Protecting consumers in the digital and cryptocurrency era

Crypto markets are constantly growing as a result of the innovation process. As such, many challenges arise, particularly, for consumers. What approach should the world adopt to regulate crypto assets and guarantee compliance with their rights?

For decades, a great part of world jurisdictions has sought to maintain and follow principles of stability and financial balance. With the innovation fever, nowadays, that same stability could be compromised, because of the exponential and uncontrolled growth of the wide digital currencies market, which, according to statistics, has been attracting a considerable number of consumers around the globe.

Cryptocurrencies market, with its attractiveness, spontaneous growth and a novelty, is giving rise to several regulatory challenges .

Cryptocurrencies, like bitcoin, represent digital non-governmental assets based on decentralized ledger systems, such as blockchain, a technology with a huge capacity and potential to disrupt markets. Consequently, they fall outside the scope of control by banking authorities and this lack of supervision may increase cases of fraud and scam; probability of security breaches caused by cyberattacks; loss of investors’ funds; data breaches; finally, more illegal purchases and sales of goods.

Despite these risks and the constant criticism of the volatility of crypto assets, it should be noted that their very uncertainty is the main reason that leads to their constant growth and investment increase. Moreover, High valuation expectations, low transaction fees, fast receipt of funds, no inflation and easier cross-border transactions are some of the additional widespread benefits for citizens and economies, which have also been motivating several multinationals to explore them as payment methods.

Therefore, it is crucial to have in place a solid regulatory and supervisory structure to safeguard, in parallel, consumers and investors rights and the development of small/medium lawful businesses that depend on crypto assets projects, while setting innovative standards.

Regarding these governance solutions, different perspectives have been explored all around the world. In countries like China, more restrictive approaches have been followed, namely, not recognizing crypto assets as properties and prohibiting exchanges. Nevertheless, it should be mentioned that much attention has been given, in the last years, to the digital yuan that, despite being a digital currency controlled by Chinese banking authorities, it is expected to revolutionise the industry.

In the opposite direction, European Union countries have been adopting a more balance/risk-based approach, focused on a constructive engagement between the private sector and governments. The MiCA Proposal for Regulation, in this context, is expected to enter into force, in the next years. 

Considering cryptocurrencies potential to boost many structuring sectors of the community while contributing for the universal access of populations to financial services, approaches that strictly limit or ban this innovative market, like China’s should be avoided.

It is estimated that today millions and millions of people still do not have access to financial services such as payment cards and electronic transfers. Restricting access to these currencies and concomitantly rejecting technologies, like blockchain, may humper efficiency and responsiveness of public structures. For these reasons, it is important to adopt an approach that does not exclude the social benefits of cryptocurrencies but rather accompanies their development, as many European countries and the US have been doing. Only through this path will be possible to mitigate the negative aspects of the crypto assets market and safeguard consumers and investors rights.

In my opinion, the guarantee of these rights is mostly achieved with a heavy focus on ensuring security and privacy of their data when trading cryptocurrencies. Crypto transactions operate on a logic of anonymity but is it the assurance of data protection, provided by the developers of these decentralised systems enough to prevent harmful effects for consumers?

For this purpose, governments need to explore additional solutions: strengthen the existing AML/CFT requirements for cryptocurrency exchanges; encourage a global coordinated effort on achieving a universal economic and taxation regulation of cryptocurrencies, as the one proposed in the 2020 OECD report; promoting policies and implementing mechanisms, such as administrative fines and prior authorisations to drastically reduce and repress misleading online advertisements about cryptocurrencies, etc.  In conclusion, digital currencies and crypto activities may impact greatly consumers and investors protection. However, nowadays, these markets present promising opportunities for the world, from a social, economic, and financial perspective. In this sense, considering its benefits for society, it is not adequate and efficient to completely limit these activities. Alternatively, the global markets must seek to adapt and adopt solutions that guarantee legal certainty, promote privacy-focused measures and, finally, promote solutions that allow the innovation process to continue, while complying with the principles of stability and financial balance which have been guiding the world economies throughout history.

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