Experts say crypto is regulated, sort of

Cryptocurrency experts say while the technology it runs on isn’t regulated, exchanges of crypto within New Zealand are.

Stuff previously talked to two Marlborough businessmen who shared their experiences with crypto, including Aaron Roberts, who likened it to other investment areas.

“Much like shares or the stock market, this is just another place for me to put my money in and potentially get more from it” Roberts said.

Like other areas, If crypto assets displayed characteristics of a financial product or service, FinTech Specialist Lead at the Financial Markets Authority Binu Paul said “then it actually has got full-blown regulation on top” under New Zealand legislation.

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Any activity undertaken within the crypto world would typically get caught under a financial services definition, which came with obligations for providers operating within New Zealand he said.

“If you’re offering any of these types of cryptos to a resident in New Zealand, then you have the obligation to register on the financial services provider register, which is why if you are using an exchange or platform services of a New Zealand based business, then you have slightly more protection considering they are registered, plus more importantly, you have a point of recall”.

However, the “infrastructure” cryptocurrencies ran on called ‘blockchain’ wasn’t regulated, as blockchain technology was “just a delivery mechanism” Paul said.

Alex Sims​, associate professor in commercial law at the University of Auckland, and member of Blockchain NZ said cryptocurrency exchanges based in New Zealand were members of dispute resolution schemes.

Sims said this didn’t guarantee complete security, however, “it’s all about lessening the risk”.

She thought even with some form of regulation, people such as scammers would still continue to operate and said people ought to be wary of people offering services to invest in crypto assets on your behalf, as “most of those are scams”.

This comes as a teacher in Tauranga lost over $5000 in a crypto scam earlier this month to a firm which claimed to be a legal company based in the UK.

Sims said crypto exchanges were just one of many other areas also targeted by hackers, “so you’ve always got to be careful”.

She was also worried there was too much “hype” around the money people were reportedly making through crypto investments, as “then other people say, well I can make it too”.

“There are some very good things out there that people are building where they do get capital, which are perfectly legitimate, and the worry is for people to say well it’s all scams, it’s all terrible – that’s not the case either, it really does depend” she said.

Paul thought compared to investing in something like a share or bond, with crypto “there are really no economic drivers, the only economic driver is a scarcity being created because people say the supply is limited” he said.

“It is valuable only if someone else believes they want to pay you more, or they value it more than you do – so if you’re going to make money, it’s not because of any economic drivers behind crypto, It’s because someone else decides that it’s more valuable than you think it is, and they’re happy to pay you for it” he said.

In terms of its environmental impact, Sims likened cryptocurrencies to other sectors where the technology was constantly improving.

“Early cars used a lot of energy and, whereas now you get cars that are far more modern – it’s a bit like the first blockchain” she said.

“So, bitcoin, yes it does use a lot of energy, but the newer ones don’t”.

Bitcoin’s blockchain used the ‘proof of work’ method of calculating transactions and Paul said it was “absolutely true” that if a blockchain used this method, then “it is consuming massive amounts of energy and there’s no doubt about it”.

However, blockchains which used the ‘proof of stake’ method, which Paul said a lot of people were now experimenting with, involved “relatively, way less energy”.