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Tougher regulation is needed to prevent the rapid growth in cryptocurrencies leading to financial instability, defrauding of consumers and the funding of terrorism, the International Monetary Fund has said.

The Washington-based IMF said the 10-fold increase in the market value of crypto assets digital or virtual currencies to more than $2tn since early 2020 required more active and collaborative supervision by governments.

In a chapter from its forthcoming Global Financial Stability Report, the IMF said many of the new cryptocurrencies lacked robust governance and risk practices.

Cryptocurrencies are an alternative way of making payments to cash or credit cards. The technology behind it allows the money to be sent directly to others without it having to pass through the banking system. For that reason they are outside the control of governments and are unregulated by financial watchdogs and transactions can be made in a way that keeps you reasonably pseudonymous.

If you own a crypto-asset you control a secret digital key that you can use to prove to anyone on the network that a certain amount of that asset is yours. If you spend it, you tell the entire network that you have transferred ownership of it, and use the same key to prove that you are telling the truth. Over time, the history of all those transactions becomes a lasting record of who owns what: that record is called the blockchain.

Bitcoin was one of the first and biggest cryptocurrencies and has been on a wild ride since its creation in 2009, sometimes surging in value as investors have piled in and occasionally crashing back down. Dogecoin which started as a joke has also seen a stratospheric rise in value.

Sceptics warn that the lack of central control make crypto-assets ideal for criminals and terrorists, while libertarian monetarists enjoy the idea of a currency with no inflation and no central bank.

The whole concept of cryptocurrencies has been criticised for its ecological impact, with "mining" for new coins requiringvast energy reserves and the associated carbon footprintof the whole system.

Richard Partington and Martin Belam

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Dimitris Drakopoulos, Fabio Natalucci and Evan Papageorgiou, authors of the chapter, said in a blog that crypto exchanges had faced significant disruptions during periods of market turbulence. There are also several high-profile cases of hacking-related thefts of customer funds. So far, these incidents have not had a significant impact on financial stability. However, as crypto assets become more mainstream, their importance in terms of potential implications for the wider economy is set to increase, they said.

The blog noted the substantial risks to consumers from inadequate disclosure and oversight, given that some currencies were likely created solely for speculation purposes or even outright fraud. The (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors for money laundering, as well as terrorist financing.

The IMF also highlighted potential problems with the four-fold increase in the supply of stablecoins cryptocurrencies that aim to peg their value, usually against the US dollar to $120bn (88bn) during 2021.

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The blog said: Given the composition of their reserves, some stablecoins could be subject to runs, with knock-on effects to the financial system. The runs could be driven by investor concerns about the quality of their reserves or the speed at which reserves can be liquidated to meet potential redemptions.

Last month, China made transactions in cryptocurrencies illegal, but the IMF said emerging and developing countries appeared to be leading the way with their use. This risked damaging the ability of central banks to effectively implement monetary policy and potentially created financial stability risks, it added.

As a first step, regulators and supervisors need to be able to monitor rapid developments in the crypto ecosystem and the risks they create by swiftly tackling data gaps. The global nature of crypto assets means that policymakers should enhance cross-border coordination to minimise the risks of regulatory arbitrage and ensure effective supervision and enforcement, the IMF said.

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IMF warns of global risks from unregulated cryptocurrency boom - The Guardian

While investments in complicated technology that goes way over peoples heads is a norm in the stock market, especially in the biotech and tech industries, crypto investors tend to take this hopeful-yet-ignorant investing strategy to the extreme.

With 1 in 3 crypto investors admitting to knowing little to nothing about the technology and just 16.9% reporting that they fully understand the value and potential of the technology, crypto investors seemingly invest a lot of trust with their money. Sure, your typical investor in biotechs has a limited understanding of what mRNA and gene splicing are, but they certainly understand the need for cancer treatment and remedies.

One of the most fundamental, and often misunderstood differences between various cryptos, is its classification as either a Coin or a Token. This is because, on the surface, the two are very similar. However, the utility of the two couldnt be more different.

Additionally, all Coins and Tokens are classified as cryptocurrencies, though many of them are not meant to be currencies and do not circulate as such.

Coins are the original inhabitants of the blockchain and have clear-cut qualities that separate them from Tokens and are meant to be similar to money.

So what makes a coin a coin?

First and foremost, coins are coins because they operate on their own blockchain. When an individual sends, for example, Bitcoin to another individual, that block, or transaction, gets placed on that coins blockchain. So in this case, the transaction would appear exclusively on the Bitcoin blockchain.

Furthermore, per its name, Coins are meant to act as money and have the characteristics of money, being; durability, portability, divisibility, uniformity, limited supply, and acceptability.

Lastly, Coins get mined. Not physically of course, but in order to maintain the security and transfer of Coins, mining is important. Mining is done through Proof of Work (PoW) and Proof of Stake (PoS) models. PoW models mean miners must validate and come to a consensus for a transaction to occur, however, this model is very costly in terms of energy consumption. Meanwhile, PoS favors miners with a higher or longer-standing stake in the currency and rewards miners for their commitment to the currency. Read more on the differences here.

So if Coins are digital money, then Tokens can be thought of as a digital representation of ownership of an asset. These are most commonly found in the form of NFTs and Stablecoins.

Tokens dont operate on their own blockchain but are tacked onto other blockchains, such as Ethereums. If youve ever seen XYZ is run on the Ethereum blockchain, that is a good hint that it is probably a Token.

So instead of running on the blockchains, Tokens are run by smart contracts and unlike Coins, Tokens physically change hands.

Think of it this way, if I send you money via Zelle or Venmo, the bank didnt physically move the $20 to a storage container with your name on it, from one with my name on it. Instead, the money remained in the bank and they just noted that I now have a claim to $20 less and that you now have a claim to $20 more. This is, in essence, what the blockchain does.

But what happens if you buy my car? The title, which represents ownership of the car, physically changes hands and the car is now yours. Think of tokens as a digital version of a title. It is a perfectly unique string of code that gives ownership to some kind of asset, digital or otherwise.

So whats the difference? Coins are money and Tokens represent ownership of something else, which could be anything from digital artwork like Pudgy Penguins to some amount of U.S. Dollars.

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Cryptocurrency Basics: What's the Difference Between Digital Coins and Tokens? - InvestorsObserver

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NEW YORK, Oct 4 (Reuters) - A U.S. appeals court on Monday revived a lawsuit by investors who claimed they were defrauded into buying the HelbizCoin cryptocurrency as part of a "pump and dump" scheme.

The 2nd U.S. Circuit Court of Appeals said a lower court judge erred in finding he lacked jurisdiction to review Helbiz Inc's $38.6 million initial coin offering because its coins were not listed on a U.S. exchange or bought domestically.

While not addressing the lawsuit's merits, the 3-0 decision could be a setback for cryptocurrency firms seeking to avoid liability in U.S. courts by claiming they operated and raised money in foreign countries.

Investors said Helbiz promised to use proceeds from its 2018 offering to develop a smartphone-based transportation rental platform allowing users to rent bikes, cars, scooters and flying drone taxis.

The investors said Helbiz instead kept most of the money for itself, and for almost every rental accepted U.S. dollars, euros and other payment methods, dooming HelbizCoin.

U.S. District Judge Louis Stanton in Manhattan dismissed the lawsuit in January, citing a 2010 Supreme Court precedent that limited the extraterritorial reach of federal securities laws.

But the Manhattan-based appeals court said Stanton should have used a more "tailored" approach, and consider the investors' claims under New York state law and that state's rules for applying its laws extraterritorially.

It also said investors could amend their complaint to show that one plaintiff was a Texas citizen who bought HelbizCoin domestically, supporting their federal securities law claims.

Robert Heim, a lawyer for Helbiz, said the company believes the lawsuit "is without any merit whatsoever, and we look forward to a speedy resolution."

Michael Kanovitz, a lawyer for the investors, said his clients plan also to show that title to their coins were transferred in the United States.

"The fraud is there to be proved," he said. "We think we're very well situated to win the case."

The case is Barron et al v Helbiz Inc et al, 2nd U.S. Circuit Court of Appeals, No. 21-278.

Reporting by Jonathan Stempel in New YorkEditing by Marguerita Choy

Link:
HelbizCoin cryptocurrency lawsuit is revived - Reuters

A former U.S. Senate candidate pointed a gun at a former campaign staffer in a dispute over a cryptocurrency investment, according to court documents.

The allegations are included in a protection order brought against businessman Max Linn by a former assistant, Matt McDonald, the Bangor Daily News reported. A temporary protection order was granted Wednesday.

Linn became known for his debate antics during the 2020 Senate campaign in which he finished last behind Republican Sen. Collins, who won reelection, and Democrat Sara Gideon and independent Lisa Savage.

McDonald alleged in court documents that Linn gave him money to invest in cryptocurrency earlier this year but that Linn reversed course upon return from an overseas trip and sought to buy drugs falsely touted as COVID-19 cures. Linn pointed a gun in McDonald's direction when the two met to try to resolve the dispute, McDonald said in the court filing.

I went to court because I believe my family could be in danger, McDonald told the Bangor Daily News.

Linns attorney, Steve Juskewitch, confirmed that Linn gave McDonald $225,000 to invest in cryptocurrency but denied that Linn threatened McDonald with a gun or sought to buy medicine or drugs.

Juskewitch called McDonalds allegations against Linn a pure fabrication to divert attention from the cryptocurrency dispute.

Linn garnered attention in the Senate debates in 2020, telling a moderator request denied! when asked to stay on subject.

He made news several years earlier over fraudulent signatures used in a previous attempt to get on the ballot. Before that, he lived in Florida, where he ran for several offices.

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Former Senate candidate accused of threatening man with gun over cryptocurrency - The Boston Globe