Analysis

Cryptofiat–Part II

To continue on yesterday’s discussion on cryptofiat / stablecoin, we have to evaluate the potential legal impact on exchanges. Exchanges may have regulatory requirements being lessened, relaxed or made irrelevant.

Exchanges are traditionally required to receive actual fiat deposits so that you can start trading in the exchange. This is the part where it requires the exchange to be regulated, being the custodian of potentially hundreds of millions or billions of dollars.

With the implementation of CryptoFiat / StableCoin, the whole dynamics has been changed. Technically speaking, StableCoin / Cryptofiat are not fiat. Whatever traditionally that would be imposed on fiat cannot be imposed on this. Note : America Fincen however poses a strong challenge on that though, having determined instruments that are exchangeable for money at a large enough channels to be as equivalent as fiat / money.

America fincen boundaries are so vague that even cryptofiat / stablecoin cannot escape the clutches of Fincen, which has put people in jail before. Possibly the only country that has put people in jail just for owning and transmitting Bitcoin.

However, let’s talk about the rest of the world.

As we have established, cryptofiat / stablecoin are not fiat, and whatever laws that apply to fiat may not necessarily apply to cryptofiat and stablecoin. One more thing, if cryptofiat / stablecoin are regarded as assets and not fiat based assets, then its ownership and usage is secured by most constitutions coloured by Magna Carta.

Functionally and legally, cryptofiat / stablecoin allows the clear separation of exchange based activities and fiat-cryptofiat based activities. When separated into 2 legal activities we are forced to come to this very interesting configuration when dealing with the regulatory action of any central banks in the world.

Exchanges, when asked whether they process fiat deposits, the exchange is free to answer “no”. And when the answer is no, very often regulatory actions from central banks have to be paused.

Cryptofiat / stablecoin issuers on the other hand, when asked whether the issuer provides exchange services, the issuer is free to answer “no”. At the same time, also stopping any potential regulatory actions. The government cannot possibly interfere with private free market action of an individual buying cryptofiat / stablecoin for easy transference. Transference of cryptofiat / stablecoin generally is not treated as the transference of fiat.

Cryptofiat / stablecoin once if imbued with an additional capability of proof of stake or proof of work mining giving additional financial rewards (this rewards is not a securities based reward for it is the result of “work” or “labour”). This is a capability that pure fiat money does not have but only possessed by cryptofiat / stablecoin. Legally, giving it an undeniable basis to deny it being fiat at all – for fiat by itself does not possess this abilities by itself.

This is an important distinction for what money can buy must possess a different quality as compared to the money. If cryptofiat / stablecoin possess the same quality as fiat, then The Central banks and regulatory bodies would just conclude it is a “passing off” exercise and proceed to charge the infringer in the court of law.

Leave a Reply