The focus of the study by the Bank of Italy is on the analysis of cryptocurrencies, while ICOs and the distributed ledger technology itself are only indirectly addressed. The authors consider the economic aspect of the crypto industry, inconsistencies in the work of crypto exchanges and crypto wallets, regulatory approaches to the regulation of cryptocurrencies in different jurisdictions, as well as analyze the application of accounting standards and prudential law to blockchain projects.
On the Distributed Ledger Technology
Despite the fact that the report does not pay special attention to the analysis of the distributed ledger technology, some arguments suggest that the researchers of the Bank of Italy see the development of the technology from a rather positive perspective. In particular, they note that the technology "can have great potential, especially in the field of cryptographic storage, the use of smart contracts and some types of digital tokens." The use of the technology, according to the authors of the report, can also improve the exchange and trading processes.
The core of the analysis of cryptocurrencies in the study by the Central Bank of Italy is the researchers' arguments against cryptocurrencies as an alternative to fiat money. The authors of the document use the term "crypto-assets" instead of "cryptocurrencies", which emphasizes that the Bank of Italy does not believe that cryptocurrencies can be used as money.
The report defines a "crypto-asset" as a digital representation of value that is neither issued by the central bank or any other authority, nor tied to a fiat currency, nor has legal status of money, but is used as a means of exchange. It is also said that the actual use of cryptocurrencies as a means of exchange is a marginal phenomenon. Due to their high volatility, they cannot perform other functions of money, i.e. act as a unit of account and a store of value. The authors of the report emphasize that this is not a temporary state of cryptocurrencies, as they will be unable to perform these functions in the future.
The report also highlights the irrational use of electricity in the case of Bitcoin. The special architecture of the blockchain makes mining so energy-consuming that its costs are ten times as high as, for example, the costs of the VISA system, given that the latter supports thousands of times more transactions.
On Cryptocurrency Regulation
According to the researchers at the Bank of Italy, legal relations in the field of cryptocurrencies can be regulated by the same regulatory act that applies to gambling. Their arguments include that, first of all, the value of cryptocurrencies is based on the expectations of contractors and is highly random in nature. The purchase and sale of cryptocurrency can therefore be equated with a stake in gambling. Second of all, mining is basically a competition in solving a cryptographic puzzle for a reward.
The authors of the report also list the anonymity of users among the major shortcomings of cryptocurrencies. In their opinion, this makes it difficult to comply with the AML legislation and allows using cryptocurrencies for criminal purposes. The main crimes in the field of cryptocurrency include extortion with the demand to transfer money in a cryptocurrency; money laundering and illegal trafficking; and cryptocurrency theft.
In a recap, the Bank of Italy said: "crypto-assets, such as Bitcoin, have no clear economic or social benefits and are limited to the needs of those economic agents that like investing in highly volatile assets."