December 18, 2018 AtoZ Markets –Active growth of the crypto market with a number of unsuccessful projects raise a question about the future of the cryptocurrency and blockchain in 2019. Experts claim that in order to have high chances of a long-term role in the market, blockchain applications and crypto assets must provide users with real financial results.
Public Regulations Are Necessarily
There are many technical and commercial problems related to scalability, efficiency, confidentiality, security, compatibility, and management of the cryptocurrency and blockchain technology. The necessity for reforms and regulatory acts, especially in the field of data protection and the initial coin offerings (ICO) is obvious to many experts. In the meantime, the financial sector mainly studies private blockchain applications such as Hyperledger Fabric, R3 Corda or Quorum.
According to the blockchain experts, crypto-financing markets can gain public confidence and fulfill their potential only within the framework of well-established public policy. It is important to guard against illegal actions involving the use of cryptocurrency, such as tax evasion, money laundering, financing of terrorism, or circumventing economic sanctions. “It is important to promote fair and open competition while ensuring financial stability and protecting investors and consumers," as stated Gary Gensler a senior MIT Lecturer of the blockchain and crypto finance.
Criminals use already existing financial system for money laundering. However, the emergence of cryptocurrency opens up new opportunities for the commission of old crimes. Cryptocurrency is quite successfully used as payment for drugs and other contraband distributed through the black market or Dark net. Venezuela, Russia and Iran, which in recent times have been in the ring of the EU and the U.S. economic sanctions are actively using crypto-financing to circumvent economic restrictions. Moreover, cryptocurrency creates new problems for tax compliance throughout the world. In addition, "only 47 percent of exchanges have strict knowledge requirements for their clients (KYC), " Gensler added.
Crypto Exchange Platforms
Unfortunately, most of the crypto exchanges are not registered. Sometimes their manipulative behavior is not controlled, and billions of dollars in customer tokens can be stolen without the possibility of compensation. Some fraudsters use the name of a legal exchange platform to attract traders and investors and then lure their funds. Compared with traditional financial exchanges, crypto exchanges do not have enough mediation through licensed brokers. Today's precautions that apply to the crypto exchanges are money transfer laws such as regulating Western Union or Moneo Gram activity. Gary Gensler considers their performance unsatisfactory. According to MIT blockchain lecturer, any cryptocurrency trading platform should primarily protect investors. In addition, any manipulative behavior and speculation should be prohibited."The exchanges must fully comply with anti-money laundering laws and seriously regulate or monitor the distribution of their custodial functions." the crypto specialist added. According to Gensler forecast, in 2019 several ICO trade token exchanges will be registered in the U.S. as broker-dealers in accordance with the ATS rules. The Senior MIT lecturer added, that intercontinental exchange Bakkt will be registered and will operate in accordance with the Law on Commodity Exchanges. "We will also likely see a decrease in operating margins and consolidation on more than 200 crypto exchanges," Gensler added.
What Future Awaits ICO’s
To date, many ICO projects have failed, and investors have suffered heavy losses. A recent EY study of the ICO's projects showed that during the third quarter of 2018, 86 percent of the largest ICO's traded below its listing price, and only 13 percent actually had a working product. Academic and market research also found that the ICO market is rife with fraud. Around the world, controversy is raging about how cryptocurrencies, and in particular ICO, fit into existing laws. Many argue that the so-called “utility tokens” sold for future consumption are not investment contracts. According to its concept, the ICO should combine the economic characteristics of both consumption and investment. The real characteristics of ICO tokens — risk, profit expectation, dependence on the efforts of others, a way of marketing, exchange trading, limited supply, and capital accumulation — are attributes of investment proposals. In the U.S., almost all ICOs will comply with the Howey Test of the Supreme Court, which determines the investment contract in accordance with securities laws. As Gensler suggests, in 2019 we are likely to continue to see high ICO failure rates while total funding is declining. “Regulators and courts will add clarity to the market by increasing the number of lawsuits and related private lawsuits,” he added.
How the Central Banks Will Behave?
Central banks are exploring blockchain and cryptocurrency. The main factors on which financial institutions pay close attention is financial stability and influence on the fiat currency.The Canadian project Jasper and the Singapore project Ubin are exploring the possibility of using permitted blockchain applications to update payment systems. Although there are certain political obstacles, some central banks are also considering providing the public with access to central bank payment systems and digital reserves through the so-called “digital currency of the central bank” (CBDC). For example, in Sweden, the use of the paper krona has decreased. In response to this, Riksbank, the world's oldest central bank, is implementing an e-krona project to provide e-money from the central bank directly to the public. Venezuela, which has run into hyperinflation, economic instability, and sanctions, encourages the public use of Peter’s supposedly oil-supported cryptocurrency, although some experts question its legitimacy.
Although Bitcoin survived a decade of trials the question, whether other cryptos and ICO's projects will survive in 2019 still remains. Gensler stays optimistic, especially with regard to the resolution of private blockchain applications. But he ends his narration with the phrase of Warren Buffet: "In the end, you will know who swims naked when the wave goes out." What can mean one thing -all need time.
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