BMUN XIV – EcoFin

Introduction to the Committee

In this committee, we will be dealing with questions regarding economics, global finance as well as growth and development around the world.

This year, the committee with be debating the question of cryptocurrency regulation.

In short, cryptocurrency is a digital currency where transactions are decentralised and secured by cryptography, rather than by a central regulating authority. Cryptocurrencies work using blockchain technology – decentralised technology spread across many different computers to manage and record transactions. As of September 2021, there are now more than 6,500 cryptocurrencies in circulation. Prominent examples include Bitcoin (the first and most well-known cryptocurrency), Ethereum, Litecoin, and Tether.

History of the topic

Cryptocurrency was first seen in 1983 when cryptographer David Chaum developed a cryptographic system called eCash. eCash was a digital-based system that facilitated the transfer of funds anonymously. Although the currency never took off, it garnered interest from banks and big companies.

The term “cryptocurrency” was created in 1998 as Wei Dai began to think about developing a new payment method that used a cryptographic system and whose main characteristic was decentralization. Cryptocurrency really began to take off when Bitcoin became known in 2009. Bitcoin is widely regarded as the first modern cryptocurrency — the first publicly used means of exchange to combine decentralized control, user anonymity, and record-keeping via a blockchain. Its rise coincided with the trend towards digital ways to pay – such as PayPal.

Crypto mining refers to the process of gaining cryptocurrencies by solving cryptographic equations with the use of high-power computers. People mine cryptocurrency to gain an income and have total control over their money without any banks or governments there to oversee them.

Considerations for debate

It is recommended that delegates come with a clear understanding of what cryptocurrency is, how it is currently being used by various nations and groups, and whether or not your country agrees that it is a legitimate means of settling transactions i.e., if your country has accepted cryptocurrency as a legal tender and how that might impact their views on cryptocurrency and its regulation.

For example, delegates who represent prominent countries such as the United States of America should be aware that cryptocurrency is NOT a legal tender in the US and that they are against the idea of cryptocurrency as cryptocurrency in its current form poses three main problems which is that: it cannot be regulated, it can be used by criminals or be used to fund criminal activity or help citizens to circumvent capital controls, and that there is no guarantee that the crypto project invested in will succeed, which could be seen as borderline fraud.

The reason it is unregulated is due to the fact that cryptocurrencies (such as Bitcoin) are intangible and, once distributed, can exist at multiple different location at the same time making it difficult for a single power to regulate or enforce it. However more importantly, they are not directly regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), meaning that they exist in a grey area in which their currently have the freedom to set prices for future markets, making them a threat which could potentially destabilise the economy.

Delegates should also be aware of the volatility of cryptocurrency and how susceptible it is to outside influence. It is intended to be a secure method of communication and transaction and yet this has proven to be untrue. For example, Elon Musk’s simple tweets have drastically changed the prices of several stock exchanges because of his influence and fame to the general public, begging the question – how easy is it to manipulate cryptocurrency to launder money or to use it to fund illegal activities since there are also anonymous aspects to it?

However, delegates should also be aware that there are advantages to cryptocurrency as well. Cryptocurrency “cuts out the middleman” which leads to greater clarity to establishing audit trails – an audit trail is a detailed, chronological record whereby accounting records, project details, or other financial data are tracked and traced. There would be less confusion on who should pay whom, as normally there is a 3rd party representative such as the bank or legal representatives. This can add complications and expense to what should’ve been a straightforward transaction. Paperwork, brokerage fees, commissions. It also leads to more confidential transactions; it is a unique exchange between two parties and the two parties can negotiate terms and agree on each case. What’s more, the exchange of information is done on a “push” basis, whereby you can transmit exactly what you wish to send to the recipient – and nothing besides that.

Furthermore, Bitcoin and other cryptocurrencies like it, can be seen as the next big step forward. As climate change becomes a more prominent issue, bitcoin can be seen as an environmental solution as it is a digital form of currency and does not use physical materials such as paper or plastic while current physical currencies do.

However, despite all these views for and against the usage of cryptocurrency, it is advised that certain delegates who may represent more underdeveloped countries look into whether or not their country is even remotely interested or involved in the idea and functions of cryptocurrency and whether or not it has a large impact on them, and as a part of cryptocurrency regulation, look into how it can be more accessible to those under such conditions.

Recommendations to delegates

When writing a clause for this resolution, delegates should consider possible solutions that could be offered to help regulate cryptocurrency so that it can be safely used by the general public, or if the delegates are against its uses, come up with possible ways to stop the increased use of cryptocurrency.

For example:

  • Would requiring all cryptocurrency personnel to disclose their holdings help with the issue which governments have with cryptocurrency or cause further outrage to the invasion of privacy it would cause to the users?
  • How would greater transparency in cryptocurrency mining help in its regulation?
  • Would the creation of an additional cryptocurrency security measure or an entirely new digital currency help?
  • Should organisations be created in order to help ensure the safety and security of cryptocurrency usage?
  • If cryptocurrency could be improved and bring us even closer to real time transaction, how would that affect the current economy?
  • If cryptocurrency can be safely regulated, should all currencies and transactions be moved online? What could the possibility of the dematerialisation of money imply?
  • Due to the speed at which virtual transaction are done, how could cryptocurrency, by bringing us closer to real time transaction, affect how future transactions are done and what would this mean for our current monetary system?

 

Further reading & Bibliography

For any delegate who are eager for more resources:

How Cryptocurrency Works | NYT

https://www.investopedia.com/articles/forex/042015/why-governments-are-afraid-bitcoin.asp

https://www.investopedia.com/cryptocurrency-regulations-around-the-world-5202122

https://www.fool.com/investing/stock-market/market-sectors/financials/blockchain-stocks/is-cryptocurrency-good-investment/

https://www.telegraph.co.uk/money/consumer-affairs/buy-cryptocurrency-paypal/

https://en.wikipedia.org/wiki/Cryptocurrency

https://www.investopedia.com/terms/c/cryptocurrency.asp

https://www.un.org/development/desa/dpad/tag/cryptocurrency/

https://www.investopedia.com/news/bitcoin-has-regulation-problem/

https://sectigostore.com/blog/what-is-crypto-mining-how-cryptocurrency-mining-works/