Decoding Blockchain for Business by Stijn Van Hijfte

Author:Stijn Van Hijfte
Language: eng
Format: epub
ISBN: 9781484261378
Publisher: Apress

Financial Instruments

We mentioned a bit earlier that the blockchain world has also seen a rise in new financial products. We do need to state immediately that the local financial authority has the power to determine what a legal financial instrument is in a certain country. For some countries, these definitions are quite broad, while others have tried to keep cryptospace as far as possible from customers to protect them from possible losses.

In Germany, for example, the legal definition has been adopted as follows since March 2, 2020: “Digital representation of a value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a currency specified by law and that does not have the legal status of a currency or money, but is accepted as a medium of exchange by natural or legal persons and can be transmitted, stored, and traded electronically.”53 This provides a very broad base to possible instruments but also imposes stark requirements when considering the supervisory programs and compliance needed to ensure that the right investments are recommended for the right customer, so that risk-averse customers don’t end up with risky investments.

It is this same, often uncertain , regulatory environment that has proven to be a barrier for further innovation. This is a double-edged sword, as new instruments could help those without access to regular financial services to finance their lives and increase profits. On the other hand, widening the door to instruments that are often not well understood can lead to higher risks (as both the banking crisis of 2008 and the cryptocrash of 2018 have shown us).

When working together, regulatory instances from all over the world could come to similar terms, thereby reducing the regulatory uncertainty and creating a stable ground for new financial instruments. Later in this book you will read an entire section on cryptocurrency regulation, which really shows the difference in interpretation when it comes to cryptocurrencies.

It’s interesting to know that there are now also investment funds focusing on cryptocurrencies. Lending instruments, put and call options, and automated contracts have all been introduced.

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