By Michael B. Cohen
Vice President of Global Operations
The International Monetary Fund (IMF) recently published the findings of research it has undertaken regarding the potential destabilising effects of cryptocurrencies on the global financial system. The report created a commotion online as pundits and reporters passionately argued and showed the various sides of the issue.
Largely left undiscussed, however, was how these disruptions could affect the ordinary consumer. MyChargeBack analyses the potential downstream effects of large scale cryptocurrency adoption from the perspective of consumer advocacy, while continuing to develop new tools to protect those same consumers.
Crypto Gains a Foothold
Since the initial release of bitcoin in 2009, interest in crypto has grown by leaps and bounds. Still, it would be an exaggeration to say that either bitcoin or any of the other cryptocurrencies that have followed in its footsteps have truly emerged (yet) as a fully realised practical asset for the masses. Rather, they remain largely the domain of enthusiasts and early adopters, plus maybe a few libertarians energized by crypto’s independence from central bank control.
But we seem to be approaching a tipping point of adoption.
A number of perhaps unrelated factors seem to be moving the world in a direction that will result in cryptocurrency becoming vastly more widespread among a much broader cross section of the population than it has been up until now. When that happens, consumers may find themselves the victims of some unintended consequences.
Ironically, among the factors driving border adoption of cryptocurrencies — and the risks that come with that — is increased government oversight, including stricter regulation. Originally, crypto operated in a sort of ‘wild west,’ totally disconnected from any sort of authority. This was in fact part of the whole idea behind its creation, as well as its adoption by those relatively few brave souls that jumped on the bandwagon near the beginning.
Governments Push Back
It didn’t take long for complaints to pile up regarding the highly unusual ways that bitcoin and its owners behaved. There were all kinds of crypto scams, from phony ICOs to counterfeit bitcoin wallets. Crypto was being used for money laundering and the buying and selling of illegal and dangerous goods, from drugs to weapons. The entire perception among the general public was that crypto was either impenetrably opaque, unapproachably specialised, or totally useless and phony. As a result, the first decade or so of bitcoin’s existence saw relatively little expansion into the general population of ordinary middle-class investors.
Governments, on the other hand, were paying far closer attention to crypto’s goings-on. They had noticed the complaints and bad actors in the crypto space mentioned above. They also saw that bitcoin in particular — as a tradable asset — was shockingly volatile, while at the same time possessing (for the time being at least) an overall tendency towards massive growth at a scale unprecedented in recent history.
It was only natural for governments to perceive the above phenomena as noxious and threatening to both their own power over the financial system and to financial stability of society as a whole. The response across the world has been the creeping regulation of cryptocurrency. This has come in various forms. Sometimes it means applying existing regulation to cryptocurrency. Other times it means drafting entirely new laws or regulations.
An extreme case is the small Central American nation of El Salvador which, after decades of economic hardship, adopted bitcoin as an official national currency in October of 2021.
Among the results of all these government interventions is an increased sense among the public that cryptocurrencies are a stable, valid, and reasonable part of any investment strategy. Indeed, this is increasingly true.
But that’s not the whole story.
The flip side of making crypto a little safer and more regulated is that it is leading to increased adoption at a pace that far outstrips the safeguards in place so far. With that in mind, the IMF published in October 2021 the results of its ongoing study of trends in cryptocurrencies. Its conclusion is that the lagging of regulation behind public adoption poses a genuine risk to world financial stability.
The solution that the IMF proposes is more regulation, and fast.
We at MyChargeBack do not disagree in principle, but we also see from experience that this is not nearly enough.
The IMF and the national regulators make a point of couching their suggestions in terms of consumer protection, but we have found that at the point of greatest need, when a consumer is faced with a complex payment dispute, this protection is often nowhere to be found. Or at least it is sufficiently ambiguous as to make its application virtually impossible without expert assistance.
Regulation is a real step in the right direction, in that it can often prevent or punish the most egregious abuses. What it often fails to do is prevent or solve the day-to-day abuses that consumers face in a grossly asymmetrical situation.
We have seen this in the case of credit cards, bank wire transfers, and more. Too often it is the consumer alone against a far more powerful merchant, possessing both private resources and their bank. The dispute department at the customer’s bank, by comparison, is far too often understaffed, undertrained, and overworked.
Add to this the inherently ambiguous nature of cryptocurrency transactions, and the fact that none of the proposed regulations even begin to unravel the confusion, and the already challenging situation is bound to become much worse.
For over five years, MyChargeBack has developed the strategies, tools, best practices, and technologies that have enabled it to be the expert on the consumer’s side in complex payment disputes. In the last two years, we have seen a massive increase in clients whose payment involved cryptocurrencies, and we have worked hard to stay ahead of the curve to offer the best service in these situations.
While helping our clients is gratifying and rewarding, MyChargeBack is still continuing to advocate for the systemic changes needed to prevent consumers from becoming victims of the system.