Story image

All aboard the blockchain train: Academic says NZ needs to catch up fast

28 Sep 18

Cryptocurrencies are here to stay, but New Zealand is not as innovative and agile as we like to think.

Those are the words from a University of Auckland researcher, who says New Zealand needs to pick up the pace on blockchain and cryptocurrency adoption.

Alex Sims is an associate professor of Commercial Law and says New Zealand has fallen behind progressive countries such as Australia, Japan, and the UK.

Already countries like the Marshall Islands and Sweden are looking into issuing their own cryptocurrencies through their own central banks. Major industry players like IBM are also getting in on the game.

Sims believes the only way New Zealand can maximise blockchain opportunities is by living up to our reputation as an agile, innovative and nimble country.

A new report from the New Zealand Law Foundation says that the government shouldn’t attempt to ban cryptocurrency use – instead it should support the country’s transition to a blockchain and fintech hub. There are still many roadblocks that are hindering progress, according to Sims.

“Many New Zealand cryptocurrency exchanges, where people can purchase cryptocurrencies with New Zealand dollars, have trouble getting bank accounts, or they open accounts only for the bank to close them down,” Sims explains.

While this may be because banks are risk-averse, preventing access may be causing even more risk for customers. This is because customers have to look offshore for cryptocurrency purchases, often with little or no protection.

On top of that, New Zealand businesses that accept cryptocurrency payments and those that operate exchanges could be liable for double GST. GST could be charged on the currency and the goods or services. According to the report, such taxation is not justified.

The report argues that sensible regulation and technology can address most cryptocurrency concerns such as security, value fluctuations and the potential for malicious use of funds.

Blockchain is a tamper-proof ledger of transactions and allows cryptocurrency buyers and sellers to reconcile their records, while middlemen can coordinate transactions.

“Smart contracts are self-executing computer programmes embedded in a blockchain. Smart contracts allow for some cryptocurrencies, such as ether, to be programmed so that they can only be accepted by certain people or organisations, and the limitations can remain for a set period or forever – “something which conventional money simply cannot do," Sims explains.

Blockchain and smart contracts have use cases beyond cryptocurrencies – health data, clinical trials, electronic voting, and safety to name a few.

Sims says the blockchain genie is now out of the bottle, and it will be more transformative than the internet has been.

“While not all blockchain applications require the use of cryptocurrencies, blockchain will not reach its full potential if cryptocurrencies are unable to be used, or their use made unnecessarily difficult. The New Zealand Government has taken a hands-off approach to cryptocurrencies, when it should be actively fostering an ecosystem so that New Zealand is seen as an attractive country in which to base blockchain businesses,” Sims concludes.

The report includes a number of recommendations as follows:

• The New Zealand Government should continue to allow cryptocurrencies to be traded as well as used for the payment of goods and services within and outside New Zealand

• Greater advice and protection for consumers on cryptocurrencies by the Financial Markets Authority (FMA) and Department of Internal Affairs (DIA) and others

• The Reserve Bank of New Zealand (RBNZ) trials the creation and issuance of a New Zealand cryptocurrency

• New Zealand-based cryptocurrency exchanges be encouraged, with clear and detailed guidance provided as to their anti-money laundering/counter-terrorism financing obligations by both the DIA and FMA

• Cryptocurrency exchanges that comply with these safeguards must have access to bank accounts with New Zealand banks

• Merchants must be able to accept cryptocurrency payments for under NZ$100 or payment through a compliant exchange

• GST is removed from cryptocurrencies used to pay for goods and services

• The Inland Revenue Department accepts cryptocurrencies for the payment of taxes

• New Zealand should follow countries such as the UK and Australia in creating a regulatory sandbox and ensure that the regulators work alongside fintech companies.