A governor member of the United States Federal Reserve board seems to believe that one in four people who use bitcoin (BTC) is criminal. According to Lael Brainard, 50% of bitcoin transactions associated with illegal activity.
18 December, 2019 | AtoZ Markets – During a speech in honour of Benoît Coeuré, Lael Brainard highlighted the perceived risks that cryptocurrencies still represent. He is a member of the Executive Board of the European Central Bank (ECB).
At the beginning of Benoît’s ECB term, Lael Brainard said, bitcoin’s market capitalization was low. And it was only a handful of cryptocurrencies in existence. Over the eight years, the market capitalization of bitcoin grew rapidly. Also, now it exceeds 100 billion euros, and thousands of cryptocurrencies have been created.
The potential of “stablecoins” to scale rapidly is evident from the increasingly fast rates of technology adoption and the growth of large networks.
Cryptocurrencies Pose Risks to the Financial System
Without the necessary guarantees, stablecoin networks can put consumers at risk. Cryptocurrencies already pose several risks to the financial system. That could be magnified by stablecoin, which widely accepted for general use. Estimated fraud and theft losses associated with cryptocurrencies are also increasing at a staggering rate. It was 1.4 billion euros ($ 1.7 billion) in 2018. And it is now more than 3.9 billion euros ($ 4.4 billion) in 2019, according to an industry estimate.
In contrast, for several decades, consumers in the United States and the euro area have expected their bank accounts, and the associated payments will have strong safeguards. Legal and regulatory protections for US bank accounts is that consumers can reasonably expect their deposits to insure up to a certain limit. Many fraudulent transactions are also the responsibility of the bank. Transfers must be available within specific deadlines. And it must be clear and standardized information on account fees and interest payments.
Also, it is not clear whether comparable protections will be in place with Libra, or what remedies consumers will have. Still, it is not even clear how much consumers will be exposed to price risk. However, they seem not to be entitled to the underlying assets of the stablecoin.
Most Cryptocurrency Exchanges don’t Follow AML, CFT and KYC
Anti-money laundering (AML), anti-terrorist financing (CTF) and know-your-customer (KYC) requirements are important concerns. In an industry report, researchers found that about two-thirds of the 120 most popular cryptocurrency exchanges have weak AML, CTF, and KYC practices.
Only one-third of the most popular exchanges require identity verification and proof of address to make a deposit or withdrawal. This is troubling because several studies conclude that cryptocurrencies are the source of a significant number of illicit activities. Lael Brainard said:
“One research estimated that more than a quarter of bitcoin users and about half of bitcoin transactions are associated with illegal activities.”
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