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4. Arguments Against Cryptocurrencies 4.1 Cryptocurrencies Are Not Money

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4. Arguments Against Cryptocurrencies 4.1 Cryptocurrencies Are Not Money 59 3.4.5 Demurrage In the context of cryptocurrencies, demurrage is tax on holding units of a currency,482 and it is designed to make people spend money, not hoard it.483 Freicoin uses demurrage. A fraction of each transaction is levied in proportion to the time since the coin was last used. This essentially operates as a negative interest rate on currency holders. Freicoin’s demurrage fee is approximately five per cent per year.484 Freicoin has not proved popular though. On 13 April 2018 it was worth only USD 0.0047.485 4. Arguments against cryptocurrencies Many arguments have been made against the use of cryptocurrencies. This section examines those arguments and explains why some are ill-founded. For those drawbacks that remain live issues, many can be solved, whether by changes to technology underlying cryptocurrencies, regulation or a combination of both. Specific potential risks for consumers are addressed in Section 4.9. 4.1 Cryptocurrencies are not money The argument is often made that cryptocurrencies are not money and therefore not a currency.486 Much work has been done to determine whether cryptocurrencies meet the definition of money.487 In some cases internationally, cryptocurrencies have been held by the courts to be a currency and thus money;488 however, equally they have been treated as commodities489 and there are arguments that some cryptocurrencies may be securities.490 For example, William Hinman from the (US) Securities and Exchange Commission recently noted that:491 Promoters … to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering. Funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument – usually by selling their tokens in the secondary market once the promoters create something of value with the proceeds and the value of the digital enterprise increases. Hinman also noted that even if the digital asset had started out as a security it would not necessarily remain a security for all time: for example, if the “digital asset is sold only to be used to purchase a good or service available through the network on which it was created.”492 The debate over the classification of cryptocurrencies as currency or not is, however, largely redundant. If governments through their respective legislatures declare cryptocurrencies, or some of 482 Swan, above n 166, at 75. 483 Franco, above n 53, at 177. 484 <http://freico.in/about/>. 485 <https://Coincap.io>. 486 See, for example, David Yermack “Is Bitcoin a Real Currency? An Economic Appraisal” in David KC Lee (ed) The Handbook of Digital Currency (Elsevier, 2015) 31 and Mazin Sidahmed “Bitcoin 'Not Real Money' says Miami Judge in Closely Watched Ruling” The Guardian (UK, online ed, 26 July 2017) <https://www.theguardian.com/technology/2016/jul/26/bitcoin-not-real-money-miami-judge>. 487 See eg Dong He et al, above n 68, at 1017. 488 US v Murgio, No 15-cr-769 (AJN) (Southern District of New York, 12 January 2017). 489 Commodity Futures Trading Commission v McDonnell, 6 March 2018 Memorandum & Order (Eastern District of New York). 490 Peter Valkenburgh Framework for Securities Regulation of Cryptocurrencies Version 1 (Coin Center Report, January 2016) <https://coincenter.org/wp-content/uploads/2016/01/SECFramework2.5.pdf>. 491 Willam Hinman “Digital Asset Transactions: When Howey Met Gary (Plastic)” (paper presented to Yahoo Finance All Market Summit, San Francisco, United States, June 2018) <https://www.sec.gov/news/speech/speech-hinman- 061418#_ftn3>. 492 Ibid. Hinman gives only a qualified “yes” in the situation. 158 Financial Conduct Authority “Discussion Paper on distributed ledger technology” DP17/3 (April 2017) <https://www.fca.org.uk/publication/discussion/dp17-03.pdf>. Financial Conduct Authority “Regulatory Sandbox Lessons Learned Report” (October 2017) <https://www.fca.org.uk/publication/research-and-data/regulatory-sandbox-lessons-learned-report.pdf>. United Kingdom HM Treasury “Digital Currencies: Response to the Call for Information” (March 2015) <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414040/digital_currencies_ response_to_call_for_information_final_changes.pdf>. United Kingdom HM Treasury “National Risk Assessment of Money Laundering and Terrorist Financing” (October 2017) <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/655198 /National_risk_assessment_of_money_laundering_and_terrorist_financing_2017_pdf_web.pdf>. 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