About Alex Sims:
Alex is an Associate Professor in the Department of Commercial Law at University of Auckland. She is one of New Zealand’s foremost experts on the topic of blockchain. Her primary areas of research and publication are on blockchain technology (currently the regulation of cryptocurrencies, legal issues surrounding smart contracts and DAOs), consumer law and intellectual property law (in particular copyright law). Alex is leading a team undertaking a research project entitled ‘Regulating Digital Currencies that use Blockchain Technology’. The project has a $52,000 grant from the NZ Law Foundation.
Alex shared with PANews about her “China experience”, which her friends finding it very difficult to use cash as a payment method. “It’s easier when you have a WeChat account and WeChat wallet for transaction, but for foreign visitors it’s actually quite hard to adopt.” For those who know nothing about it, she recommended a video created by The New York Times vividly illustrating what WeChat is to help them understand.
New Technology, Old Rules
New Zealand’s IRD has released its guidance for taxation of cryptocurrencies in early April this year. It says cryptocurrency is treated as property for tax purposes. There are no special tax rules for cryptocurrencies — only ordinary tax rules apply.
“They made no amendment or revision to the existing laws, by trying to fit in or re-articulate to the existing rules sometimes might not work so well. ” Alex commented on this new tax guide.
Nevertheless, Alex revealed that an even more serious issue actually lies in the real-life practice of cryptocurrencies in New Zealand. By not making it illegal, doesn’t mean you can have a bank account set up if your purpose is to launch a crypto exchange — “Good luck trying to have a bank account.”
A Chicken and Egg Situation
In New Zealand, “light-handed regulations” exist. The banks don’t want to come in and regulate too much. Also, the actual requirements for setting up an exchange remain unclear and uncertain. “Hence, by doing nothing and without having any clarification on the laws, has the potential to do harm.” Alex said.
The bank claims that no one is using cryptocurrencies here (since you are not able to) so this country doesn’t need it. However, people from overseas are using them. Local venues and local exchanges have AML (Anti-Money Laundering) and KYC (Know Your Customer) barriers, however, government should still take people from overseas who leverage legit exchange like Coinbase into consideration, in such cases there should be rules.
While other countries are saying “please come here”, the regulators here would say that “we are not stopping you from doing it.” But in fact they are. The regulators have been questioning like citizens want no rules,” and that’s not true. “It is not that we want no rules, instead, tell us what the rules are and let us have bank accounts.” Alex said.
“The biggest obstacles are coming from the banks at the moment. The government is not doing much. In 2014, the Australians has already sent a review and in 2016 the U.K. even published an instruction for use, while New Zealand government has been just too nervous to act,” she continued.
What’s Next for the Regulators?
After this tax regulation, there might be some policy and legislative change regarding cryptocurrencies. It is not clear about whether to put GST (Goods and Services Tax). What Australia did was to remove it. Because if someone purchase Bitcoin from the other person, a 15% GST or VAT (Value-added Tax) applies. Then when you spend it, you have to pay GST again, That’s not yet been fixed.
A lot of regulators has been doing nothing but worrying about ICOs. “But that’s a bit of red herring. ICO and cryptocurrencies are not exactly the same thing.
On-ramps and Off-ramps
The main problem around the world at the moment is what we call the “On-ramps and Off-ramps”. We need exchanges when you get fiat to crypto (on-ramp), crypto to fiat (off-ramp), for goods. Because once you’ve got cryptocurrency, you can go and exchange for other cryptocurrency. Actually credit card, Visa and Master Card, they pulled and that’s a good use case.
New Zealand is falling behind because of the lack of clarification and just hands off from this issue. Alex thinks, “what we need is a Sandbox, so the regulators can work with those companies and so they know what needs to be done and what needs to be changed. Also, trying to regulate in this area is almost impossible. Because things change so fast, there is no one single country with a comprehensive regulation. The key thing is clarifying to rules and setting up those exchanges — that’s what happens in Japan. Ever since then, a lot of money flew to Japan, even people moving from China to there.”
Australia is a lot further ahead, in fact, the Australian is upgrading their stock exchange based on blockchain. Because at the moment, if we do a trade, it can be done within seconds, but the actual payment takes two or three days to process. This approach can be spontaneous.
Some good use case of blockchain payment system is happening in New Zealand. IBM’s blockchain international payment system is available in New Zealand. A company called KlickX is using the Stellar Lumens. Still, they are trailing it in the South Pacific for payments now. The key thing with that one is that they have to use Stellar Lumens because there is no central bank issued cryptocurrency.
When PANews asked if New Zealand central bank is planning to issue central cryptocurrency, Alex said “No, it’s just… they are dinosaurs.”
Lack of Capable People in This Area
“It’s the same everywhere. But saying that, a lot of people want to come to New Zealand and they need to know that they are coming to a business that’s stable. They are not going to move all the way here to be worried about the bank account being closed. Now with things being online you can work remotely, also because of the open source, you don’t need to start from scratch.”
University should be teaching this but the trouble is that you’ve got people with their area of speciality, and this is all new, and they don’t want to have to learn something new. There is someone from business school who give students a blockchain-related assignment. They’ve got to look at a certain number of industries and explain how blockchain can be used. So some people are already thinking about it.
I think one thing on this is that the younger ones in New Zealand are not really interested in it, because they don’t know how broken things were. If they do, they might realize that this (technology) can actually change things. I just don’t think most young people know how things really work. They just think that things work just the way they are.
ANZ and IBM Build Blockchain Solution for Insurance
One of the beauties of blockchain is the ledger, and the fact that you got a common ledger that no one can change. Because at the moment, when you make payments from the merchants to whoever, everyone got their own ledgers they need to reconcile. And that’s enormous amount of money. They don’t realize that.
The Australia and New Zealand Banking Group (ANZ) has announced a blockchain solution aimed to improve efficiency in the insurance industry. ANZ and IBM in conjunction with Suncorp New Zealand are working together to develop a blockchain solution for the insurance industry that will help make the data transfer and payment reconciliation process faster and more transparent between brokers and insurers.
Struggle Is Real
Blockchain is not only about the payment method, it’s everything that comes with it. It’s smart contract and all these things, while most people can’t understand it. “I did a presentation down in Wellington last year, I started it off with an example of an autonomous car, explained DAOs wallets etc., it is always a good example to do it. And I also explained the ownership of the token and all this type of things. And there was someone there stating that we can just make our current system better and as fast. When I was trying to explain further on how we can pass over every information as well as getting the money transacted, the audience interrupted and questioned why it would be any better, so I just gave up doing more preaching.
It’s even more pressing in New Zealand because we don’t have title to the car. So you can be the registered owner, you might own the car or you might not, it’s a separate thing. What the registered owner signifies is that the person who gets all the parking and speeding tickets. Say for example, I lease a car to you, and I do not want to get all the parking tickets and stuff, so there is an agreement that you put down as the registered owner but I am still the owner to the car. And it seems crazy but it just the way it is.
Money Laundering and Terrorism Financing
Money laundering and terrorism financing in the traditional system occurs more than that leverages cryptocurrencies. The UK Treasury Report from last year regarding this stating that cryptocurrencies have lower risks for those purpose. New Zealand basically has been a tax heaven, so the trust has to be changed, also the existing systems that allow the money laundering. With cryptocurrencies and an exchange, more information will be tracked.
Digital identity is also a crucial issue. Some people might not want that. But for the people who legitimately want to use cryptocurrencies, digital identity is the missing piece. The trouble is it needs to be something that can be accepted everywhere. Because once you got the digital identity, it’s easier for the to do the AML and KYC.
People are trying to build the infrastructure, but the “on-ramp and off-ramp” are still needed. The way for people to get into it, because it is not yet there at the moment. New Zealand is way further behind… Even some countries’ central banks are already starting exploring it, like China.
Curiosity over China’s Blockchain Development
They are saying that in China there are only limited places you can put your money, hence some people are setting up website that is easy to use to make the elders put their money in, which sounds not trust worthy and dangerous. Rumor also has it that China is banning bitcoin and making life harder for miners. However, data should that the development of cryptocurrencies is the other way around. Look at one of the world’s leaders in blockchain, look at WeBank.
Alex Wrote on Her University Page
“The technical, legal and societal issues surrounding blockchain are fascinating, however, while there are many opportunities there are risks. Blockchain’s paradigm shifting nature can be difficult to comprehend, indeed it is an example of Arthur C Clarke’s adage “Any sufficiently advanced technology is indistinguishable from magic”. Blockchain technology may be as disruptive, if not more disruptive, than the Internet and it is vital for businesses, governments and others to understand blockchain technology and its potential uses, particularly in their field of operation.”
