Cryptocurrencies and blockchain technology… Let’s discuss these two popular concepts. In our blog post series, we write about cryptocurrency and blockchain technology, and legal sanctions against them.
First, when talking about these technologies, it is necessary to consider the high volumes of data flows. In the first article of our series, we explain what cryptocurrencies are, what they are not, and legal sanctions against them. In the next articles, we will discuss blockchain technology and its differences from traditional databases. In the last article, we explain the relationship between cryptocurrencies and financing of crime, legal sanctions, and Datactive’s solutions.
What is Cryptocurrency?
Cryptocurrency is a completely digital and encrypted virtual currency. It can be used in barter transactions and uses cryptography for security. It is different from virtual money spent with debit cards and credit cards since they are centralized. On the other hand, cryptocurrencies are decentralized. It means they are not controlled by any authority or government. Cryptocurrencies are produced by mining method through distributed systems. The mining process describes operations based on solving mathematical problems, but high-powered systems are required for production. In addition, this process can be carried out by anyone who has systems with sufficient power and an internet connection. Since the number of produced cryptocurrencies increases, the problems that need to be solved for production become more difficult. Bitcoin is the first and most popular currency with the highest trading volume on cryptocurrency exchanges. Considering the circulating amount of Bitcoin, which is designed to be 21,000,000 in total, it is estimated that production by mining will end in the year 2140.
One of the main features that distinguish cryptocurrencies from virtual currencies used in online banking is the use of blockchain technology. In blockchain technology, user and account information, each transaction information about money transfers is encoded into different virtual blocks.
In the next article, we will discuss this technology in more detail.
Cryptocurrency Exchanges (Exchange)
Online platforms where cryptocurrencies can be exchanged for another cryptocurrency or fiat currency are called cryptocurrency exchanges. There are three different types of exchanges: Centralized Exchange (CEX), Decentralized Exchange (DEX), and hybrid. Centralized exchanges act as an intermediary that brings together buyers and sellers like traditional exchanges. Decentralized exchanges provide direct peer-to-peer exchanges without intermediaries. DEXs are considered more secure because they have a low hacking risk compared to centralized exchanges. Both types of exchanges have advantages and disadvantages, and hybrid exchanges aim to combine the security of decentralized exchanges with the functionality of centralized exchanges.
Users’ access and management of cryptocurrencies are possible with public and private keys. Keys usually consist of strings of letters and numbers. While public keys are shared with other users for money transfer, the private key can be thought of as a password that allows the user to access cryptocurrencies. A private key is unique only to the users and allows them to manage their crypto money.
When Will Cryptocurrencies End?
It is estimated that there are over 12,000 types of cryptocurrencies, but not all of them are listed on exchanges. The number of cryptocurrencies listed on the platforms that have a high supply-demand balance is approximately 5500*, and cryptocurrencies ranked in the top 20 by trading volume make up more than 90% of the entire market.*
Cryptocurrency and Blockchain Laws and Regulations in Turkey
Since it is not dependent on any central authority, legal regulations for cryptocurrencies are still not sufficient. On the other hand, cryptocurrencies are sometimes associated with tax evasion, financing terrorism, money laundering, and online gambling. However, in the current legal context, there are no restrictive provisions regarding the financial transactions of cryptocurrencies.
As of April 2021, The Financial Crimes Investigation Board (MASAK) has announced sanctions against cryptocurrency exchanges same as banks. Immediately after, with the “Regulation on the Non-Use of Crypto Assets in Payments” published in the Official Gazette dated April 16, 2021, and numbered 31456 and regulated by the CBRT, the first legislative regulation directly dealing with cryptocurrencies was published. In this regulation, crypto assets are defined for the first time as “In the application of this Regulation, crypto-assets mean intangible assets that are created virtually using distributed ledger technology or similar technology and distributed over digital networks, but that is not considered fiat money, electronic money, payment instruments, securities or other capital market instruments.”. However, since this regulation is aimed at limiting cryptocurrencies in matters related to payments under the authority of the central bank, we can say that it has no sanction on legal issues.*
Therefore, there is still no clear legal definition and sanction for crimes to be committed through cryptocurrencies and their exchanges. However, considering such a popularization and rise, it is clear that there will be different sanctions and definitions in the future. Thus, by December 2021, President announced that the cryptocurrency law was ready. Binance, which is the biggest cryptocurrency exchange, was fined 8 million TL by MASAK for failing to comply with the regulations.
In this article, we explained the definition and legal regulations of cryptocurrencies. Next article, we will talk about blockchain technology, which we have started to hear frequently with cryptocurrencies, and the features that distinguish it from traditional databases. Continue to follow us 😊