With a track record going back over a decade, cryptocurrencies are clearly more than just a fad, but they remain widely misunderstood by many people, with doubts persisting about their genuine value, practical use and long-term application.
There is also considerable concern with regards to their volatile nature and potential for exploitation. According to data from Scamwatch, Australians lost $158 million to investment scams between January and May of this year, the majority of which related to cryptocurrency ‘investments’.
In the truest sense, cryptocurrencies are a digital means of exchange which use cryptography as a form of security. However, in recent times, the term ‘cryptocurrency’ has evolved as a stand-in description for, more broadly, a decentralised financial system (DeFi), a highly volatile asset class that can nose-dive or surge on the back of a Tweet, a space for bad actors to steal vulnerable investors’ identities and money, and a form of digital payment.
Mainstream investors, as well as Australia’s financial institutions, are also taking more than a passing interest in cryptocurrencies.
The Commonwealth Bank is trialling crypto trading through its banking app, ANZ recently minted $30 million of Australian stablecoins called A$DC, and National Australia Bank (NAB) is also expected to release its own stablecoin (linked to fiat currency, the Australian dollar) by the end of 2022. However, concern over the safety of cryptocurrencies as an investment class remains front and centre in the minds of financial regulators around the world.
How are cryptocurrencies regulated?
The simple answer is that they aren’t, outside the confines of blockchain technology, which we’ll come to later.
Even more fundamentally, the current legal status of cryptocurrencies varies considerably from one country to another. While the use of cryptocurrencies is unfettered within the European Union, specific countries, such as…
