Jacob Wong
Student investors at UCSB looking for the next hot Bitcoin or Ethereum, look no further: cryptocurrency is coming to Turkey.
Dubbed “Turkcoin,” the state-backed currency is the Turkish government’s answer to a recent global surge in the popularity of digital monetary systems. While some Turkish officials remain wary of some of the more popular cryptocurrencies such as Bitcoin, a growing faction of the government is beginning to see the merit of a national system.
“The world is advancing toward a new digital system,” stated Ahmet Kenan Tanrikulu, Deputy Chair of Turkey’s Nationalist Movement Party, in a report by Al-Monitor. “Turkey should create its own digital system and currency before it’s too late.”
The developments in Turkey follow an overarching trend of countries around the world implementing a national cryptocurrency. Over the past year, China, Venezuela, and Iran have all either instituted or begun to test out a digital currency. However, cryptocurrency is still a relative unknown to policymakers.
For the most part, the markets for Bitcoin and other cryptocurrencies have operated beyond the scope of any federal jurisdiction or monetary policy. In addition, cryptocurrency itself is constantly changing new currencies pop up with relative frequency, and the ones already in existence consistently undergo further development and improvements.
This creates a dilemma for lawmakers: while cryptocurrency appears to be developing into the future of international commerce, to what degree can governments regulate digital markets without hampering innovation?
Security is one justification that governments are using for increased regulation of cryptocurrency markets. Online currency scams occur frequently in the digital marketplace, and governments have begun to take note. Last month, the U.S. Commodity Futures Trading Commission (CFTC) issued a statement warning investors of “pump-and-dump” cryptocurrency schemes, a commonly occuring cryptocurrency scam that occurs when fraudsters use social media sites and online forums to inflate the value of their currency. Once the currency reaches a specific value, the perpetrators dump all their shares, essentially leaving their investors with worthless currency.
The CTFC statement acknowledges that “pump-and-dump” is not unique to digital currency; stockbrokers have engaged in similar practices for years. However, when applied to cryptocurrency, these kinds of scams present a unique challenge to lawmakers.
“These pump and dumps occur in the largely unregulated cash market for virtual currencies and digital tokens, and typically on platforms that offer a wide array of coin pairings for traders to buy and sell,” states the CFTC memo. “The number of new virtual currency and digital coin traders has grown substantially, increasing the number of potential victims or unwitting perpetrators.”
With governments around the world beginning to recognize the the dangers of an unregulated cryptocurrency market, some have taken steps to construct policies that will remedy these issues.
Last month, the Treasury Committee of the British government launched an inquiry into the state of digital currencies within the country. “[People] may not be aware that [cryptocurrencies] are currently unregulated in the U.K., and that there is no protection for individual investors,” said Nicky Morgan, the Chair of the committee, according to a report by Independent.
The committee will try to model the U.K.’s own future cryptocurrency policies after the regulation efforts of other countries such as South Korea, which recently introduced legislation banning people from trading cryptocurrencies anonymously to protect investors from fraud. “Striking the right balance between regulating digital currencies to provide adequate protection for consumers and businesses, whilst not stifling innovation, is crucial,” stated Morgan.
South Korea is host to one of the world’s largest cryptocurrency markets; its national currency — the Korean won — is the third-most-used currency to trade for popular cryptocurrencies such as Bitcoin.
However, in an effort to curtail fraud, the country’s lawmakers discussed implementing a number of regulations on cryptocurrency last fall, including a ban on Initial Coin Offerings (ICOs). An ICO is a crowdfunding method that involves selling units of a new cryptocurrency in exchange for more established ones to finance that new currency’s development.
Ultimately, South Korea’s ICO ban never made it into official legislation. Despite lawmakers’ concerns that ICOs provided fraudsters an easy means to scam other investors, the costs that such a ban would have on the country’s digital market apparently outweighed those fears.
As cryptocurrency continues to evolve into a viable means of conducting business both domestically and abroad, the challenge for lawmakers will be to keep up with its development. The efforts by the U.S. and British governments’ to enact legislation that protects investors from cryptocurrency fraud indicate that some countries might be up to the task.
However, as South Korea’s failed ICO ban demonstrates, there is a fine balance to strike between instituting well-intentioned regulation and hampering innovation. Turkey and other countries introducing their own digital currencies will need to navigate this fine line in order to be successful.