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Blockchain: What are the risks of crypto money?

Spektrum.de: Miss Dr. Maupin, what are the special risks of blockchain technologies?

Julie Maupin: The biggest concern of regulators is that criminals will find an anonymous payment method in blockchain-based digital currencies, past banks and personalized accounts. Nobody wants drug traffickers, human traffickers, arms smugglers or terrorists to benefit from it. In the meantime, however, it has been found that Bitcoin in particular is not particularly suitable for anonymous business, as every flow of money in the Bitcoin blockchain can be tracked seamlessly. Only a single connection to the identity is then required, for example when changing from digital currency to official currency, in order to be able to assign all previous transactions to the person concerned. Many criminals have been caught this way. In the meantime, however, there are also blockchain technologies that disguise identity. On the one hand, so-called "ring signatures" allow a transaction to be mixed up with others in such a way that it can be assigned to a group of people, but no longer to an individual. A second variant is a cryptographic technique that only reports to the trading partner that the relevant amount can be transferred, but does not reveal anything else. The crypto currency Z-Cash is based on this principle, the “zero-knowledge proof”. This has the advantage that everyone can completely control access to their data themselves, but it also carries the risk of criminal abuse.

This article is included in Spectrum Compact, Money - From Coins to Cryptocurrencies

Do we need new laws to prevent the risks of such technologies?

If the old laws against money laundering, for example, cannot be applied to the new technologies, then we need new ones. At the moment, many countries are trying to regulate everything at the interface between crypto and fiat currencies, for example when exchanging Bitcoin for euros and vice versa. If you want to change one currency to the other, you have to prove your identity, like when opening an account. That is a reasonable regulation to be able to trace cash flows from criminal activities. But that's not enough in the medium term. The willingness of end users to use cryptocurrencies as a means of payment is slowly increasing. If this continues, we will eventually reach the point where it is no longer necessary to exchange crypto money for euros. This eliminates the regulatory intervention point. For this eventuality you should plan now.

Are there any other points of attack?

There is another area for which we need our own laws: so-called ICOs, initial coin offerings. It is a kind of digital crowdfunding, similar to an IPO, but so far more or less unregulated. Here one would have to carefully examine the similarities and differences to other already known forms of crowdfunding in order to develop a suitable regulation for ICOs. One does not want a "wild west mentality" in the financial markets, because that increases the risk of fraud and threatens the stability of the financial markets. On the other hand, they don't want to completely ban an exciting new form of capital procurement and thereby stifle an important financial innovation. It's about finding the right balance. This is exactly what Germany and France formulated as the goal for the G-20 discussion in Argentina in 2018.