software solution, xCurrent, enables banks
to instantly settle cross-border payments with end-to-end tracking.

An uncle block is a stale block with parents that are a maximum of six blocks back from the present block.

20
Banks message each other in real-time confirming payment details before initiating the transaction and
then confirm delivery after settlement. It minimizes costs and capital requirements for liquidity.
It uses a standard interface, xVia’s simple API (Application Programming Interface) that requires no
software installation and enables users to seamlessly send payments globally with transparency of
payment status.56
As of the end of December, 2017, co-creator, Chris Larsen and the largest holder of Ripple tokens, rivalled
Jeff Zuckerberg for financial supremacy based on Ripple’s growth of 30,000 percent in a year. 57
Litecoin
Litecoin was created by Charlie Lee on October 7, 2011. His goal was to create “a lighter type” of Bitcoin,
alleging it is silver compared to Bitcoin’s gold. It is open-sourced on GitHub and its aim is to provide a
cheaper and more everyday-purposed currency.
Its coin limit is 84 billion. It uses an algorithm called Scrypt. Its block reward is halved for every 840,000
blocks. Its block time is 2 minutes 30 seconds.
Like Bitcoin, its value has risen extraordinarily. This has caused investors to question whether it is one of
the numerous tech shares that are evidence of a major bubble. Its main advantage is less energy use,
allowing a greater number of miners to partake.58
Monero
Monero is a leading cryptocurrency that claims it is “secure, private, and untraceable.” owing to the use
of ring signatures and other means to prevent third parties from prying. 59 It was created by Nicolas van
Saberhagen on April, 18, 2014. 60
Monero is decentralized, open-sourced and accessible. It permits users to ‘be their own bank’, allowing
them to maintain accounts and transactions anonymously. It uses an obfuscated public ledger. This means
that anybody can broadcast or send transactions, but no outside observer can tell the source, amount or
destination.61 Its design prevents it from being blacklisted by vendors or exchanges. 62
However, due to
this feature, it is often touted as a coin that is used by dark net markets as well as people with illegitimate
interests.63

21
Libra
Libra is a new digital currency, the social media giant, Facebook is planning to launch. Libra was first
announced in June of last year as a bold yet risky endeavour to revolutionize money transfer and position
Facebook on the ground floor of a new blockchain based digital payment industry. 64
There has been a lot of opposition and even flat out prohibition from authorities round the world due to
the perceived threat it poses to the global financial economy. A number of Facebook’s initial partners
even withdrew. The European Central Bank even suggested that banks should find a better alternative to
Libra and people will not use it. Nonetheless, an updated roadmap aiming for a 2020 launch was
published.65
The Libra project has since been modified. The project will now support existing currencies in addition to
the proposed Libra token. 66 This comes at a time where Facebook is facing severe regulatory pressure and
political push back compelling its founder, Mark Zuckerberg, to settle for a less ambitious plan than was
initially anticipated. 67
The modifications will make the Libra token which was to be the centrepiece of its digital payments
strategy, play a more complementary role by supporting existing government backed currencies like the
US dollar and the euro. Plans for Libra to take the distinctive open architecture of Bitcoin with a
permissionless quality have also been abandoned. The open-source design fuelled widespread concerns
that terrorists and others could use Libra for underhanded reasons. The criticism culminated in a hearing
for potentially bypassing many regulatory approvals for Libra. Mr. Zuckerberg and Facebook have since
68
said they would not go forward with the project without regulatory blessing. Meanwhile authorities in
China and elsewhere have indicated their desire to make sure they introduce their currencies before Libra
gains traction. 69

The Australian authorities chose to ban Libra outright in advance of its launch.

22
CURRENCY & CRYPTOCURRENCY

2
The world is getting smaller and payments need to move faster… The legacy way of
making cross-border payments, well there is only one way to describe it—it’s a real
bloody mess.
-Jonathan Lear , 2015.70
Introduction: A trust-based economy
When someone gives you money, you do not need to trust the person in order to trade with it. You only
need to trust that it is an acceptable medium of exchange. This concept of a trust-based exchange has
consistently been at the core of modelling systems that rely on a standardised medium of exchange like
the Bretton Woods system.
Between 1870 and 1914, currencies were linked to gold in what is often referred to as the gold standard.
Under this system, the value of local currency was fixed at a set exchange rate to gold ounces. It allowed
for free movement of capital and enhanced overall global stability. However, at the start of World War I,
the gold standard was abandoned.
The Bretton Woods system was created after World War II. It lasted for about 25 years. Under this system,
the US dollar was chosen as a means of international exchange because it was considered as good as gold.
Most of the world's gold was held in U.S vaults making the US dollar backed by gold at a fixed price of
$35 per ounce. Therefore, countries were to peg their currencies at a fixed rate to the U.S. dollar. The
world has since moved to the concept of fiat currencies as introduced by Richard Nixon.
In August, 1971 Richard Nixon, who was the president of the USA at the time, announced that foreign
countries would no longer be able to convert their US dollar holdings into gold. In what was popularly
referred to as the Nixon shock, he created a monetary system where currency was no longer backed by

23
gold or anything of value except government's promises- a fiat currency. This came as a result of the fact
that the U.S. dollar could no longer support the value of the pegged rate. Since then major governments
adopted the floating exchange rate system where the value of a currency was dictated by the forces of
demand and supply as seen in the currency’s availability, the price to be paid to acquire it and the scarcity
of its supply at a point in time
Unlike commodity-backed money under the Bretton Woods system, fiat currencies are backed by nothing
but trust in the government that whatever it calls legal tender has monetary value. Thus, based on this
fictional representative character of money we have, today it is possible to exchange two currencies at a
‘price’.
Another distinguishing feature between commodity-backed money and fiat money is that fiat money is
based on trust and not a tangible value per se. Fiat currencies are backed by a central governmental
authority. As legal tender, it is a medium of exchange for goods and services within a nation’s border. 71
Money makes the world go round…
Aristotle observed that money originated by convention, (not by nature, but by law), as men agreed to a
standard for which they could make exchanges. 72 They increasingly opted for items that had most of
the features we recognise in money today namely divisibility, durability, portability and so on. It is for
this reason that metals were often used. However, other examples of early money include cattle, seeds
and even wood .73
Gold and silver were the generally accepted forms of exchange and measurement of wealth for a long
time. This was not necessarily the result of a governmental decree but rather a necessary consequence of
their unique attributes- rare, easily recognizable, portable, durable and divisible. In the past, gold and
silver were minted into coins of equal weights.74 Governments soon realised there was not enough gold to
go round and began reducing the weights to be able to mint more coins to satisfy the increasing demand
for money. Furthermore, they were becoming increasingly cumbersome to store, carry and use, thus the

fiat is a Latin word and it means currency that is circulating by force

Tally sticks made of polished hazel or willow wood were used in England from 1100 AD. They were abolished in 1834. Hence the origin of the phrase “tally up”.

24
concept of commodity-backed money was introduced through promissory notes. This was based on a
mutual understanding that these notes held by a person could be redeemed for a commodity such as gold
and silver.75
Promissory notes inspired the invention of paper money and the wider concept of representative money.
The state’s backing also created a uniform standard. By mandating universal acceptance through the
concept of a legal tender, it further established trust in cash and coins, as a means of exchange. 76 Thus,
the concept of a ‘currency’ emerged. Currencies have gradually evolved in shape and form over time.
Today, we have digital currencies.
And round…
The story of banking, economics and finance is one of continuous evolution that has mirrored the different
stages of human civilisation. The concept of trust still resides at the core of our modern financial economy.
In essence, we trust our banks to hold our money and our borrower’s to repay their debts. Money typically
has three attributes: a unit of account, store of value and a medium of exchange. It may be in the form of
currency, bank deposits or central bank reserves. In all these forms, money is a representation of trust in
a financial context. It is this confidence in the ability to exchange money that gives money its nominal
value. 77
Generally, central bank of a country influences money creation based on inflation targets and interest
rates. Together with the government, it typically implements monetary policy while remaining separate
and autonomous. Money creation and stability is also controlled by the commercial banks through the
issuance of debt and the creation of credit. They do not simply act as intermediaries that hold saver’s
capital and lend out these deposits as loans. IBID 78
The public holds money in the form of currency. Banks hold money in the form of non-interest paying
demand deposits and interest paying checkable accounts. Paper currency and bank deposits hold no value
as commodities. When the government needs money, it exchanges bonds with the central bank the central
bank then issues the money in exchange for the government bonds with interest. 79

A promissory note was a trusted document which validated your claim on such commodities as gold or silver often stored in the government treasury.

This implies that, it is illegal to reject the accepted fiat currency of a place as a means of payment for goods and services.

25
In this trust-based economy, the value of a currency is influenced by a combination of the supply and
demand of a country’s money as well as the supply and demand for their goods and services in the
economy where that currency has validity. It is directly proportional to the usefulness of the currency to
be traded for goods and services. The usefulness determines the demand, while the scarcity is determined
by the supply. A delicate balancing between these two scales, gives currency its value. 80
When a bank offers a loan, it also creates a corresponding credit in the borrower’s account. As cash is
withdrawn from bank accounts, the money circulating in the public increases. This allows a currency to
derive economic significance based on its trading position. The country also derives economic
significance from its Gross Domestic Product (GDP) and whether the country imports more than exports.
Sometimes, other countries use another country’s currency as a peg for their economies as is often done
with the US Dollar and Euro. It is here that the ballet of the charts between money and debt begins.
Together with the central bank, they control the broad money and the base money. 81
It is the goal of every currency-issuing country to stabilize the supply in circulation within and outside its
territories. This makes fiscal and monetary policies to control the amount of money circulating very
necessary for the overall health of the financial economy.
The money market also influences the number of deposits being made. Thus, if the market is not friendly,
investors would borrow less in order to stave off risk. In order to encourage investor participation, banks
often compete amongst each other to offer lower interest rates on the loans they offer to their consumers.
Hedging against the chance of a default is also possible through charging interest rates. Hedging and
holding are the incarnations of trust and the fundamentals of money creation.82
The Dicey Lever of Monetary Activism
Controlling monetary policy has never been easy. This is not surprising. There is a certain inherent
difficulty in using the fictional character of money as a representative of value in an economy when it is
difficult to quantify value in the first place. More so, there are the risky but potentially rewarding
manoeuvres of deliberately inducing balance of trade deficits and the like to secure an advantage on the
international plane. Little wonder that states have often made a mess of it. It is like driving an invisible

Broad money is money that consumers use for transactions. It includes currency (banknotes and coins) and bank deposits. Base money is the central bank
money. It includes currency but also the reserves fo the central bank.

26
car with the help of indicators that are not even accurate but are only in fact estimations; or walking on a
metaphysical tightrope which is not tangibly certain in its boundaries both theoretically and practically.
Yet the consequence of both extremes in failing to balance the dicey lever of monetary policy would lead
to either inflation or deflation none of which are desirable. If the policy is too tight it will stifle investments,
if it is too loose it could trigger a recession.
As a result, monetary activism- the concept which encapsulates the various strategies of combining
different fiscal and monetary policies to achieve a particular outcome- has been described as ‘a virus that
infects politics’.83 Others have called it ‘overbearing’ while others still have called it ‘perilous’. 84 This is
evidence of general misapprehension associated with the effect of applying these measures on the
economy.
There are economic advantages associated with monetary activism. However, these tend to come at the
cost of sacrificing stability in the long-run and undermining the purchasing power of a currency. Monetary
activism has often resulted in periodic bubbles and busts both domestically and around the globe. It takes
place in the form of manipulating interest rates and waging currency warfare. It is often cited as a source
of tremendous waves of irrational exuberance which sweep through the global financial market place.
Such irrational exuberance has been a key factor in economic destruction notably the global financial
crisis of 2008.85
Economic destruction resulting from monetary activism typically comes in two forms. The first is a
malinvestment where capital ploughed into particular types of industries enterprises and building and into
training or education on the basis of price signals in the capital market which were seriously distorted by
monetary chaos including related irrational exuberance. By the same token other more economically
worthwhile end destinations were deprived of capital. The extent of malinvestment is discovered only
when the age of irrational exuberance has dissipated or if at all.86
Another instance of such irrational exuberance is that increasing interest rates inspires investors to assume
equity risk. One author, in commenting on this phenomenon noted that, this does not tend to take the form
of a ‘swift and painless decrease in the voracious appetite of the bubble period back to a normal healthy
87
appetite but rather from voracious to anorexic.’
The resulting consequence of these manipulations that potentially puts the financial economy is one that
would need radical treatment otherwise the underlying malaise occurs, creeping into every sector and
corrupting the lifeline of our economic progress. These crippling monetary disorders have led some to

27
observe that ‘monetary policy is too blunt an instrument to moderate swings of speculative temperature,
because if the central bank seeks to prevent bubbles it risks triggering an unnecessary recession.’ 88
Central banks influence interest rates, print money, set bank reserve requirements, manage open market
operations and quantitative easing.89 This is because of a fundamental belief that having the right quantity
of money in circulation is crucial to ensuring a stable and sustainable economy. However, it appears that
this view is not without a significant amount of criticism.90
As noted by Milton Friedman,
‘There is no case, whatsoever, for direct controls on credit’.91
Nonetheless, irrespective of the widely held and varying opinions on the effect of monetary activism and
by extension monetary policy, there is irrefutable evidence that our timely actions or inadvertent inactions
on how the dicey lever of our financial economy is controlled has a significant impact. Maybe it is time
we explored a more efficient and effective way of achieving an outcome that does not rob Peter to pay
Paul.
It is consistently recurring grave lapses in judgment like these that inspired theorists like Hayek to
advocate for a total decoupling of central banks in the control of our financial economy. However, history
has shown, scilicet the subprime crisis, that banks have just as much a role to play in how subpar our
financial economy has become forcing us to reconsider whether it is a more a question of how control is
exercised rather than who is in control.
Economic theorists like David Hume argue that a mixed convertible circulation, based on notes that are
convertible to commodity money needs no regulation or control. Essentially, Hume believed the financial
system was passive. It reacts to public desires and does not require regulation. He argues that there is no
support for monetary control or regulation whatsoever beyond the need to retain the convertibility of notes.
92
In similar fashion, Tooke argued that the banking system cannot influence the quantity of notes in
circulation. Tooke argued that bankers are not directly influenced by exchanges but only react to public
will. In short if the exchanges influence public behaviour then bankers will react making them passive

Quantitative easing involves the burring or sealing of government bonds and securities.

28
only reacting to price changes or other changing economic conditions through their relationship with the
public. 93
Fullarton in his theory of the Law of reflux similarly argues that notes will return to the issuer if he were
to issue too many of them in the long run. Creating an “impossibility of over-issue” because the public
will return the excessive notes. These changing positions are relevant for consideration in light of the
present-day’s evolving financial system where deregulation and financial innovation are reshaping the
meaning of money and credit.94
I will not dare to even entertain the farcical and utopian ideal, however theoretical it may be, that we can
find a system that can perfectly balance all the intricacies of monetary activism. But I believe that we are
in a better position today to find a system that could significantly reduce the attendant problems associated
with controlling this dicey lever.
Cryptocurrencies and the emerging FinTech landscape
Cryptocurrencies are essentially an inevitable and welcome revolution in the emerging financial
technology (FinTech) landscape. Innovations in FinTech have unbundled banking, dividing its core
functions of setting payments, performing maturity transformation sharing risk and allocating capital.95
These innovation have been in response to the high cost of financial service delivery in the form of fees
and interest.
They have enabled people to trust each other without having to actually trust each other by providing a
secure system for transacting cryptocurrencies as a form of financial token. Their universality also allows
them to be freely traded internationally without having to worry about convertibility. 96 Currently, most
cryptocurrencies unlike fiat currencies are not controlled by a nation state.
Remittances are the biggest flow of funds from the developed world to the developing countries. It
amounts to about 600 billion dollars a year.97 This figure is steadily growing still and people are constantly
getting ripped off by banks and other financial intermediaries who are taking as much as 10% with the
money arriving in days or even weeks.

In 2015, Americans paid $141 billion in service loans, credit cards and other services. Rosario Girasa (2018), Regulation of Cryptocurrencies and Blockchain
technologies: National and International Perspectives.

29
In the revolutionary blockchain economy, a token coin may instantaneously be sent and easily cashed
using a “token teller”. This token teller’s availability is enhanced by GPS tracking systems that enable a
customer to find the closest teller available and convert the token coin into cash or otherwise use it to
make other online purchases. This is an easier and more efficient system than our current system. It is also
more sustainable.
It has the potential to bridge the huge gap of social inequality which is impacting our livelihoods and
overall well-being on many levels least of which is its impact on climate change. The existing social
inequality has inspired anger, extremism, protectionism, xenophobia and many more. 98 Cryptocurrencies
can be harnessed to aid in the re-distribution of wealth, tax people and spread this wealth around.
It gives us the potential to change the way that wealth even gets created by democratising wealth creation,
engaging people in the economy and ensuring that they get fair compensation.
There are already private companies that are providing KYC/AML services for blockchain like ShoCard
Identity, Guard time Identity, Trunomi, BlockVerify, Cryptid and Bitnation. These private companies
provide a range of services including cryptographic due diligence, transforming public nodes to private
nodes multi-signature platforms, data management and consumer privacy.99
Matters arising with current cryptocurrency framework
All around the world the financial industry is in a big upheaval wondering what the implications of this
technology are for them. Cryptocurrencies thrive on popularity and are characterized by a liberal
fundamentalism as implied by a bottom-up approach. Although the technology behind cryptocurrencies
is ingenuous and perfectly legitimate, cryptocurrencies on their own have been regarded with a lot
scepticism. The current framework in which they operate raises real doubts about their viability in the
long run.
For one, there are currently over 5,300 cryptocurrencies in existence available to a global economy of less
than 200 countries. 100 This inefficient situation will inevitably result in a vast number of cryptocurrencies
whittling away from non-use.
Cryptocurrencies are popular particularly because of the relative lack of regulatory oversight and
governmental intervention.101 Yet without the stability of fiscal and monetary control policies they are left
to the whims and caprices of the market forces making them very volatile.102 For speculators, this is good.

30
However, as a volatile medium of value exchange, it cannot be integrated into mainstream finance without
posing a significant threat to financial stability.
In as much as there are fears that this new technology will replace big players on the financial market
there is also excitement that it has the potential to be leveraged for greater success. The next chapter of
this thesis explores these incipient issues in greater detail.

31
REGULATION. SPECULATION. FRUSTRATION.

3
There won't be a competition between digital and non-digital currencies. Every currency
will be digitized. The true competition is going to come at the monetary policy level.
.
Anthony Pompliano, Founder Morgan Creek Digital 103
Introduction: Chasing the Wind?
The financial crisis of 2008 left the global economy in a state of flux. Through consistent retrospection,
we keep finding new ways to remedy our past wrongs and stave off such outcomes in the future.
Governments and regulators now demand a greater level of transparency with respect to financial
innovation, taxation and cross-border transactions. Yet, recent technological trends threaten to defragment
the financial sector and disrupt the erstwhile market leaders. 104
In a phenomenon, which I refer to as a hare-snail race, (the regulators being the snails and the regulated
being the hares)- most data engineers and tech savvy individuals tend to be attracted to the more lucrative
deals offered by the private companies who need their assistance as opposed to the state. The resulting
scenario leaves most of the brightest and best with the private companies whose main interest is to develop
cutting-edge technology that will bring them even more profits.
With both the human resource and the profit motivation influencing their ingenuity they start off the race
towards technological advancements like a hare while their regulatory counterparts who have not been
able to attract as many tech smarts try to catch up (if they even try at all) at a snail’s pace.
The obvious solution would be to provide better incentives than the private market has to offer to these
very rare technological gems, but alas, the government’s purse is ever the quintessence of Lionel Robbins’
concept of meeting a multifaceted assortment of ends with pitifully scarce means.
The exponential growth of disruptive technologies like blockchain within a relatively short period of time
has also made it difficult for the relevant socio-economic and legal modifications to catch up rendering

32
regulation outdated, almost immediately. Yet, history warns of the tendency of regulators to over-regulate
crippling start-ups, stifling innovation and furthering rent seeking objectives.105
Under-regulating, on the other hand, is also bad for the economy exposing it to a higher risk to be used as
a vehicle for felonies and tax evasion. Regulation must therefore be optimal but with the challenges posed
by the blockchain technology coupled with the vast potential of the Internet in which it thrives, the
conventional method of enacting laws and ensuring compliance may just be akin to chasing the wind.
The race for regulation
In recent times, regulators and policymakers around the world have become increasingly interested in
bringing cryptocurrencies and blockchain technology within the scope of regulation. Some jurisdictions
have attempted to formulate a detailed definition for the asset class. Most have opted for broader, more
technology-agnostic definitions that leave room for wider interpretations. Perhaps, taking the latter
approach may place states in a better position to regulate the evolution of this technology in the midst of
uncertainty.
The move towards regulation began with concerns for cryptocurrencies being used as a means to evade
taxes, finance terrorist activities and money laundering schemes.106 Further concerns were raised when
elaborate Ponzi schemes involving cryptocurrencies were used to defraud others.107
In addition to the nascent stage of the technology itself, as a virtual currency there are operational risks
of being an unregulated and unsupervised trading platform; cybersecurity risks of hackable trading
platforms and virtual currency wallets; speculative risks of extremely volatile price moves; and fraud and
manipulation risks through traditional market abuses of “pump and dump schemes,” insider trading, false
disclosure and other forms of investor fraud and market manipulation. 108
Amongst the initiatives currently being taken globally, the most widespread approach has been the
issuance of warnings in relation to the risks inherent to cryptocurrencies and ICOs.109 As a result, it is not
uncommon to see government-issued notices on the pitfalls of investing in the cryptocurrency market.
These warnings, often issued by central banks, were intended to educate the public about the difference
between actual currencies which are issued and guaranteed by the state and cryptocurrencies which are
not.110
These warnings particularly caution against the added risk of high volatility associated with most
cryptocurrencies and the fact that most organisations facilitating its sale are unregulated. Governments

33
emphasise that citizens who invest in such currencies do so at their own risk with no legal recourse
available to them if they incur losses. 111
Admittedly, warnings and public statements are effective forms of pre-regulation of new technologies in
the short term. However, the ever-increasing popularity of blockchain technology merits in-depth
regulatory guidance to provide legal certainty to blockchain actors and users. 112 Yet, the extra-territorial
potential of cryptocurrencies to anonymously be used as a medium of exchange without restrictions by
any centralised authority or regulator has massive implications for financial growth which cannot be
ignored. 113
Ironically, some countries have opted for a laissez-faire approach, leaving the public to deal with
cryptocurrencies at their own risk. Others have adopted a more prohibitive stance and publicly decried
cryptocurrencies altogether.114
In Algeria, Bolivia, Morocco, Nepal, Pakistan and Vietnam, a ban has been imposed on all activity
involving cryptocurrencies. In Bahrain and Qatar, a slightly different approach has been adopted. The
citizens are barred from engaging in cryptocurrencies locally. However, they are permitted to trade outside
the national borders. There are also those that impose indirect restrictions by barring financial institutions
within their borders from facilitating transactions involving cryptocurrencies. These include Bangladesh,
Iran, Thailand, Lithuania, Lesotho, China and Colombia.115
Countries like France and Switzerland have decided to take the bull by its horns and are grappling with
attempts at cryptocurrency regulation the best way they can.116
For instance, in Australia, Canada and the Isle of Man, laws have recently been enacted to bring
cryptocurrency transactions and institutions that facilitate them under the ambit of money laundering and
counter terrorist financing laws.117.
There is still a limited number of countries who regulate ICOs. ICOs are used to raise funds for
cryptocurrency related projects. In countries like China, Macau and Pakistan cryptocurrencies have been
banned altogether. 118
There are also those who assess the individual coins in order to determine how regulation should be done,
a move inspired by novel coins like Ripple.119
In New Zealand, for instance, the regulation differs depending on whether the token offered is categorised
as a debt security, equity security, managed investment product or derivative. Again, in the Netherlands,

34
the rules applicable to a specific ICO will depend on a case by case assessment on whether the token
offered is considered a security or a unit in a collective investment. 120
Countries like Spain, Belarus, the Cayman Islands and Luxembourg have also decided to embrace the
innovation that cryptocurrencies present. While not recognising cryptocurrencies as legal tender, they
have begun to put in place an investor-friendly regulatory regime. 121
Others like Marshall Islands, Venezuela, Lithuania and the Eastern Caribbean Central Bank (ECCB) have
begun to explore ways of developing their own system of cryptocurrencies. 122
Belgium, South Africa and the United Kingdom appear to have taken the stance that the size of the
cryptocurrency market is too small to be the cause for sufficient concern and to warrant either regulation
or ban. This position has been taken notwithstanding that they have issued warnings to the public decrying
cryptocurrencies and letting the public know that they invest in such coins at their own risk. 123
Complexities and challenges
The technical complexity of cryptocurrencies is difficult to understand in its entirety. This understandably
results in a struggle to fashion out effective means of regulating what is not fully understood. Although it
remains a global issue, there exists the impracticality of achieving a global consensus on how best to
approach the issue of regulation.
Experts warn that the underlying financial innovation that has led to the popularity of cryptocurrencies
like bitcoin which is not backed by any real asset may just as well be a sword of Damocles hanging over
our heads.124
They reason that similar to the complex securitisation procedures that led to the global financial crisis of
2008, cryptocurrencies disguise risk and prevent effective monitoring and supervision of financial
transactions. 

Securitization is the process of pooling similar loans together and selling their cash flows to third party investors as securities — in short, transforming a
basket of illiquid assets (i.e. a loan or a receivables) into tradable securities, such as bonds or notes.

35
There are also further concerns that if the system were to fail because of highly skilled hackers with
quantum computers or crippled because of a destructive computer virus there will be dire consequences
for the global financial community who have come to depend so heavily on it over the last ten years. 125
As is often the case, the government will be called upon for support in alleviating the effects of a financial
crisis with taxpayers’ money. Therefore, it may prove expedient for the government to explore ways of
dealing with cryptocurrencies amidst the growing uncertainties and risks.
Anonymity: a feature or a bug?
Cryptocurrencies have the potential to provide a reliable e-cash method where parties can transact securely
without having to know personal details of each other. Yet, this feature presupposes that parties who
transact may not be interested in having each other's personal details or that the overall system will not be
better off if parties knew each other's details for record-keeping or investigative purposes into activities
like money laundering and terrorist-financing.
The main challenge to regulating cryptocurrencies is identifying the parties to a transaction because of its
anonymity. It effectively makes regulators blind whilst paving the way for criminal activity to go on
undetected in the name of ensuring privacy. For some pseudo-anonymous cryptocurrencies with great
effort and complex techniques the users can be unveiled.126
Yet, this process is considered too costly and complex to remain a lasting solution to this enigma. Although
attempts have been made to require platform providers for crypto-wallets to register their clients, the
authenticity of the details can easily be compromised. 127
The anonymity feature of cryptocurrencies makes it possible to enter into taxable transactions without
paying taxes. This makes them so attractive that some commentators have called them "tomorrow's tax
havens". 128 There are concerns that without this potential for tax evasion, the value of cryptocurrencies
will be greatly reduced .129
Territorial rules for extra-territorial problems
National laws generally have a jurisdictional limitation whiles the innovation of cryptocurrencies is global
in its scale and impact making any attempt at national regulation obsolete at its inception.130 The
intrinsically cross-border nature of cryptocurrencies, crypto markets and crypto players allows criminals
to transact from jurisdictions that do not have tight anti-money laundering policies.131 In October 2018,
Marshall Islands was warned by the International Monetary Fund (IMF) against issuing a state-backed

36
cryptocurrency if it did not strengthen its current anti-money laundering regime.132 Due to its extra-
territoriality any rule on cryptocurrencies must be applied internationally in order to have a significant
impact.133 There is currently no consensus on how states can collectively co-operate to resolve this issue.
There are many others like Marshall Islands who do not understand the international implications of
issuing state-backed crypto assets with loose AML implementation.
There is also a tendency for countries to resort to cryptocurrencies with tainted motives. Such
cryptocurrencies are usually set up in a way that makes them vulnerable to criminal uses. They may be
used as a way of masking financial instability or escaping international sanctions like in the case of the
Venezuelan Petromoneda.134
Banks are also employing the use of cryptocurrencies to circumvent financial sanctions. A typical example
involves four major Iranian banks planning to issue gold-backed digital currency in order to avoid a U.S.
led financial sanction.
The divisive war between the nations on the politico-economic landscape further complicates these
attempts at regulation. This regulatory divergence makes it difficult to gather digital information in order
to better understand the industry they intend to regulate. Global regulation, though ideal, does not appear
to be attainable because of conflicting political interests. Regional regulation, as seen with the European
Union, may be a more realistic attempt, but then again these rules can only go so far without unveiling
anonymous identities. 135
It is also difficult to know how to categorise cryptocurrencies for the purposes of regulation because it is
hard to tell whether it is income or capital gains for the purposes of specific activities involving them. A
typical example is with regard to determining the applicable tax bracket for these coins. There is still much
controversy on this issue.
No central intermediary in direct transactions
Under the existing AML Regulations for the European Union, convertible virtual assets traded for legal
tender are subject to Know-Your-Customer (KYC) obligations. However, trading amongst exchangers is
structurally different from a direct transaction on a blockchain network. Such a transaction does not
involve a central intermediary that verifies the identities of the traders and monitors suspicious
transactions. The network represents traders by randomly generated signature numbers. This means that
in order to uncover a trader, the secret code of letters and numbers which cryptographically corresponds

37
to the signature number must be deciphered under a mathematical algorithm. This system effectively
makes any attempt, such as KYC obligations, non-functional without the full co-operation of the traders
involved.
Sophisticated masking tools
The open publication of blockchain transactions on the internet does not provide much assistance to the
challenge of regulation. This is further complicated by the existence of tools specifically developed to
mask the nature of the information presented. There are software tools that obscure the path of the
transaction and make it impossible to trace. The dark web also allows traders to make exchanges without
exposing their Internet Protocol (IP) addresses. This means that even in the unlikely event that regulators
succeed at mainstream regulation, all their efforts can easily be skirted by these sophisticated tools. Yet,
this phenomenon is not entirely new.
The Benefit of Hindsight
The advent of cryptocurrencies may just be another instance of history repeating itself. A similar debate
existed with the advent of the Internet of information with particularly polarising views on the question
of network sovereignty. Great thinkers like John Perry Barlow, reasoned that the current form of the
Internet is ungovernable and should remain as open as possible. He believed that it was not only
impossible to regulate the Internet but that it was better for it to not be regulated.136
Through the benefit of hindsight, we now know that this is not entirely the case because not only is it
possible to regulate the Internet but it is also desirable in spite of the erstwhile seemingly insurmountable
challenges. Nonetheless, this debate revealed deeper questions compelling us to re-examine generally
accepted concepts such as the concept of territorial sovereignty in an increasingly global and inter-
connected world. David Post, a professor of law at the University of Georgetown argued,
"'[States] are mapping statehood onto a domain that doesn't recognize physical boundaries…When 150 jurisdictions
apply their law, it's a conflict-of-law nightmare.' 137
Nonetheless, hindsight has also revealed a fundamental flaw in a regulatory approach that does not take
into consideration the development of technological tools to enforce them. A classic example is the use of
Virtual Private Networks (VPNs), and the Dark net to undermine territorial attempts at regulation. These

In the 1990s, John Perry Barlow wrote an essay entitled “A Declaration of the Independence of Cyberspace”, where he made a case for governments to stay
out of the internet. Though much of it has been disproved, the ideas in his work remain relevant to ongoing debates about the future of the Internet.

38
advancements have forced us to accept that with increasing technological complexity, mere prohibitive
words as a regulatory approach have a very little chance at producing even a semblance of a desired
outcome.
Yet issues of network sovereignty that came with the rise of the Internet threatened state security, law
enforcement, privacy and autonomy over the use of data, issues we are still battling today.
It is for this reason that Russia created Roskomnador, its Federal Service for Supervision in the Sphere
of Telecom, Information Technologies and Mass Communications in December 2008. In 2015, Russia
enacted another law to provide it with even greater oversight. The law itself stipulates that any personal
data collected from Russian citizens online must be stored in server databases that are physically located
in Russia.
A similar move was made with respect to the Golden Shield Project (sometimes known as “the Great
Firewall of China”). It prevents those with a Chinese IP address from accessing certain banned websites
inside the country. Within China people are prevented from accessing sites that are deemed to be
problematic. This created tension between the netizen community and the government but this was quickly
sidestepped by a VPN.
To date, there is still no way that a government could prevent every citizen from accessing banned content
by means such as VPNs.138 It is the most basic and fundamental work-around for restrictions based on
network sovereignty. It enables the netizen to access a different server through a VPN. There are websites
online which provide this for free or at a relatively low cost. VPNs greatly limit how governments can
enforce network sovereignty and protect their cyberspace borders. 139
There are those who argue that the cryptocurrencies should be unregulated because regulating it will
reduce its attractiveness and slump its value. The argument goes to reason that cryptocurrencies provide
an alternative to the current financial system that is simpler, faster, more secure and more efficient with
the added benefit of ensuring privacy. Therefore, regulation will saddle the system with the same
bureaucratic bottlenecks that have made traditional banking complicated. 140
That being said, a solid regulatory framework remains crucial to the mainstream viability and
sustainability of cryptocurrencies in the long run. Some governments are already moving to require banks
and other financial institutions that facilitate cryptocurrency markets to conduct all the due diligence
requirements imposed under such laws.141

39
Without standards, the benefits of co-operation through enhanced networking created by compatible
systems will be greatly limited. Similarly, without ethical principles, the high risk of abuse and
exploitation will undermine the credibility of the technology and ultimately lead to its non-use. Again,
without good governance principles, businesses cannot mature into structured, stable and trustworthy
entities. Therefore, regulators must find the balance between enabling and stifling innovation by focusing
on creating standards as well as ethical and good governance principles.142

Fortunately, the open-source nature of most cryptocurrency projects is in itself achieving the goal of interoperability.

40
THE CPA FRAMEWORK

4
" I disagree with any rules that limit the nature of the ingredients in economic
models",
143
George Akerlof, 1984.
Introduction: To State or not to State?
John Law has been called “the founder of the correct theory of the origin of money”. He traced it to a
contract between men. A contractual theory of the origin of money is consistent with the idea that the
state’s authority in the financial sector is based on a contract between the inhabitants of a place to accept
a currency as legal tender.144
This state backing may be seen as a form of social contract. For a while it worked, until it did not. The
state is often accused of abusing its position in the financial sector and compromising its sanctity. This is
probably what inspired writers like Friedrich Hayek to question the role of states in the financial sector
and propose radical theories for the denationalisation of money.145
The following discussion suggests a balance between radically eliminating state involvement and refusing
to ignore the errors in human judgment, lack of foresight and corruption that the financial sector has
witnessed in the past at the hands of the state. To achieve this balance a framework is proposed that may
help to establish trust in the financial economy, limit the discrepancies resulting from human error in
monetary policy and leave enough room for state involvement in making value judgments as and when
necessary.
My approach suggests the possibility of dissociating cryptocurrencies from other crypto tokens by
guaranteeing their position in mainstream finance and providing relative stability. It draws from concepts
in market capitalisation, while recognising that economies like China do not ascribe wholly to capitalist
theories. Nonetheless, as will be observed, a socialist implementation or otherwise does not necessarily
undermine the potential effectiveness of this approach. Indeed, the approach only sets out a skeletal

41
framework worth considering in light of the issues arising in the financial landscape. It does not in any
way limit states in modifying the approach to suit their peculiar needs.
On the other hand, the approach does not completely endorse capitalist views at its core because it
advocates for a bottom-up approach within the boundaries of top-down regulation.146 Contrary to pure
capitalist views, it also supports state participation in order to maintain the integrity of the system while
limiting their control through technological systems.
This framework is essentially a contribution to the widely held discussions on the future of our financial
economy in the wake of a technology as disruptive as blockchain. Like Hayek, I agree that there is a
knowledge gap that will always continue to exist and like him, I dare to conceptualise a new reality
anyway. 147
Creating the CPA coin
The CPA framework as envisioned by the present author challenges widely held views that since
cryptocurrencies were designed to be decentralized, the states should not interfere. These views are based
on a popular misconception that the decentralised nature of cryptocurrencies is a deliberate attempt to
eliminate banks and other key intermediaries on the financial landscape. 148
This approach has three main objectives: 1) Create the coin. 2) Integrate the coin. 3) Regulate the coin.
The ultimate aim of this approach is to establish a framework for cryptocurrencies to thrive within the
healthy boundaries of regulatory oversight and prudential supervision.
It involves the creation of an objectively superior coin with features that allow it to retain its decentralized
nature while maintaining state control over mining and access. Through active integration by the state of
this coin into mainstream finance, the coin will gain popularity on a level which supersedes that of the

Commenting on the imperfect nature of knowledge Friedrich Hayek wrote “But the "man on the spot" cannot decide solely on the basis of his limited but
intimate knowledge of the facts of his immediate surroundings.” at p. 524-525.

A top-down approach is where an executive decision maker makes the decisions on how something should be done. It is disseminated under their authority
to lower levels in the hierarchy who are to a greater or lesser extent bound by them.
A bottom-up approach is the piecing together of systems to give rise to more complex systems, thus making the original systems subsystems of the emergent
systems.

42
current cryptocurrency market leaders.  By out-competing the market leaders on the cryptocurrency
market, it is hoped that a new regime will be ushered in to replace the current framework of
cryptocurrencies. After the new coin is established, further steps may be taken to discourage participation
in coins that do not conform to the standards required to ensure the health of the financial economy through
regulation. Invariably, this approach is likely to have a higher chance of success on a sufficiently
international scale – a regional, continental and dare I say, a global level.
Admittedly, there is a technological aspect to the success of the CPA framework that cannot be ignored.
This is understandable in light of the fact that the issues that are springing up are as a result of technological
innovation requiring a solution that lies not only in the law but in redesigning the technology to conform
to the law for the health of the financial economy.
The present author posits a framework for an objectively superior coin that is scalable, stable, multi-
dimensional, distributive from the bottom-up within the structural confines of top-down regulation- the
CPA coin.  The idea that the CPA coin can be designed to self-automate based on objective parameters
and econometric valuations as opposed to arbitrary manipulation is worth exploring. For instance, Bitcoin
has embedded in the technology an inflationary control mechanism that halves the reward of miners after
a specific number of blocks are mined. 149 This characteristic may be improved to accommodate other
aspects of monetary policy while still retaining a degree of control, however limited, to account for
unforeseeable eventualities.
The CPA framework also envisions the possibility of isolating the technical chain of activity in a
cryptocurrency ecosystem to identify viable points for regulation. These layers include the platform level
(the blockchain), the application level (the tools that run on the platform such as cryptocurrencies) and
the overall blockchain ecosystem (the ledger or ledgers).
Since, it is possible to centralize the mining of the currency as well as access to the currency while keeping
the rest of the system decentralised we can deploy both vertical and horizontal regulation mechanisms to
achieve the optimum standard of regulation we need.


For the avoidance of doubt, the CPA coin is not a particular coin but the name given to the recommended ideal framework under which the CPA Framework
can operate.

43
Through the vertical regulation of the blockchain market itself, the chain of command between the
different intermediary services is regulated without regulating the cryptocurrencies per se. Such a form
of regulation is further justified in view of the reality that a rising number of cryptocurrency transactions
are not performed “on-chain”, i.e. directly on the blockchain network, but “offchain” via internal logging
systems controlled by centralised cryptocurrency exchanges, wallets and payment companies.
Regulation could also be horizontal through concentration on the hierarchy of identiﬁable layers involved
in the technical structure of such applications. This approach envisions the possibility of combining
cryptocurrency with AI to fashion out a coin with features amongst which is an ability to self-regulate
while providing limited access for human intervention in times of emergency or as may be necessary for
implementing monetary policy.
Indeed, innovative attempts have already been made by private companies like Ripple which designed a
centralised system for its coin. Also countries like China are exploring means to integrate a centralised
cryptocurrency through traditional banking channels. This may seem idealistic and counter-intuitive but
studies underway already reveal promising technological advancements that make this attainable.
Global co-operation in the integration and use this coin on an international level also provides an
interesting dynamic for achieving regulatory objectives. However, the technological consistencies of such
an innovation merits further research beyond the scope of this paper. The following sections however
discuss two coin models – the RSCoin Model and the Social Bitcoin model, that may serve as a useful
springboard in this regard. The aim of these illustrations is to show the theoretical feasibility of using
technological innovation to fashion out a coin with multidimensional features like the Social Bitcoin and
the centralised control features like the RSCoin with the aim of integrating the ideal attributes of the
objectively superior coin necessary for the success of the CPA framework.
The RSCoin Model150
The framework of the RSCoin was conceived in response to the Bank of England’s investigations into
cryptocurrencies. It was created by researchers from the University College London as a cryptocurrency
framework that is different from other cryptocurrencies in that the supply is centralised. The Bank of
England sought to explore whether central banks should themselves make use of such technologies and
issue digital currencies.

44
It provides the government with a transparent transaction ledger, a distributed system for maintenance and
a globally visible monetary supply. The model is suitable for adoption by central banks in this respect.
The ultimate goal of the RSCoin is to achieve not only a scalable cryptocurrency that can be deployed and
whose supply can be controlled by one central bank but also a framework that allows any central bank to
deploy their own cryptocurrency.
How does RSCoin work?
The RSCoin separates the generation of the money supply from the maintenance of the transaction ledger.
Unlike in decentralised blockchain-based transaction ledgers, maintained through proofs-of-work that also
serve to generate a monetary supply, the cryptocurrency framework of the RSCoin allows central banks
to still maintain complete control over monetary supply. In doing so, monetary policy can be implemented
allowing for stronger transparency and auditability.
The proposed distribution of this coin is not like traditional fiat money. Instead, it relies on a distributed
set of authorities, or mintettes, to prevent double-spending in a simple and fast mechanism. The RSCoin
works on the basis of permission allowing the responsibility for transaction validation to be given to
trusted third parties. It decouples the generation of the monetary supply from the maintenance of the
transaction ledger with a distributive design that allows for maintenance and a globally visible monetary
supply.
Most critics cite scalability as one of the main challenges for why cryptocurrencies cannot be deployed on
a large scale. For instance, Bitcoin can handle seven (7) transactions per second whereas PayPal handles
over 100 and Visa handles between 2,000 and 7,000. This lack of scalability is due to the sheer
computational energy to be harnessed to validate blocks before they are added to the chain – the proof-of-
work. 151
The RSCoin addresses some of the scalability issues of fully decentralised currencies showing promise
for the development of cryptocurrencies with better scalability features. By adapting a variant of the Two-
Phase Commit protocol- a higher level of scalability is possible with 2,000 transactions per second and 30

The proof of work process helps to manage the ledger and makes double spending attacks excessively expensive because it constantly has to broadcast results
on the network.

45
miners. This protocol involves a specialised consensus that coordinates commit or abort processes in a
distributed transaction.
In this regard, it is similar to Ripple’s validation model where the underlying consensus protocols used sit
somewhere between a fully decentralised setting in which proof of work is based on a Nakamoto
consensus and a fully centralised setting. This is what makes it possible for monetary policy to be
transparent and allows for direct access to payments as well as transfer of value. It also supports
pseudonymity and the benefits from innovative uses of blockchains and digital money.
However, the framework does not define a consensus mechanism or consider a particular centralised entity
to be responsible for the generation of monetary supply.152This is left open-ended. Again, interaction with
the RSCoin can be similar to the interaction with existing cryptocurrencies as the structure of the
blockchain is nearly identical.
This research project demonstrated, both theoretically and experimentally, the benefits of a modest degree
of centralization, such as the elimination of wasteful hashing and a scalable system for avoiding double-
spending attacks.
The Social Bitcoin153
The Social Bitcoin is intended to be a self- governing system built on trust and geared towards diversity
and dynamism. Information is routed using social and technological connections on multiple networks
simultaneously rather than relying on service providers. Multiple dimensions represent different
externalities which foster the ability of complex dynamical systems to self-organise.
Building on this framework, appropriate feedback and coordination mechanisms could increase resource
efficiency and lead to a more sustainable, circular co-operative economy. Such a diverse digital landscape
is expected to create business opportunities for individuals and companies.
How does Social Bitcoin work? 154
The Social Bitcoin is a hyper-connected multidimensional financial framework with bottom-up control.
The proponents believe there is a fundamental flaw in our current financial system that the advent of
cryptocurrencies can help remedy.

46
The model proposes one currency with multiple incentive dimensions to represent socio-digital capital.
Implementing these incentives in a bottom up way would then allow economic systems to self-organise
and promote creativity, innovation and diversity.
Its proponents believe that a top-down control of our financial system is doomed to fail in an economy
which is becoming increasingly hyper-connected. This is attributed to the linear nature of the current
monetary systems which have only one control variable being interest rates making it difficult to control
and nearly impossible to predict. Utilitarian thinking has contributed to this linear understanding of money
because it provides a measurement specific quantitative as opposed to qualitative standard for value. This
unidimensional design is compromising our ability to solve problems in a society where the systems are
interdependent.
As a multi-dimensional system, it offers many success opportunities for individuals, companies and states.
This system will help develop its resilience and sustainability and help unleash creativity and innovation.
The incentive to mine Social Bitcoins could sustain digital diversity, which mitigates the risk of totalitarian
control by powerful monopolies of information and can create new business opportunities needed in ties
where a large fraction of current jobs is estimated to disappear due to computerisation.
The Social Bitcoin also has a reputational element intrinsic to its use. Its proponents believe it is possible
to design the coin to have one dimension for the investment in financial products and the other in real
ventures that can sustain our economy in line with socially responsible investment objectives. They further
suggest that these two dimensions may further be exchangeable based on a conversion rate. It is hoped
that further advancement in technology may even allow for a default tax dimension to be incorporated
into the multi-dimensional framework that the Social Bitcoin presumes is possible in the search for an
ideal coin.
Exploring RegTech alternatives
Regulatory Technology (RegTech) also known as SupTech in supervisory cases, presents a potential
solution for the effective incorporation of technology within decision-making structures. It combines
technological elements with regulatory objectives to provide custom-made solutions to the challenges
posed by regulation. An example of such implementation by a regulatory body is the Bank Verification
Number (BVN) which was launched in 2014 by the Central Bank of Nigeria. The BVN serves an effective
and cost-saving tool to meet KYC requirements. It contains a unique identification number which uses
biometric information to identify customers at any Nigerian financial institution.155 Advanced Neuro-

47
Linguistic Programming (NLP) is increasingly being employed to compare privacy policies of firms
against the regulations policies, assess the readability and complexity of the firm's policy, identify third
parties with whom private data is shared and verify whether users have given their explicit consent.156
Blockchain, as the most innovative type of DLT so far, presents a promising underlying technology for
RegTech solutions.157 By combining the technology with other technologies such as AI, the potential can
be massive. AI can be divided into distinct applications such as machine learning, cognitive computing
and natural language processing. With particular focus on Machine Learning (ML) which uses algorithms
based on complex statistical theory and mathematical optimisation, it is possible to design sequences of
actions, solve complex computational problems and automatically optimize processes through experience
with limited or no human invention.158
The underlying computer science, where the target goal is defined and the steps to reach that target is
learned by the machine itself by training (gaining experiment), also enables the software to learn either by
itself or supervised in order to predict and analyse data. The computer software is able to review large
amounts of data and further identify patterns for unusual activity. It is progressively used as a tool to
prevent fraud through automated monitoring and has significant potential to aid in regulatory compliance.
159
Fortunately, Regulatory Technology (RegTech) companies have already started springing up worldwide.
For financial crime compliance alone over a 100 companies offer solutions worth exploring.160 Indeed,
RegTech's global market revenue is already expected to obtain 7.2 billion dollars by 2023. 161
Yet it should be noted that the facilitation of regulation through RegTech might give incentives to
regulators that could produce undesirable and inefficient outcomes for society. The increase of regulators
efficiency regarding their monitoring and supervisory activities could lead them to produce more
regulation. As a consequence, the law would become more and more complex with the potential to make
humans entirely dependent on the use of technology.
Since information has become the main source of power and social development, RegTech can be
considered as an important analyst that could prevent and even solve market failures by analysing and
controlling collected information in real-time. Through early warning systems RegTech could contribute
to financial stability and thus help prevent the break out of another financial crisis

48
Nevertheless, due to the tendency of national regulators to implement RegTech solutions in an

independent and isolated manner leads to further complications on the global level arising from a
sophisticated web of regulatory contradictions and contradistinctions. The resulting lack of uniformity and
cooperation in regulatory standards between legal systems and among national regulators could lead to a
dangerous worsening of the already chaotic cross border regulatory situation.
Such a developed legal diversity could have the opposite effect of what RegTech is supposed to do,
increasing transaction costs and asymmetry of information as well as legal uncertainty therefore lowering
economic trade and social welfare.
A single error in the RegTech system could create a systemic risk to the economy or even globally and
poses further complexities when it comes to the question of liability. It could lead to a distortion that only
follows strict legal rules and focuses on mere compliance without a principal based system. It is for this
reason that this paper argues that, although a complete dehumanization is unlikely it is also undesirable.
In this writer’s opinion access and control of the authentication of the identity and the capacity of the
players and other operators who access and participate in a blockchain platform will always be necessary.
162
This access should be limited to exceptional cases and should not be used arbitrarily.
There are also real financial concerns with deploying such technological devices. Nonetheless, in the event
that the government does find the money to pay for top professionals, it may prove worth their while to
focus, right from the start on the implementation and long term consequences of the system they build.
This can be achieved by frequently running controlled tests with risk simulators using sandboxes. As
noted earlier, it might also be worth considering a scope wider than national inter-regulator cooperation
and collaboration. This may prove useful in the harmonisation of regulatory responses to emerging
technological challenges at a global level.
Integrating the CPA Coin
While it may be possible to model a cashless society without necessarily using blockchain technology
,this is not what the CPA coin framework sets out to do. The CPA framework recognises that the role of
intermediaries like banks in transactions like international money transmission has inspired a huge chasm

A sandbox is a safe space in which innovations can be tested and their impacts examined with low risk while being in isolation.

This is the evolving trend in countries like Sweden.

49
in the conflicting interest between states and the crypto-using community. By integrating the coin with
the features proposed, the framework is an attempt to reconcile these competing interests by redesigning
the same technology to accommodate the concerns of both.
The United Nations recognizes 180 currencies worldwide.163 There were over 5,300 cryptocurrencies in
existence as of April, 2020. 164. This implies that an even distribution of cryptocurrencies per country
would result in an estimated 1:30 country to cryptocurrency ratio. This is further compounded by the
extra-territorial nature of cryptocurrencies. As can be expected, not all the cryptocurrencies are thriving.
The current market has managed to produce too many goods of similar nature with the current market
leaders, Bitcoin and Ethereum, mainly thriving based on being the first in time and so the most popular. 
Since the current cryptocurrency regime thrives on popularity, the less popular a cryptocurrency is, the
less value it has.165 From a purely economic perspective, it is possible to deduce that rational, free and
self-interested persons will gravitate towards a competing product which increases their utility at a lower
risk. Therefore, ceteris paribus, the Homo Economicus will gravitate towards another cryptocurrency
which offers greater utility than the existing cryptocurrencies.
Under the proposed framework, ‘integration’ implies strategically introducing coins created based on the
proposed CPA coin framework into the market with the added security of state resources backing it.
Depending on the peculiar implementation strategy a country may opt to adopt, it may either be pegged
to the value of the existing fiat currency or determined by other extrinsic factors. A successful
implementation of the CPA coin which can offer price stability and further security is a potential market
leader because it addresses some of the issues inherent in the current cryptocurrency system.
Public sensitization is also necessary at this stage to concretise trust in the system. Through public
education and a wider use of the CPA coin by validating it as a mode of payment for everyday transactions,
it will over time gain more popularity than the existing cryptocurrencies. State participation also places
them in a better position to integrate the CPA coin by making it more accessible and useful to the general
public. Once there has been a shift in participation in the current cryptocurrency regime, the value of those
cryptocurrencies is expected to slump massively with reducing popularity.


50
State-backed digital currencies have been attempted without success by countries such as Ecuador,
Venezuela, Tunisia and Senegal. In the case of Ecuador, dinero electrónico was rolled out as a Central
Bank Digital Currency (CBDC) to support the Ecuadorian dollar based monetary system. 166 It was not a
cryptocurrency. The main reason for its collapse has been attributed to the inability to attract enough active
users. This stemmed from the general reluctance of the people to accept another currency as well as the
lack of trust in the Ecuadorian Central Bank. This goes to show that, among other things, the underlying
financial struggles in Ecuador ultimately led to the unsuccessful launch of its state currency.
Venezuela also tried to use the Petromoneda (Petro) as a means of masking their financial struggles and
avoiding sanctions. The underlying impure motives behind the implementation of the Petromoneda
attracted counterattacks by the U.S government which contributed significantly to the overall rejection of
the Petro. 167
Similarly, the launch of the Estcoin by Estonia was crippled by the immediate reaction of the European
Union categorically prohibiting any member state from introducing its own currency. Other state-backed
cryptocurrencies like Tunisia’s Moneta and Senegal’s eCfa have barely broken through the market for the
same lack of effective implementation. 168
Admittedly, these failures hint at the possibility of the CPA framework facing real challenges upon
practical application. These challenges include the political differences of opinion amongst states, the
avarice of corrupt government officials who may try to manipulate the system for their private gain, poor
implementation and the general distrust of the government. Therefore, the roll-out and implementation of
this strategy must be timely, balanced and ingenuous. It must also take into consideration the peculiarities
of each country and adapted to suit their needs accordingly. Apart from the fact that these attempts were
not executed within the conceptual context of this framework, through the benefit of hindsight it is possible
to evaluate their respective methods of execution to question why they did not succeed. The following
section explores in greater detail some of these peculiarities in an attempt to provide deeper insight into
these practical challenges noting the varying strategies for roll-out and implementation as a guide for
subsequent projects.
The Crypto-yuan~China
China plans to launch the crypto-yuan on Blockchain Service Network (BSN)- its national blockchain
platform .169 According to Mu Changchun , the head of the Chinese central bank’s digital research
institute, this digital currency dispels myths that cryptocurrencies were by nature decentralised. It has been

51
designed in stark contrast to the decentralised aspirations embedded into existing cryptocurrencies such
as Bitcoin.170
This crypto-yuan or Digital Currency Electronic Payment (DC/EP) will have the standard ability of
facilitating payment transactions. It is also designed to have a “touch and touch” feature which permits
transfer by touching mobile phones. These transfers can be made without internet connection on devices
with Near Field Communication (NFC) technology or Bluetooth. Offline transactions may also be saved
and accounted for whenever the users get online. 171
The BSN, as a blockchain payment system with its centralised design, can process up to 300,000
transactions per second. The currency will be issued in two main stages. The first stage is from the Central
Bank to commercial banks who will act as DC/EP issuers. The second stage envisions the commercial
banks putting the currency into circulation. This is akin to the issuance of traditional fiat money. DC/EP
issuers can exchange the crypto-yuan with other fiat currencies or assets.172
The DC/EP will use a two-tiered architecture that allows licenced third party payment institutions and
banks to participate in the secondary issuance of digital currency. Again, this is similar to the structured
stock exchange market in being both primary and secondary. All licensed participants will have a reserve
account with the People’s Bank of China (PBOC). 173
Terry Liu, CEO of VoneChain Technology observes three main differences between DC/EP and existing
currencies. Firstly, he notes that the underlying source of value is different because the crypto-yuan, unlike
Bitcoin and other cryptocurrencies, is not controlled by a decentralised algorithm. It is government-
sanctioned. 174
Secondly the method of distribution is exactly like the release of traditional paper money. This method
of distribution may prove to be counterproductive because it places banks in the same position of rent-
taking middlemen that incited public disapproval with the present financial system in the first place. 175
Thirdly, because the ledger does not operate through mining nodes like Bitcoin, it is faster. The currency
is not expected to have the time lags making it practical to use in everyday situations. 176 It will also be

Near Field Communication is a set of communication protocols for communication between two electronic devices over a distance of 4cm or less. It offers
a low-speed connection with simple set up that can be sued to bootstrap more capable wireless connections. Source: Wikipedia.com.

VoneChain Technology is a blockchain consultancy based in Shanghai working closely with various government agencies on projects related to the rollout
of the crypto-yuan.

52
pegged to the yuan making it lose the fractionalization feature of most cryptocurrencies but also giving it
a more stable property. 177
PBOC believes a domestically issued digital currency supported by the government and expressed in the
national unit of account can help limit the issue of private currencies and reduce the risks of financial
instability. 178 This is consistent with the central focus of this paper to the extent that reducing the risk of
financial instability is a regulatory concern. Like the present author, China believes a new cryptocurrency
will counteract the current framework of existing cryptocurrencies.
One of the main challenges perceived by the PBOC will be to ensure that the crypto-yuan enjoys the same
sovereignty as the fiat yuan. As a result, strong liquidity guarantees have been integrated in the rollout and
implementation of the currency. On March 24, 2020, the PBOC is reported to have completed the
development of basic functions and began drafting laws to implement the new technology nationwide. 179
It is expected that China may gain a competitive advantage by being the first major economy to release a
government backed digital currency at this scale. 180 In an almost cashless economy like China, consumers
are not expected to notice the transition. In fact, the Chinese are so used to mobile payments that the
government has had to remind vendors that it was illegal not to accept paper money. 181
It is hoped that the crypto-yuan will significantly expand financial infrastructure availability in the
country. On the international front, it is also hoped to improve the efficiency of cross border payments.
The PBOC also intends to use the coin during the 2022 Olympic Games to be held in Beijing.182
The PRC started developing the concept of the digital yuan as early as 2014. Tests were conducted in late
2016 with the eventual report announcing that these trials helped to reduce circulation costs, increase
transparency and curb money laundering and tax evasion. 183
The Chinese keep emphasising that their motivation is to protect their monetary sovereignty and legal
currency status. They also want to decouple from the US-dollar dominated financial system because when
they trade with other countries and use the US dollar the US is the one who actually benefits from the
trade. They believe the currency has the potential to give them move autonomy over trade and less
exposure to the USA. 184

Competing projects like Libra and Ton have been held back and forced to change by Chinese regulators.

53
While, I must commend this bold attempt by China, I have my reservations about their method of
circulating their currency through traditional fiat currency methods, because it reinforces the role rent-
taking institutions like banks rather than diminishing it. This may affect its attractiveness to the general
populace and ultimately the general perception of it being regarded as an objectively superior alternative
to the current cryptocurrency framework. Nonetheless, if China succeeds, other states may reasonably be
expected to follow suit with more confidence. On the other hand, if they fail, we will learn what not to do
and why with a greater degree of certainty.
The Petro ~Venezuela
By decree in December, 2017 Venezuela decided to issue their own cryptocurrency, the petro. The
Venezuelan government stated that the petro will become legal tender for all transactions involving
government institutions within 120 days of April 9, 2018.185
As quoted in the Organisation of the Petroleum Exporting Countries (OPEC) reference basket, it was
estimated that one petro would be backed by a purchase sale contract for one barrel of Venezuelan oil.
The petro was also backed by other commodities including gold and gas.
The decree provided for how the petro would be operated, its issuance, mining and trading in Venezuela.
It is also governed by the rules of the Venezuelan Civil Code on purchase and sale.186 It also established
the Superintendencia de los Criptoactivos y Actividades Conexas Venezolana (Superintendency of
Venezuelan Crypto-Assets and Related Activities) as the supervisory authority of cryptocurrencies.187
The decree stated that the holder of the petro will be able to exchange the market value of the crypto-asset
for the equivalent in another cryptocurrency or in bolivares- the traditional currency of Venezuela) the
188
market exchange rate published by a national crypto-asset exchange house This implied that anyone
who holds a petro would also own a virtual wallet over which the holder assumed the responsibility as
well as the risks associated with custody and management.189 The decree also allows an initial coin
offering to be made through auction or direct assignment by the Superintendency of Venezuelan Crypto-
Assets and Related Activities.190 It raised about $735 million on the first day of its presale but it was not
expected to attract significant investment. 191
The petro did not achieve its objectives set out by Nicolás Maduro to “advance in issues of monetary
sovereignty”, and make “new forms of international financing” available to Venezuela. 192 As stated
earlier, the petro was meant as a political ploy to bypass economic sanctions. This led to many considering,

54
the petro nothing more than a scam run by a corrupt government. Furthermore, it put the coin under direct
political attack by the U.S. government which used all its powers to target the oil-backed coin, going to
the extent of banning American citizens from investing in it. The U.S. Treasury Department also imposed
sanctions on a Russian bank which was the primary international institution financing the launch of the
petro. 193
Other countries like Russia have also considered issuing a cryptocurrency to circumvent US economic
sanctions. The US has countered this threat by setting up a body specifically targeted at crippling this
move at its inception. Nonetheless, the current Russian President, Vladimir Putin, has a publicly expressed
doubts about a successful implementation of the currency. 194
Apart from its less than noble motives in using the currency to evade U.S. sanctions, the overall health of
its financial economy may have also played a role in influencing its acceptance by the Venezuelan people.
A review of the implementation Venezuela’s petro suggests that the more stable an economy is, the more
likely it is for the integration of a new coin to succeed.
The IrishCoin ~Ireland
The IrishCoin launched on May 17, 2014 was designed predominantly for the Irish tourist sector among
the Irish diaspora in the US, Ireland, and globally. Its tourism market is worth over 3 billion dollars per
year to the Irish economy. Ireland has harnessed the use of a decentralized digital currency for the
promotional aspects of tourism: providing the coin as a discount token vehicle, a tourist organizational
branding opportunity, and for the promotion of the Irish tourism industry. This uniquely sets the IrishCoin
apart from the plethora of cryptocurrencies being designed generically as alternatives to payment
systems.195
IrishCoin distribution started initially with take up from online Irish social networks like Liveireland.com
with over 12,000 US and Irish members eligible to download digital wallets with IrishCoin. IrishCoin will
also be distributed to businesses as a discount token on purchases where IrishCoin is accepted particularly
in the hospitality and entertainment industries. 196
This industry specific approach by Ireland is interesting as it allows them to test run a state-backed
cryptocurrency without risking the sanctity of their financial economy as a whole. It also provides an
experimental implementation strategy for actively exploring cryptocurrencies in a practical way without
unnecessarily threatening the financial stability of the economy if it were to fail.

55
The Sovereign ~Marshall Islands
Passed on February 26, 2018, the Sovereign Currency Act provided for a digital decentralised currency
that will be used as a legal tender in the Republic of the Marshall Islands (RMI) 197. They believed it was
another step in manifesting their national liberty. 198 This cryptocurrency was started in a partnership with
the financial technology start-up. The plan was to introduce it by an ICO. Circulation was slated at 24
million with a 4% growth each year. The Sovereign was designed to be decentralized while using a
“Yokwe” protocol to ensure anonymity while lining each account with a verified government identity that
is both encrypted and private. 199
David Paul, Minister-in-Assistance to the President of RMI said that,
“It was clear that there was a huge market need for a non-anonymous blockchain system that can operate within a
regulated environment.” 200
The SOV was intended to be complementary to the US Dollar. The government has indicated that it has
no plans to completely replace its fiat money in the near future. A token was expected to be around $100.
The SOV was to be subject to the framework of a regulated banking environment while allowing for
limited anonymity. One observer noted that this was similar to going back to the days of the gold standard.
The government intended that people who visited the island will eventually be able to buy the SOV
through exchanges and part of the proceeds from the ICO, used to help finance the Marshall Islands’
National Trust Fund. 201
However , in September, 2018, the IMF released a report warning the RMI not to launch its own
cryptocurrency.202 They were concerned that proper governance on the cryptocurrency framework was
not adequate. 203 204 They also felt that the cryptocurrency was a second form of legal tender and that the
revenue from the ICO would be smaller than expected. 205 The IMF may also have been influenced by the
fact that the RMI has a bad reputation among the financial services industry and regulators as a tax haven
and a scene for money laundering. 206
This intervention by the IMF provides further insight into the practical challenges of implementing a coin
on the national level with international consequences. Since this warning, progress on the Sovereign as
stalled. Moreover, its decentralised design further implies that even if the SOV was circulated, the RMI
cannot control its monetary supply.

56
The Estcoin_Estonia
Kaspar Korjus, the Managing Director of Estonia’s e-Residency program has indicated plans by Estonia
to launch its very own cryptotokens, the estcoin. He believes that estcoins could greatly benefit Estonia
and its international e-residents. The cryptocurrency may potentially create an impressive digital
investment fund particularly since it is government-supported. This proposal was also reinforced by the
founder of Ethereum, Vitalik Buterin. According to Buterin, Estonia’s current digital development and
infrastructure will be further enhanced by the launch of an official cryptocurrency and could provide new
ways of incentivising investors to support a success of a country. 207
Estonia also believes that an ICO within the e-Residency ecosystem will be beneficial beyond the
economic aspect uniting e-Residents on a more collective front. Buterin also suggested multiple formats
for issuance simultaneously allowing them to be used inside of smart contracts and other applications.
However, the Estonian government has emphasised that the plan is not to replace fiat currency but only
experiment with a financial boost of their digital economy. The goal is to get feedback and gather thought
before developing the idea further. 208
The Estonians already have secure digital identities which is good for trading crypto assets in a trusted
and transparent digital environment. The secure digital identities and transparency will foster the sanctity
of the trading of crypto assets by rescuing the risk of counterfeiting or their illegal activities while
guaranteeing limited anonymity which can only be unveiled if regulators suspect foul play. 209
This implies that, the sale of the token is not possible to a non-Estonian citizen without disclosing this
secured digital identity. It is this tokenized-feature that distinguishes from all other coins because it does
not grant universal access. 210
There was also the concern that since the issuance of government bonds may create financial instability
in times of economic crisis, using the estcoins as financial investment instruments between the government
and holders of the instruments implies a long-termism that will make the growth of the economy
sustainable for the government and beneficial for the investors: a win-win. Invariably, this also implies a
lose-lose when things are not going as planned but that is in essence the impetus of risk-taking. It is also
an interesting concept because it allows for a greater participation in the financial health of the economy
by Estonians both within and outside of the nation’s borders. Though outside the scope of this paper, it
will be interesting to observe further updates in this regard.

57
The Paymon ~Iran
The Paymon will be backed by gold. It is the Persian word for covenant, Paymon or Peyman. It will also
back and tokenise the national fiat currency of Iran, the rial. The Paymon will be a national digital currency
mined by a selected group of private companies.211
The Paymon is based on the Stellar Lumes XLM network, an open-source codebase and reported to
initially be issued at a billion. The token will trade in special exchange offices. As a result of the imposed
sanctions, Iran is currently unable to access international payment networks such as SWIFT to enable it
212
to trade. During the first phase of the rollout only commercial banks will have access. In the second
phase, the coin will be traded by the Iranians in the country who are cut off from the global SWIFT
network.213
It is hoped that the Paymon will facilitate and accelerate the pace of domestic and cross-border transactions
since, its token can function like a wallet. The central bank of Iran is taking further steps to block the use
of unapproved cryptocurrencies as a means of payment.
Even so, this move by Iran has also been met with fierce opposition by its geopolitical rival, the USA.214
Similar to the Venezuelan petro, it was also created to circumvent sanctions targeting its oil industry and
the freezing of Iranian assets by the U.S, government. There is a slim chance of successful implementation
of this currency in the face of such opposition. Developments in Iran remain informative as an indicator
of the necessity for geopolitical stability in the integration of an objectively superior coin. Its phased out
approach in implementation may also provide further insights on the ways and means of introducing a
new coin.
Other note-worthy attempts
The J-coin, Link and the MTU coin ~Japan
Plans were being made in Japan to issue the J-Coin ahead of the Tokyo Olympics. It will supplement and
be pegged to the Yen in a 1:1 fashion. Although, the coin is not a state-funded project it has been enabled
by the permissive attitude of the state towards private participation in cryptocurrencies. It is being

Peyman (/ˈpeɪmɑːn/; also transliterated as Paymon, Paymaan, Peymon or Payman, Persian: ‫ )پیمان‬is a Persian male name. It means accord or promise.

Society for Worldwide Interbank Financial Telecommunication. It is a network that enables financial institutions worldwide to exchange information about
financial transactions.

58
developed by Mizhuo Financial Group, a leading consortium of banks. This is consistent with earlier
moves by the government permitting investment in the cryptocurrency industry. Since then Japanese
investors and exchanges have played a major role in pushing cryptocurrency valuations to new highs.215
The J-coin will have commercial value allowing citizens to be able to buy goods and services. 216 However,
in light of the coronavirus (COVID-19) pandemic the 2020 Olympics were cancelled. Although it is still
too early to tell the success or otherwise of this step, it is interesting to note because it suggests a state-
enabled capitalist environment for cryptocurrencies to thrive in.
Line, Japan’s biggest social media network, has also announced the launch of its digital currency, Link in
the Japanese market from April. This token is reported to have previously been available in other countries
except Japan and the US. Line made its first move into the blockchain industry when it announced plans
to launch a cryptocurrency exchange within its Chat app.217
After much negotiation with Japanese regulators, Line launched the Bitbox exchange in July 2018, but did
not include access to Japanese and USA users. In October 2018, Link was launched and listed on Bitbox
as LNK with other cryptocurrencies like Bitcoin, and Ethereum. After its launch it was still not available
to the Japanese market. Efforts have since been made with the Japan Virtual Currency Exchange
Association (JVCEA) on how to introduce the new digital currency. The Japanese debut of Link is thus
pending with details awaiting finalisation. Like the J-coin, it is not being issued by the state although it
has permissively been so enabled. 218
Japan’s largest bank, Mitsubishi UFJ Financial Group Inc, (MUFG) also made plans to release its own
coin by March 2018. The MTU coin is slated to have parity with the Japanese yen. MTU will be rolled
out to the employees of the financial services group first. The plan was to enable standard transactions
such as shopping or transfer of money much lower. The MTU coin will require a wallet while the MUFG
handles the processing of transactions internally. The coin is tied up with GDAX, a cryptocurrency
exchange run by Coinbase. This is interesting particularly since most of the banks were initially hesitant
to embrace cryptocurrencies because they were deemed highly risky and speculative. Now it appears they
are actively spearheading it. 219 This move by banks to embrace cryptocurrencies and by so doing secure
their place on the emerging landscape does raise concerns about the often touted lure of cryptocurrencies
as eliminating the middlemen. It may be all the more reason for states to get involved in a to prevent
further bullying by the big guns.
The Lithuanian ceremonial collectible

59
Lithuania, in looking to establish itself as a new player in the financial tech sector, plans to release a coin
is to commemorate Lithuania’s 1918 declaration of independence. Each of the 24, 000 tokens set for
release will feature one of the declarations signatories.220
The coin will not enter into circulation or serve as legal tender. The token is expected to engage the youth
in coin collection. A physical silver coin is also to be released with a symbolic denomination of 19.18
euros. It will resemble a credit card. The coin features a digitized image of the Council of Lithuania made
up of roughly 36, 500 pixels. 221
Buyers will receive six randomly selected tokens with each purchase and will only receive a physical coin
once they collect a token from the six separate categories. The coins are collectibles that will be created
through blockchain technology and sold exclusively on the central bank’s online store.222
The realisation of this coin is hoped to provide the Bank of Lithuania with the much needed invaluable
experience and knowledge in the creation of virtual currencies. They hope to use the coin as a sort of pilot
project to guide them in carrying out blockchain oriented research. It is also seen as a cautionary approach
that also sensitise the public and get feedback before actually rolling out the currency. 223
The Dinero Electrónico ~Ecuador
As far back as 2014, Ecuador announced its plans to own an electronic currency, the dinero electrónico.
By February 2015, the currency was already functional via a mobile app. On March 26, 2018, it was
reported that they system will be completely deactivated on March 31st and all the accounts will be closed.
In December 2017, the National Assembly passed a legislation to abolish the central bank electronic
money system and outsource e-payment systems to private banks. 224
The reason for this has been attributed to the inability to attract enough users. Reports indicate that there
were a total of 402, 515 accounts opened but only 41, 966 were ever used to make payments and 76, 105
was only used to upload or download money. Furthermore, the remaining 286, 207 accounts which were
approximately 71% remained inactive the whole time. 225
The currency was purportedly issued to support its dollar based monetary system and help reduce poverty
levels. Nonetheless, it clearly suffered a massive blow from the apparent reluctance of the people to use
the currency. Some sources say it is because there was a general lack of trust the Ecuadorian central bank
as an institution. 226 There was also the fact that the people were not adequately sensitised being used to
227
the U.S dollars. There were concerns of the currency being used as a presidential power grab. There

60
was further speculation that it was just a “fiscal manoeuvre” to “pave the way toward official de-
dollarisation.” 228
There are some important observations to be made from this use case. The dinero electrónico was not a
cryptocurrency. Instead it was a money system on an electronic network tied directly to the local currency
which is the dollar. It could only be accessed only by qualifying citizens and residents. It did not require
internet access or an account with a financial institution and was redeemable for physical money at any
time.229
The government consistently insisted that it was a cost-saving mechanism designed to support the dollar-
based monetary system and not replace it. This is because Ecuador spends more than 3 million dollars
annually to exchange deteriorating old notes for new dollars. 230 There were hopes that it will solve the
problem of wear and tear of currency. These hopes were cut short. Some sources also say that the bill that
authorised the digital currency simultaneously banned Bitcoin and other digital currencies. 231
The eDinar ~ Tunisia
In 2015, Tunisia issued a blockchain-based national currency, the eDinar. It was also known as digicash
or BitDinar. It was intended to be a full ecosystem for digital payments allowing Tunisians to use their
smartphones to make instant mobile transfers, pay for goods and services online and use their smartphones
to make instant mobile money transfers, send remittance, pay salaries and other bills as well as manage
official government identification documents. There were transaction fees but they were insignificant
because the maximum account was capped at one dinar.232
However, the roll-out and implementation of the currency was not successful. Apart from the apparent
disinterest, the reasons for this are not clear.
The eCFA ~ Senegal , EmCash~ UAE and e-krona ~Sweden
The blockchain- based eCFA was named after the CFA franc, the Senegalese currency in December 2016.
It was created as a result of the collaboration between Banque Régionale de Marchés (BRM) and
eCurrency Mint Limited. 233
It is yet another blockchain system designed to be fully dependent on the central banking system. It can
only be issued by an authorised financial institution. It was to be distributed alongside paper money as
legal tender. It can also be held in all mobile money an e-money wallet securing universal liquidity. It was
also designed to enable interoperability with other cryptocurrencies.234

61
So far, the participation by the Senegalese has not been remarkable, but it remains fairly nascent and
merits further observation. This is also true of UAE’s Emcash launched in 2017 for both government and
non-governmental services. The same applies to Sweden’s e-krona, launched on the IOTA blockchain as
part of the move to go completely cashless. It has no blocks, no chain and no miners. 235
Regional attempt by the ECCB
On March 9, 2018, the Eastern Caribbean Central Bank (ECCB)  signed a memorandum of
understanding with the Barbados-based financial technology company Bitt Inc. agreeing to participate in
a pilot program that will enable it to issue a digital currency. 236
During the pilot, the ECCB planned to work closely with Bitt Inc. to develop, deploy and test technology
which focuses on data management, compliance and transaction monitoring system for Know Your
Customer, Anti-Money Laundering, and Combating the Financing of Terrorism (KYC/AML/CFT). 237
This is hoped to help to improve the risk profile of the Eastern Caribbean Currency Union (ECCU) and
mitigate against the trend of de-risking by the region’s correspondent banking partners. The pilot will
also focus on developing a secure, resilient digital payment and settlement platform with embedded
regional and global compliance; and the issuance of a digital EC currency which will operate alongside
physical EC currency.238
Governor of the ECCB, Timothy N. J. Antoine says, “This FinTech pilot is part of the Bank’s Strategic
Plan 2017-2021. The aim of the pilot is to ascertain the suitability of blockchain technology to help boost
economic growth and competitiveness in the region consistent with the ECCB’s monetary and financial
stability objectives. 239
Furthermore, as the ECCB promotes the safety and soundness of the financial system in the ECCU, it also
has a responsibility to encourage and support innovation consistent with the Bank’s mandate to facilitate
the balanced growth and development of member countries. To that end, blockchain technology merits
our attention and consideration at this time.”. 240

The ECCB is the monetary authority for eight island economies in the Eastern Caribbean Currency Union (ECCU) that use a common currency known as
the Eastern Caribbean dollar-Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, Saint Kitts and Nevis, Saint Lucia, and
Saint Vincent and the Grenadines.

62
The MOU between the ECCB and Bitt Inc, which was signed on March 9,2018 was the culmination of a
workshop held over the period 7 – 9 March and involved teams from the ECCB and Bitt Inc. As part of
the workshop, commercial banks in the ECCU were invited to a special session on the pilot. The feedback
from the banks was the first in a series of steps to define the functional and non-functional requirements
for the pilot project. 241
CEO of Bitt Inc., Rawdon Adams, stated, “we are proud to collaborate with the ECCB in the development
of this pilot study to explore technological solutions to some of the all too real problems affecting the
region, its institutions and most importantly its people.” 242
The pilot will be conducted under the supervision of the ECCB in controlled environments.243
Regulating the CPA coin
While recognizing the importance of a clear regulatory framework, the question of how we should regulate
this technology, still lurks. Regulatory intervention should be functional, technology-neutral and based on
regulatory goals and principles. The crux lies in the ability of legislators to strike a balance between the
need for governance and the avoidance of heavy-handed government intervention which would kill this
emerging technology.244
As with any other innovative technology, one must carefully analyse the functional characteristics of
various concepts under consideration, their implications and risks (real, not perceived), so that the
introduced regulatory regime provides an appropriate and adequate response to regulatory concerns
without over-regulation. 245
The specific regulations needed to implement the CPA framework are beyond the scope of this paper.
However, the present author advocates for regulatory objectives that involve:
1. Creation of standards that allow interoperability and protect end users;
2. Ensuring the protection from criminal activity;
3. Ensuring good governance to protect investors as well as end users from fraud, mismanagement and gross
negligence. 246
Admittedly, this coin does not have to be mined by the state at all costs. Nonetheless, as an institution
with public interest at the core of their mandate, they are most likely to have a higher incentive to mine a
coin with the features proposed.

63
With the ability to exercise regulatory control, prudential risk management and effective supervision will
be more attainable. A collective application of this approach by more states on an international scale
(either on a regional level or a global level) may further be explored.
Regulators may also explore the possibility of fashioning out a protocol for verifying and validating the
identity of the users of the cryptocurrency before selling it to them. This may be achieved by enacting
legislation to require mandatory disclosure on transactions once they qualify as “suspicious” - a term of
art to be specifically defined by legislators. It places the state in position to balance the need for privacy
while retaining the right to request disclosure for the greater good.
The state also has incentive to implement the use of “living wills” to consider frustrating events like the
breakdown of the internet or electricity as well as complex viral invasions. 247
Ignoring the emergence of cryptocurrencies may just as well be akin to sitting on a ticking time bomb.
Though it provides a reliable payment system, there is no guarantee for how to recover value if the system
collapses. The states are in a better position to provide a safety net than the private self-seeking business
community.
Cryptocurrencies also pose a threat to the financial stability by providing a tradable asset which is not
backed by anything. Admittedly, in the traditional fiat money system, the value of money is similarly
backed by nothing. However, it is the government that concretises trust in the value of money. The
government is identifiable and can be held accountable. This is not the case with cryptocurrencies where
the players are often nameless, faceless miners. Without these safety nets cryptocurrencies may be creating
or masking debt in the economy, akin to the financial innovation that led to the global financial crisis of
2008.
Abecedarian overview of some regulatory approaches in selected countries

Argentina
In Argentina, a progressive approach has been adopted. Experts believe that transactions involving
cryptocurrencies like Bitcoin may be governed by the rules of the sale of goods under the Código Civil
(Civil Code) 248 An amendment has since been made to their Income Tax Law to provide that profit from
the sale of a digital currency will be considered as income and taxed accordingly.249
Yet, the only authority capable of issuing legal currency is the Central Bank of Argentina -El Banco
250
Central Argentino. This implies that all cryptocurrencies are not legal tender under Argentine law

64
because they are not issued by its central bank.251 However, this does not detract from the ability to
exchange cryptocurrencies between peers. Nonetheless, with regard to the cancellation of debts
cryptocurrencies may encounter issues with acceptance.252
In spite of the absence of elaborate regulation, these coins are increasingly being used in Argentina. 253
Bermuda
In the latter part of 2017, the Bermudan government launched a task force to “advance regulatory
environment and develop Bermuda as a destination for Utility Tokens, Tokenised Securities,
Cryptocurrencies and Coin Offerings”.254
This task force aimed to create a Cryptocurrency Association with a defined code of conduct and rules of
operation. It has two working groups under the auspices of the Minister of National Security- the
Blockchain Legal and Regulatory Working Group and the Blockchain Business Development Working
Group. The former is tasked with ensuring that the existing regulations are conducive for the development
of cryptocurrencies while the latter is to aid in the development of the technology for cryptocurrencies.
Ultimately, both seek to establish Bermuda as an international destination for digital currencies.255
The Bermudan government has also decided to allow companies worldwide to set up in Bermuda for
crowdfunding. Like most countries, its first response was to issue a press release warning of the risks of
ICOs, noting that whether such offerings fall within its regulatory ambit or not will be determined on a
case by case basis.
The Bermudan government has since decided that utility tokens cannot be considered as security as long
as there is no promise of future value. It is also working to ensure consistency within the existing
regulations that utility tokens are not prohibited or in contravention to these laws.256
Lawmakers are also taking steps to introduce a framework to regulate DLTs and other start-ups that have
sprung up. 257
Canada
Cryptocurrencies are generally permitted in Canada. They are also not considered as legal tender even
though they may be traded on exchanges. Only the Canadian dollar issued by the Bank of Canada under
the Bank of Canada Act is considered official currency in Canada.258

65
Nonetheless, the Canada Revenue Agency (CRA) has characterised cryptocurrency as a commodity. This
has enabled digital currency transactions to be subject to Canada’s tax laws and rules. 259
As a result, the use of cryptocurrency to pay for goods and services is treated as a barter transaction and
the rules apply. Therefore, goods purchased using digital currency must be included in the seller’s income
for tax purposes. Similarly, filed tax reports must include gains or losses from dealing in digital currencies.
260
As far back as June 19, 2014, the Governor General of Canada, gave his assent to an amendment the effect
of which would treat virtual currencies as money service businesses for the purposes of anti-money-
laundering law.261 The Act is regarded as the world’s first national law on digital currencies and
certainly the world’s first treatment in law of digital currency financial transactions under national anti-
money laundering law.262
They have also attempted to outline how their law on securities can be applied to ICOs, ITOs,
cryptocurrency investment funds and exchanges trading these products. 263 A blockchain fund has been
approved by the Ontario Securities Commission.264
Furthermore, in a DLT- specific project dubbed Project Jasper, Canadians seek to understand how DLTs
could transform the wholesale payments system.265 The first and second phases of this project are focused
on exploring the clearing and settlement of high-value interbank payments using DLT.266 The third phase
explores the potential benefits from integrating this cash on ledger with other assets such as foreign
exchange and securities. 267
China
The Chinese government has cracked a whip on crypto-related activities. In a series of regulatory measures
aimed at investor protection and financial risk prevention, they have denounced cryptocurrencies as legal
tender, banned ICOs and restricted the primary business of cryptocurrency trading platforms. The banking
system of China neither accepts cryptocurrencies nor provides related services. 268 In 2013, a circular was
issued by the Chinese government defining Bitcoin as a virtual commodity, and also warning citizens

The term 虚拟货币 (“virtual currencies”) is used in Chinese.

66
about the risks of such virtual commodities. As a result, Bitcoin traded with Chinese yuan dropped from
over 90% of global Bitcoin trading to under 1%.269
Prior to the move to ban crypto mining, 70% of the world’s bitcoin was mined in China. The Chinese
government believe that the cryptocurrencies pose a risk to their stability because they facilitate
unrestricted movement of huge sums of money from the Chinese economy-capital flight.270
In spite of its prohibitive stance, the PBOC has taken steps to issue its own digital currency. In October
2017, the PBOC reportedly completed trial runs on the algorithms needed for a digital currency supply,
“taking it a step closer to addressing the technological challenges associated with digital currencies.”271
The digital currency would be a digital form of the sovereign currency that is backed by the central
bank. Unlike Bitcoin or other digital money issued by the private sector, the digital fiat currency will have
the same legal status as the Chinese yuan. 272
Notwithstanding the regular PRC bans on digital cryptocurrencies, they remain very popular in China.
This popularity can be attributed to China’s mobile first mind-set; with the Chinese pioneering the
acceptance of technology-driven societal changes to include tools such as digital payment systems and
bike sharing services. There are those who believe that the PRC is attempting to capture a large part of the
global digital currency market with its own state-backed cryptocurrency through the relative suppression
of private digital currencies. 273
Chinese Bitcoin exchanges such as Bitfinex, OkCoin, and BTCC are frequently blocked in China to this
day. However, they have comprised over 45% of total global digital currency market share at one point or
another. Clearly, the aggressive efforts to stifle the current cryptocurrency regime by China have not
diminished its role in the global cryptocurrency ecosystem as a primary crypto-mining hub. 274
France
The French Government is actively moving towards establishing a regulatory regime for cryptocurrencies
in France. While recognizing its potential benefits, they also caution about its volatility. 275 Like many
countries, the first approach was to warn investors that cryptocurrencies are not considered financial
instruments under French law and therefore do not fall under the regulatory framework of actual currencies
under the Autorité des marchés financiers, AMF’s supervision. 276 They also pointed out its role in being
used as a vehicle for speculation as well as an instrument for money laundering and other illegal
activities.277

67
In 2016, the French enacted an ordinance that allowed the use of blockchain technology for a specific type
of zero-coupon bond called a minibond (minibon). This ordinance provided the first definition of
blockchain in French law. Nonetheless, it has a very narrow application. 278
In 2017, they enacted another ordinance the effect of which would make it possible to use blockchain
technology for a broader range of financial instruments. 279
They have also suggested that the conversion between cryptocurrencies and real currencies should be
considered as a form of payment service such that it could only be performed and supervised by the ACPR
(Autorité de contrôle prudentiel et de resolution).
Together with Germany, France made a joint request that cryptocurrencies be discussed at the G20
summit in order to allow for coordinated initiatives to be taken at the international level. 280
The Minister of the Economy through the Mission d’information commune sur les usages des bloc-chaînes
(blockchains) et autres technologies de certification de registres, has tasked the former deputy governor
of Banque de France with researching how to best regulate cryptocurrencies to better control their
development and to prevent their use for tax evasion, money laundering or the financing of criminal or
terrorist activities. 281
Malta
Malta has been touted for acknowledging emerging industries and embracing new technology and
innovation notably online gaming companies. It appears to have adopted the same attitude towards
blockchain technology. Apart from issuing new rules applicable to ICOs and the provision of intermediary
services incorporating cryptocurrencies, laws have also been introduced which cover the blockchain sector
in general. 282
The Maltese government has actively encouraged the development of cryptocurrency. It has issued many
consultations and papers that discuss its regulation and development. These regulations aim to provide the
necessary legal certainty to allow the industry to flourish. 283
The government has since proposed a regulatory framework for collective investment schemes in
cryptocurrencies as published by the Malta Financial Services Authority (MFSA).

68
In their Discussion Paper on Initial Coin Offerings, Virtual Currencies and Related Service Providers,
the Maltese observed that not all cryptocurrencies fall within the scope of regulation because they have
284
different features even though they use the same underlying blockchain technology.
Malta is currently considering a trifecta of bills that would provide a regulatory framework for
cryptocurrency. These are the Malta Digital Innovation Authority (MDIA) Bill, the Innovative Technology
Arrangements and Service (TAS) Bill and the Virtual Financial Assets (VFA) bill. 285
The MDIA bill is set to focus on innovative technological arrangement and their uses. Its goal is to help
Malta take advantage of new technology while protecting the public interest.
The MDIA is intended to promote the policies that favour digital ledger technological innovation as a
systemic tool in public administration. It will also work towards maintaining Malta’s reputation and
protecting consumers. 286
The MDIA is also intended to bear responsibility for certifying technology arrangements and registering
service providers under the TAS Bill. 287
The TAS Bill is intended to establish a regime for the registration of technology service providers and
provide for the certification of certain technology arrangements. It is intended to cover DLT platforms
and related contracts. The proposals by the TAS Bill will require technology service providers to be
certified.288
The VFA Bill is also set to establish a framework for ICOs and a regime for brokers, wallet providers, and
virtual currency exchanges. It aims to regulate ICOs that relate to virtual currency not falling within the
existing legislation. It also seeks to ensure that offerings meet transparency requirements and will
incorporate obligations that apply to initial public offerings that the issuer must follow. 289
Malta is also considering the issuance of its own cryptocurrency within a controlled framework. The aim
is to enable regulators to test possible controls and legislation for the technology.
Malta has also gone a step further to propose a financial instrument test to determine with regulatory
certainty whether the features of a coin make it a tokenized asset or a virtual currency.
The test proposed would be a two-stage test, the first of which would determine whether a cryptocurrency
is a financial instrument within existing Maltese or European Union legislation. The second stage would
determine if the cryptocurrency was an asset under the proposed VFA Bill. 290

69
The MFSA would be the regulator for the financial services contained in the Virtual Currency Bill and
would have regulatory and investigatory powers that reflect those contained in the country’s other
financial services law, including the authority to suspend an ICO or trading of a cryptocurrency. 291
The government also established a National Blockchain Strategy Taskforce to advise the government on
a framework for DLTs. 292They have decided that they will not interfere with individual banks. This came
at a time when one of Malta’s largest Banks the Bank of Valletta blocked cryptocurrency transfers. 293
The Malta Gaming Authority has also stated that it is committed to allowing the use of cryptocurrencies
294
by its licensees in the immediate future. Thus, a new gaming bill is being considered that considers
virtual currencies under the definition of money and/or money’s worth.295
United Kingdom
The central bank of England has the responsibility to protect and enhance the stability of the financial
system in the UK. Pursuant to this objective, its central bank has considered the risk cryptocurrencies
pose to the stability of UK’s financial markets and determined that the size of the cryptocurrency market
is currently not large enough to pose a “material risk to monetary or financial stability in the UK.”296
While recognising that the regulation of cryptocurrencies is necessary to combat illicit activities, promote
market integrity and protect the safety and soundness of the financial system, the English believe that, a
better tactic would be to regulate elements of the crypto-asset ecosystem 297
They have also noted concerns in relation to the use of cryptocurrencies to undermine consumer protection
when using this form of payment. 298
With regard to taxation, Her Majesty’s Revenue and Customs notes that cryptocurrencies have a unique
identity and cannot be directly compared to any other form of investment activity or payment mechanism.
299
The taxability of income received from cryptocurrencies is dependent upon the activities and parties
involved. Thus, Value Added Tax (VAT) is only chargeable from suppliers for any goods or services sold
in the United Kingdom in exchange for cryptocurrency. 300

Section 2A of the Bank of England Act, 1998

70
Corporate tax rules apply to business for the profits or losses in currency exchanges which includes
cryptocurrencies. HM Revenue and Customs has stated that “for the tax treatment of virtual currencies,
the general rules on foreign exchange and loan relationships apply. We have not at this stage identified
any need to consider bespoke rules”. 301
The UK also taxes the earnings of crypto-related transactions. Thus, if an individual user buys and sells
coins as an investor, these gains fall within the scope of capital gains tax which is chargeable to any gain
made that involves a cryptocurrency. 302
United States
In the USA, cryptocurrencies have been subjected to overwhelming skepticism and critical consideration
by both Federal and state governments. The Federal government has focused on the administrative and
agency level. Many policymakers have publicly acknowledged the risk of over-regulating. Others have
cautioned lawmakers from passing legislation that would drive investment in the technology overseas.
Generally, the technology has been lauded as being an important part of the future infrastructure of the
USA emphasising the need to maintain a leading role in its development. However, there are still some
who are skeptical of the technology's promise.
A number of proposals as well as passing of laws affecting cryptocurrencies and blockchain technology,
have been made at the state level. While some have taken bold steps in promoting the technology by
passing very favorable regulations exempting cryptocurrencies from state securities laws, money
transmission, others have issued stern warnings decrying its use.
In Wyoming for instance, the legislature passed a bill exempting cryptocurrencies from property taxation.
The state has since been praised for becoming the most crypto- friendly jurisdiction in the country. In
Colorado, a bipartisan bill promoting the use of blockchain for government record- keeping was also
passed. Along with Georgia, Arizona pledged to start accepting taxes in cryptocurrency. In November
2018, Ohio started to allow state taxes to be remitted in the form of Bitcoin.

This covers agencies including the Securities and Exchange Commission (the "SEC"), the Commodities and Futures Trading Commission (the "CFTC"),
the Federal Trade Commission (the "FTC") and the Department of the Treasury, through both the Internal Revenue Service (the "IRS") and the Financial
Crimes Enforcement Network ("FinCEN").

71
Yet in states, like California and New Mexico, warnings about investing in cryptocurrencies have been
issued. Although laws have been passed concerning cryptocurrencies in New York they have generally
been considered restrictive. This has resulted in a number of cryptocurrency-based companies exiting the
New York market.
Notwithstanding this development, a number of large virtual currency exchanges, such as Gemini,
obtained New York state trust company charters. The strict regulatory oversight is seen as positive by
many customers, especially institutional investors who desire to mitigate custodial risk.303
A Better Money
Austrian economist, Friedrich Hayek was a vehement supporter of private currency. He argued that private
actors (like banks) could create a stable monetary system without the need for government intervention
by using markets to create currencies which were a store of value and a unit of accounting. 304
While this paper does not seek to respond to Hayek’s academic position in a step by step manner, I must
acknowledge the brilliant foresight of Hayek in predicting a denationalised financial system which may
now seem attainable with the emergence of the token economy. I agree with Hayek that ineffective
monetary policy and control over the years has negatively impacted the financial economy. I also agree
with him that we must be prepared to conceptualise a solution that is neither conventional nor populist in
order to tackle this problem at its roots. However, I do not support his views to the extent that it leads to
a total dissociation of money from the state.
My reasons are as follows: Hayek’s model of denationalization is not necessarily one of decentralisation,
as seen in cryptocurrencies such as Bitcoin, but rather one of what I would rather call “multi-
centralisation”. Multi-centralisation, in this sense, describes the situation whereby different monies are
being circulated through more than one central authority with each being the singular authority
responsible for a particular kind of money. Although this distinction may seem merely semantic, it points
to an important conceptual nuance that could easily be missed. Understanding this conceptual nuance, in
my humble opinion, is crucial in appreciating the inherent differences between Hayek’s model and the
decentralised structure of the evolving token economy.
Hayek proposed that individual banks become independent singular authorities that will each issue a
particular kind of money. He argued that in this new bank-eat-bank reality, the state should not play a role
in the circulation and control of money, hence it should be denationalised. Consistent with his liberalism,

72
he further argued that money should be treated as a commodity which is left to the self-interest of
competing banks and the free forces of the financial market. 305
In my humble opinion, Hayek’s approach seeks to further fragmentise monetary policy, placing each
fragmented piece in the greedy hands of self-interested bankers. It assumes that by converting a single
currency system into a multiple currency system (which is not controlled by any state entity but is left to
the invisible forces of the market with all its whims and caprices) we will somehow achieve stability. By
advocating for banks to take the reins and become their own “central banks”, he managed to spread the
problem without tackling its real cause: defective monetary policy.
Hayek was a keen observer and victim of the less than honorable motives that have inspired the grave
lapses in judgment on the part of the state as seen through the retrospective lens of historical data placing
ineffective monetary policy at the center of the ailing financial economy. In his valiant attempt to channel
the less than noble interests that characterize human nature into something that can benefit us all, Hayek
theorised about a system that is even more riddled with human error and bias and mistakes. Hayek’s lack
of trust in the human nature, may have influenced his subjective perception of the state as incompetent to
manage our financial economy. Monetary policy is a hard thing to control -whether it is in the hands of
the state or it is in the hands of individual banks. Contrary to Hayek’s views, neither their self-interest (nor
I would argue lack of it) is what will give them the expertise to handle the issues concerning monetary
control. In my view, the problem of defective monetary policy is not one of ‘who is in control’ but ‘how
the control is being exercised’.
Although the rational, amoral and selfish interest of banks may cause them to improve the quality of the
money they issue, they are not above these same lapses in judgment and errors of monetary policy that
plague the state. Hayek believed in a spontaneous order. According to him, from a wider perspective the
individual banks if given the power to control money will do better than the state. Though persuasive, this
train of thought does not address the question of competence that will continue to lurk because monetary
policy is a dicey lever to control, and self-interest or not mistakes are bound to happen. The complex result
of ricocheting effect throughout the financial system from the underhanded motives that are characteristic
of competitive forces and human nature is not one to be taken lightly particularly in light of the global
financial crisis of 2008 which Hayek did not witness. Hayek died on 23rd March 1992. 306
The human element in controlling a fictional representative of value which we cannot objectively
determine is bound to be challenging in spite of our honorable (or less than honorable) motives. Even

73
though there have been less than honourable motives that may have informed some monetary policies
adopted by the state in the past, there are also those that have been made in good faith but still led to
undesirable outcomes. While states may act in the public interest, the human element in controlling
something as dicey as monetary policy will shoot them in the foot giving the impression (one theorists
like Hayek have vehemently argued) that the state is up to no good. In fact, in spite of their best interests,
their efforts may still go down the drain because the road to hell is paved with good intentions.
Hopefully with the increasing potential of technological advancement as discussed, we may improve how
we control monetary policy without abandoning a system that is ostensibly fighting to secure the public
interest to embrace one that is openly driven by the selfish interest of profit-seeking bankers.
I note further similarities between the views of Hayek and mine. Like me, he believed that overriding one
system in favour of another could be achieved by demonstrating that one was superior to the other. Being
a liberalist, he also felt that competition was a way through which this could be achieved by providing
“better money”.307 While we disagree on who should provide this ‘better money’, we both believe that
there should be ‘better money’.

Reference quote – This quote alludes to the fact that the purity of one’s intentions does not necessarily guarantee success in an endeavor. On the contrary, it
may be the reason for failure.

74
THE FOGGY FRONTIER OF FINANCIAL TECHNOLOGY

5
Nothing is more certain than that the degree of economic progress of mankind will
still, in future epochs, be commensurate with the degree of progress of human
knowledge-
Carl Menger, 1871.308
Introduction: Before we sprint.
There is no denying that blockchain technology and by extension cryptocurrencies have taken the world
by storm. In this paper, I have demonstrated my belief in a progressive approach in tackling the challenges
that we face head on. However, I must also note that there is value in measuring our steps carefully before
we break into a sprint.
This three-pronged plan is a complex, intricate web of details which are not easy to spell out in its entirety
let alone implement. Indeed, each step in the process is so rife with complexity that it can independently
be explored as a stand-alone paper.
Therefore, the financial ecosystem must welcome approaches to regulation that combine technology,
economics, business strategies and law in the face of the increasing complexities in innovation.
Without regulation people would continue to make ill-use of the technology to the detriment of the
309
financial sector. Whether this approach is successful or not, we must continuously strive to find a
workable system for maintaining the fragile balance of money in our economy through sound monetary
policy mechanisms. We must not relent in actively exploring viable options and creatively combining both
conventional and unconventional methods to arrive at a desired outcome.
There is so much uncertainty and not enough information to leapfrog into a future we can still but glimpse
through a glass darkly. What we can do now is watch and learn. Gather the information we need and do
not yet know we need. We can write bold theses like these and propound an exploratory approach on the

75
way forward. Perhaps we might realise the flaws in our reasons and modify them. We might even change
our minds or like Friedrich Hayek be almost right enough to inspire someone else to be slightly less wrong.
Considerations for sustainability
It is surprising how economics and ecology have become increasingly separated over time often pitted
against each other like conflicting notions. Yet, economics and ecology both come from the Greek word
for household- ‘oikos’. Ecology implies the logic of the dwelling place (oekologie) whereas economy
implies household management (oikonomia).310
Owing to the constant change that is predicated by uncertainty, technological evolution and sophisticated
systems, the economy is in fact in disequilibrium. Increased financialisation, mass consumerism and
growing debt and inequality have contributed to the problems of the climate change and the detriment of
the ecosystem. 311
This is because credit financing directs large investments to investors and produces cycles of investment
which concentrates risk on the debtors. The rich keep getting richer leading to inequalities in wealth. There
may just be hope in the emerging diaspora of FinTech and Blockchain-based solutions at both a technical
as well as managerial level. 312
In line with a bottom-up approach FinTech inventions are affecting services such as lending, payments,
asset management, transactions capital markets, trade finance and even insurance.
Smart contracts function as apps that perform value exchange operations when they receive a certain
input. 313
It is hoped that the CPA Framework would provide some useful insight on how to implement monetary
policy in a decentralised system with tokenized pseudonymous identities on an extraterritorial scale.
If everyone was their own bank keeping funds on private wallets, then it would become more difficult to
secure loans in the traditional way. Fortunately, the token economy may have potential to provide a
realistic solution to this.

A smart contract is a computer program that directly controls some digital asset. It is essentially the same as an app but it performs a different kind of
automation while traditional apps available on a Google Play store or an Apple app store are useful for certain operations.

76
Considerations for Data Protection
Data is an asset created by leaving a trail of digital crumbs behind in the virtual reality. These crumbs get
collected and analysed into a profile which reflects who we are in a sort of virtual mirror image. 314 This
data is useful for record-keeping and other functions: a typical example is a password history. However,
as consumers, we neither have ownership nor control over the data we provide. Rather, it is monetized
and often sold to advertising companies without one’s knowledge or consent. Blockchain has the potential
to change this. 315
There have been recent developments in enhancing consumer data protection and espionage. Efforts are
being made to harness blockchain technology to create a sort of “digital black box” that only gives away
the shred of information required to transact, reducing the digital crumbs you create. In a lot of commercial
transactions, the seller does not need your details, they just need to know that they got paid. This places a
consumer in a better position to control the data generated by his or her virtual image and monetize to his
or her own benefit. It also helps to protect our privacy giving us the opportunity to own our identity and
mange it responsibly. 316
When it comes to blockchain technology, problems arise, because data stored on the blockchain cannot
be modified or deleted. The EU’s General Data Protection Regulation (GDPR) came into force on May
25, 2018 simultaneously receiving both immense praise and seething backlash. The goal of the regulation
is to protect user's information and give them the ability to have all their personal information held online,
deleted. This received a lot of support from those who fear having their private data available on the
internet especially without their consent.317
Google was handed a record fine of 50 million euros from the France data protection regulator The
Commission nationale de l'informatique et des libertés (CNIL), for not providing transparent and early
accessible information on its data consent under the EU GDPR for the first time. CNIL found that Google
made it too difficult for users to understand how their data is used especially concerning targeted
advertising.318
Such concerns unveil the longstanding dichotomy between two conflicting ideals- privacy and
transparency: If the GDPR allows information to be erased and made private, how do we ensure that
there is still enough transparency to reveal underhanded motives? The obvious answer lies in balance
yet how to achieve this balance is not as obvious as evidenced in the many practical attempts at
implementation with less than favourable results.

77
Considerations for criminality
On January 26, 2018 a Japanese cryptocurrency exchange, Coincheck fell victim to a massive hack
resulting in a loss of 523 million NEM(XEM) coins, the native token of NEM and worth approximately
400 million- The Coincheck hack. In what is referred to as the biggest hold up of cryptocurrencies since
their inception.319 The incident left the start-up which had not yet received its licence to operate legally in
a delicate position with Japanese regulatory authorities.320
However, a team of sophisticated tech professionals created an automated tagging system which followed
the money and tagged any account that received tainted money. They also flagged the accounts with a
mosaic warning to other exchanges not to accept the funds. Eventually, they were able to successfully
trace the stolen coins. In the end, the result was that the money which was hacked could not be converted
to other cryptocurrencies or be sold. The hackers had effectively been blocked.
As one reporter observed,
At this stage, the only safe option for the hackers is to hold onto the stolen NEM. Because of the technology NEM has
developed in light of the recent Coincheck hack, it has become significantly difficult for the hackers to do anything with
the funds. It is not possible to cash out the stolen NEM to fiat currencies like the US dollar and it is also not possible to
321
convert the stolen funds to other cryptocurrencies.
After the case was concluded , the team provided enough data to the law enforcement authorities to guide
them in subsequent attacks. 322 Two Japanese men have since been arrested on suspicion of being involved
in the Coincheck hack.323
Coincheck, as a firm, has also been accused of keeping too much money in its “hot wallet” making it
more vulnerable to hackers who are able to breach the company’s servers. It has also been accused of
failing to implement NEM’s multi-signature smart contract system which would have added an additional
layer of security to the wallet. 324
The Coincheck hack is just one of many which illustrate that while cryptocurrency frameworks may have
near-immutability the platforms and exchanges which deal in them often do not. Therefore, it is important
to recognise this vulnerability and take appropriate counter measures to deal with them as they arise. It is

Hot wallets are wallets which exchanges occur frequently as opposed to cold wallets which are stored offline in secure locations

78
also a general caution to be prepared for the possibility of ingenuous innovations that might threaten the
security of our systems because the question of vulnerability to criminal activity will always linger.
Conclusion: A wind of change
As technology evolves, more complexities may spring up to further muddy the waters. Similarly, there is
hope for an equally radical technological response to these developments in a way that will ensure more
effective regulation.
The sheer magnitude of the current cryptocurrency industry will in no small way have a rippling effect
throughout the financial system affecting both users and non-users, whether it succeeds or fails. Though,
not everyone can be expected to welcome its disruptive effect, the revolutionary nature of this technology
is worth exploring in order to harness its potential in the most economically-efficient and legally-
compliant way.
In doing so we might need to take a step back in order to go forward and use trusted custodians to hold
the keys. Though idealistic, a workable, balanced self-sustaining global cryptocurrency with the
opportunity for an optimum level of state intervention and the marvel of cryptocurrencies makes this ideal
seem more achievable than it was just a decade ago.
Whether or not this innovative technology will live up to the revolution which it was predicted to create
in various sectors, it cannot be refuted that the blockchain phenomenon is a reality which will not be
disappearing any time soon. It is a wind of change that beckons us to follow, to see where it leads
financially ever after.

79
Appendix
Market capitalisation of the top 12 cryptocurrencies on the market as at June 1, 2020.
Source: Coin Market Cap. 325
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38
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39

81
40
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ibid.
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ibid.
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FINANCIALLY EVER

MENSAH, Eunice | June, 2020

MENSAH, Eunice E.A 

MENSAH, Eunice | June, 2020

LIST OF ABBREVIATIONS ....................................................................................................................................... 6

Chapter 1: AN INTERNET OF VALUE HAS ARRIVED ........................................................................................ 9

Introduction: Once Upon a Revolutionary Time… ................................................................................................... 9

The rise of the token economy ............................................................................................................................11

Distinguishing between tokens and cryptocurrencies .........................................................................................12

A Potentially Disruptive Digital Currency On the Move ........................................................................................12

A ‘crypto’ revolution has begun .........................................................................................................................14

A digital safety deposit box.................................................................................................................................14

A Cataclysmic Cocktail of Cryptocurrencies ..........................................................................................................17

Chapter 2: CURRENCY & CRYPTOCURRENCY ..................................................................................................22

Introduction: A trust-based economy.......................................................................................................................22

Money makes the world go round… .......................................................................................................................23

And round… ............................................................................................................................................................24

The Dicey Lever of Monetary Activism ..................................................................................................................25

Cryptocurrencies and the emerging FinTech landscape ..........................................................................................28

Matters arising with current cryptocurrency framework .....................................................................................29

Chapter 3 : REGULATION. SPECULATION. FRUSTRATION. ............................................................................31

MENSAH, Eunice | June, 2020

Introduction: Chasing the Wind?.............................................................................................................................31

The race for regulation ............................................................................................................................................32

Complexities and challenges ...................................................................................................................................34

Anonymity: a feature or a bug? ...........................................................................................................................35

Territorial rules for extra-territorial problems .....................................................................................................35

No central intermediary in direct transactions ....................................................................................................36

Sophisticated masking tools ................................................................................................................................37

The Benefit of Hindsight .....................................................................................................................................37

Chapter 4: THE CPA FRAMEWORK .......................................................................................................................40

Introduction: To State or not to State? ....................................................................................................................40

Creating the CPA coin .............................................................................................................................................41

The RSCoin Model .............................................................................................................................................43

The Social Bitcoin...............................................................................................................................................45

Exploring RegTech alternatives ..........................................................................................................................46

Integrating the CPA Coin ........................................................................................................................................48

Other note-worthy attempts.................................................................................................................................57

Regional attempt by the ECCB ...........................................................................................................................61

Regulating the CPA coin .........................................................................................................................................62

Abecedarian overview of some regulatory approaches in selected countries .....................................................63

A Better Money .......................................................................................................................................................71

Chapter 5: THE FOGGY FRONTIER OF FINANCIAL TECHNOLOGY ..............................................................74

Introduction: Before we sprint. ................................................................................................................................74

Considerations for sustainability .............................................................................................................................75

Considerations for Data Protection .........................................................................................................................76

Considerations for criminality .................................................................................................................................77

Conclusion: A wind of change ................................................................................................................................78

MENSAH, Eunice | June, 2020

Approach (CPA Framework) - a concept conceived by the present author.

MENSAH, Eunice | June, 2020

ensuing complexities and challenges.

data protection and criminality.

MENSAH, Eunice | June, 2020

AML - Anti-Money Laundering

BSN - Blockchain Service Network

BVN - Bank Verification Number

CEO - Chief Executive Officer

CFT - Combating the Financing of Terrorism

CNIL - Commission Nationale De L'informatique Et Des Libertés

CPA - Competitive Popularity Approach

CRA - Canada Revenue Agency

DC/EP - Digital Currency Electronic Payment

DLT - Distributed Ledger Technology