Business

BOJ advises public against Bitcoin and cryptocurrencies

Money backed by the internet, not the government

BY DENNISE WILLIAMS
Contributor

Wednesday, February 07, 2018

Print this page Email A Friend!


Welcome to the innovative, mysterious and in some cases, profitable world of cryptocurrencies, of which Bitcoin is the most popular.

According to sites such as Investopedia.com, cryptocurrencies, sometimes called virtual currencies, digital money/cash, or tokens, are not really like US dollars or British pounds. They live online and are not backed by a government. They're backed by their respective networks.

Technically speaking, cryptocurrencies are restricted entries in a database. Specific conditions must be met to change these entries. Created with cryptography, the entries are secured with mathematics, not people.

And in Jamaica, the excitement of making a tonload of money in the virtual world of cryptocurrencies has prompted the Bank of Jamaica to advise would-be investors to draw brakes.

Tony Morrison, director of communications at the Bank of Jamaica, stated in a press release: “The Bank of Jamaica is aware of reports of investments in virtual currencies and the use of these types of instruments for the settlement of economic transactions. In light of these reports, the Bank is advising the public to exercise caution in the use of virtual currencies (cryptocurrencies) given the associated risks and the absence of appropriate governance and consumer protection arrangements.”

Consider that crypto-currencies are restricted entries that are published into a database, but it's a special type of database that is shared by a peer-to-peer network.

For example, when you send some bitcoin to your friend Cara, you're creating and sending a restricted entry into the Bitcoin network. The network makes sure that you haven't got the same entry twice; it does this with no central server or authority. Following the same example, the network is making sure that you didn't try to send your friend Cara and your other friend Alice the same bitcoin.

Morrison reminds the public that Bitcoin or any other type of cryptocurrency is not legal tender in Jamaica.

Cryptocurrencies are generated by the network in most cases to incentivise the peers, also known as nodes and miners, to work to secure the network and check entries. Each network has a unique way of generating them and distributing them to the peers.

And so every cryptocurrency is a little different, but most of them share these basic characteristics, according to Investopedia.com:

(1) They're irreversible. After you send a cryptocurrency and the network has confirmed it, you can't retrieve it. Cryptocurrencies are one-way, no charge-backs.

(2) They're anonymous. Anyone can open a wallet, no ID required, and have varying stages of anonymity depending on which token you use.

(3) They're fast and globally accessible. Entries are broadcast across the network immediately and are confirmed in a couple of minutes.

(4) They're built to be very secure. Cryptocurrencies use the latest cryptographic techniques, but they're in early development.They have a controlled supply limited by the network.

That said, the Government of Jamaica is not opposed to the idea of financial innovation.

Morrison explains, “The Bank is committed to the process of facilitating the enhanced use of technology in the provision of financial services, while preserving financial and payment system stability. In this regard, although virtual currencies with blockchain as the underlying technology may have benefits, such as the potential to promote financial inclusion, the following risks need to be taken into consideration:

1.Virtual currencies are not legal tender in Jamaica.

2. Bank of Jamaica neither issues nor backs virtual currencies.

3.Virtual currencies are not foreign currencies as there is no monetary authority that issues or backs them.

4. Bank of Jamaica does not regulate or supervise virtual currencies.

5. Bank of Jamaica has not authorised any entity to operate a virtual currency platform.

6.Transactions in virtual currencies, such as Bitcoin, are susceptible to abuse by criminals and may facilitate money laundering and the financing of terrorism.

Morrison continues, “In light of the above, Bank of Jamaica, while committed to supporting financial innovation, will continue to closely monitor the evolution and potential implications of virtual currencies. Regulatory strategies will be pursued where appropriate, and the requisite advisories will be issued if deemed necessary. Please be advised that there are no legislation arrangements under the purview of Bank of Jamaica that provide protection for loss arising from the use of virtual currencies.”

ADVERTISEMENT
ADVERTISEMENT

Poll

ADVERTISEMENT
ADVERTISEMENT

Today's Cartoon

Click image to view full size editorial cartoon
ADVERTISEMENT