Written by AJ D. Rodriguez/THE RED CHRONICLES
Layout by Luis Marco Mendoza/THE RED CHRONICLES
The Philippines has embraced the global crypto revolution with open arms, ranking sixth globally in cryptocurrency adoption, according to the 2023 Crypto Adoption Report of Chainalysis. Law students, poised at the forefront of emerging trends, are naturally drawn to this intriguing financial asset. But before venturing into the world of digital assets, understanding the underlying technology and its potential risks is crucial.
Cryptocurrencies would not exist without blockchain, a revolutionary technology that securely stores and transmits digital information. Imagine a public ledger, constantly updated and distributed across numerous computers. This creates an irrefutable record of transactions, eliminating the need for central authorities and enhancing transparency. Some of the industries that have successfully adopted this technology include finance, healthcare, information technology, fast-moving consumer goods, utilities, telecommunications, and even climate studies and agriculture.
The seeds of blockchain were sown in the 1970s with cryptographic innovations like Merkle trees – these are fundamental data structures in blockchain technology, acting like a secure and efficient “fingerprint” for verifying the integrity of large datasets. The 1990s saw conceptualizations and early implementations, culminating in Satoshi Nakamoto’s groundbreaking Bitcoin whitepaper in 2008, “Bitcoin: A Peer-to-Peer Electronic Cash System”. This marked the birth of the first real-world blockchain and ignited the cryptocurrency revolution. Since then, we have seen a surge in adoption across diverse industries, and ongoing explorations to improve scalability, regulations, and novel applications.
In light of these recent technological developments, law students are encouraged to understand the applications and regulatory frameworks behind this medium of exchange more popularly known as cryptocurrency. This type of investing involves buying and holding units of digital assets like Bitcoin or Ethereum. Unlike traditional currencies backed by governments, they rely on cryptography for security and operate largely outside centralized financial systems.
In understanding this technology, it is important to see both its benefits and the risks involved. Cryptocurrencies offer several advantages such as facilitating economic growth and reducing income inequality. People, especially those who have limited access to capital, will have a platform to tap into in order to help them with their business activities. It is also considered a global medium of exchange due to its accessibility and ubiquity. It is capable of the quick and efficient distribution of financial assets anywhere in the world. Users will also have greater control of their digital financial assets since it is not kept in a bank or other intermediaries who control the flow and even charge fees for certain transactions. Lastly, it democratizes financial access and allows anyone with access to the internet to participate and make use of this type of currency.
But it’s not all good news. Recent high-profile scams in the Philippines, documented by BitPinas in its article “Recent Major Crypto Scams 2023”, serve as stark reminders of the risky nature of cryptocurrencies. Aside from the high volatility of the valuation of bitcoin in recent years, other more sinister schemes are being conducted using cryptocurrencies. From pyramid schemes masquerading as legitimate ventures to fake tokens and rug pulls, Filipinos have fallen victim to a plethora of deceptive tactics.
Self-proclaimed “crypto king” Vance Joshua Tamayo, is one of the recent names that logged into the records of Criminal Investigation and Detection Group (CIDG) after he enticed victims with promises of significant returns on cryptocurrency investments, but he eventually cut off communication, leaving investors with losses. At least ten victims have reported losses exceeding ₱100 million, with ongoing investigations looking into potential police officer victims. On September 13, 2023, he was arrested along with his alleged secretary in Parañaque City, following a complaint from a Makati City businesswoman. Tamayo and his companion are in custody while facing large-scale estafa charges.
As future legal professionals, understanding the legal and financial risks associated with crypto is paramount. Some key considerations include its high volatility since crypto markets are prone to dramatic price swings, leading to significant financial losses. Regulations are also still being crafted and updated since this is a new industry in the country. Hacking and phishing attacks are rife, threatening the security of individual holdings. Cryptocurrencies can also be a tool to carry out scams and fraud.
Fortunately, the Philippines is one of the leading countries in terms of legal policy frameworks for blockchain technology and cryptocurrency, as reported by an online Technology News website Forkast in its article, “What the US can learn from the Philippines to regulate crypto in a smarter way.” The Securities and Exchange Commission (SEC) regulates cryptocurrencies considered securities under the Securities Regulation Code. Issues initial coin offering (ICO) guidelines, requires exchanges to register and investigates fraudulent activities. The Bangko Sentral ng Pilipinas (BSP) oversees financial institutions and electronic money issuers (EMIs) dealing with crypto. It has issued a circular regulating virtual currency exchanges (VCEs) and warned against unlicensed platforms. Finally, the Anti-Money Laundering Council (AMLC) implements Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulations for crypto exchanges and VCEs, requiring registration and compliance measures.
The future of cryptocurrency in the Philippines holds immense potential, but it requires vigilant navigation. Law students, equipped with legal knowledge and a passion for justice, can play a critical role in shaping a safe and responsible crypto ecosystem for all Filipinos. Remember, invest in your understanding before entrusting your future to the volatile world of digital assets. Your financial security is worth more than any quick crypto gain.