The digital world has destroyed the concept of ‘a market’ being a place where you could buy something you could see from somebody you could look in the eye and decide whether to trust or not. With a physical market place the rule of ‘caveat emptor’ or ‘buyer beware’ applied – it was up to you to take it on trust whether the goods you were buying were of ‘merchantable quality’ or fit for purpose.
But with global transactions possible instantaneously at the click of an online button, these principles that have lasted a few millennia no longer apply. Whether it’s buying a baseball cap from China for a few dollars or investing £10,000 in a company in a different continent, trust has been replaced by the requirement of an act of faith. You are buying the belief that some future event will occur.
Disreputable people have taken long advantage of honest men and women since time immemorial and that is simply wrong. The digital world has made it all the simpler for this to happen. The online environment means that due diligence has never been easier but equally the capacity for fraud has never been great!
Of course, the world of investment can’t work that way. The sums involved and the scale of activity means “trust” must be central to any transaction. That is why traditional ‘centralised’ fiat finance is so heavily regulated, quite rightly, to protect investors be they retail or institutional.
Regulation also exists to restrict, and ideally prevent, illegal activity. With the advent of the borderless European Community, the €500 note (finally taken out of circulation in 2019) helped criminals move vast sums of money across vast areas in the bottom of a small backpack. It seems that decentralised finance has done the same – Bitcoin had become the currency of choice for criminals, blackmailers, cyberbullies and terrorists the world over. Although, at the same time it is worth noting that Bitcoin had done remarkable things in helping Ukraine be and stay competitive in its conflict with Russia. Unsurprisingly the majority of regulation focused initially on anti-money laundering.
Clearly at a macro global level, the cryptosphere needs to be accountable. Governments the world over are struggling with the challenge of how this can be achieved. It is an everyday battle of good versus evil that will last for as long as there are criminal minds. As new ‘white hat’ technology develops preventative measures, so ‘black hat’ programmers will find ways around them.
At a local level, governments have another interest in regulation. In the UK, HMRC originally considered crypto investing to be ‘gambling’ and therefore tax free. Seeing the huge sums involved they have since amended their view and want to be able to levy capital gains and income tax. Regulations and guidelines are rapidly developing in this space with HMRC, the crypto industry and accountancy professionals all involved.
~Novel Serialisation: Heavens Fire~
But what protection does the individual retail investor, or his professional adviser, require? We would argue that at this stage of the evolution of the industry regulation and education should go hand in hand. Regrettably it is not possible to stop a fool and his or her money being parted, at least we can try and educate people away from foolish behaviour.
Even from an industry insider’s point of view crypto is a jungle with far too many tokenised assets available, the vast majority having little utility or sense of purpose. This brings us right back to the principals of caveat emptor – you need to know what you’re buying and what use it might have.
That is why Dacxi has developed a strong crypto education programme to teach about cryptocurrency in the broadest possible sense so individual investors and IFAs alike can go into the jungle with a clear way of seeing the wood from the trees. Education and awareness should always come before blind regulation.
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By Katharine Wooller, managing director, Dacxi
