Lawrence Zammit’s article under this same heading (Times of Malta, July 30) prompts me to return to this topical subject following another article of mine (‘Crypto Malta and the FATF’, Times of Malta, July 28).
Notwithstanding the many warnings by financial regulators worldwide, unfortunately one still reads of how money can so easily be lost – admittedly also gained – in what is no more than a gamble if only because the price of bitcoins (the first cryptocurrency to be devised in January 2009) has had a rollercoaster ride over the past 12 years.
Suffice to say that in Bitcoin’s initial heydays, its price peaked at $1,238 in December 2013 and its value more than halved to around $500 just two months later after a flaw was discovered in the software of some wallet systems. Since then, the price of a token peaked at around $50,000 and presently hovers at $35,000. Thus, some may have made a packet but, obviously, in what is a restricted market of buyers and sellers, there were also losers. The crypto money asset class is now purportedly worth about $1.6 trillion.
The threats are many and this is why financial regulators, including Malta’s MFSA, have repeatedly, over the years, issued cautionary notices.
In my previous article, I mentioned how Binance had been chased out of countries like China and Japan for conducting unauthorised crypto trading, and I commented on their subsequent attempt to be licensed in Malta after having been given a warm welcome notwithstanding the company’s background.
There is no money trail and hence the reluctance of serious regulatory authorities to license such token issuers and exchanges
It is worth recording here that a number of cryptos are in ‘circulation’; among these, the mostly traded are Bitcoin, Ethereum and BinanceChain tokens. These ‘issuers’ need an ‘online exchange’ for transactions to be carried out by token holders between their so-called ‘digital wallets’. Such transactions are carried over the internet, with no need for banks or clearing houses. Thus, there is no money trail, and hence the reluctance of serious regulatory authorities to license such token issuers and exchanges.
Another important factor is that cryptos are electronic currencies that exist only as a computer code. Moreover, the price is influenced by the fact that, for example, in the case of Bitcoin, only 21 million tokens will ever be minted and so the total in circulation can never exceed that figure.
Over the years, many instances have been reported of mishaps, accidental or intentional, where tokens either disappeared from wallets or were hacked.
As I write this article, it has been reported that a firm specialising in transferring cryptos said that hackers made off with a record-setting haul potentially worth $600 (€512) million. These tokens were stolen from Ethereum, BinanceChain and OxPolygon, and involved tens of thousands of crypto community members.
Space precludes me from quoting many other similar incidents and so I will mention only a few of these and also comments made by eminent financial analysts.
US authorities said a third of the world’s exchanges were hacked between 2009 and 2015.
A Briton was accused of a $30 million crypto fraud. This 30-year-old founder of Canada’s largest crypto exchange died suddenly and took with him the password which allegedly was known only to him and no other! Thus, the owners of some $200 million ‘virtual wallets’ had no means of withdrawing their money.
A $530 million digital money theft was reported by Japan’s financial regulator in June 2018 from Coincheck, one of Japan’s biggest exchanges.
A Visa executive made one of the most outspoken attacks from the financial establishment on the bitcoin craze, saying that cryptos were used by “every crook and politician” and by “speculators who have no clue”.
More recently, the chairman of the US Securities and Exchange Commission said in a lecture: “Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.
“This asset class is rife with fraud, scams and abuse… in many cases investors aren’t able to get rigorous, balanced and complete information. If we don’t address these issues, I worry that a lot of people will be hurt.” Enough said.
Anthony Curmi is a former senior bank executive in Malta and abroad.