Prepared by Yiğit Yeniyetişme

I. INTRODUCTION

            Technological developments pave the way for change in many areas such as social relationships, financial and legal transactions, as long as sparks and searches that may give rise to the necessary changes are showing up. As a matter of fact, due to the global crisis that emerged from the United States financial system in 2008[i], Bitcoin and other crypto assets have come to fore in financial world. In this respect, blockchain technology has enabled the production of these assets. In fact, the idea of ​​an electronic payment instrument that will operate without being dependent on any financial authority is an idea that has always been on the agenda or in mind since the abandonment of the gold-indexed dollar mechanism called the Bretton Woods System in 1971. However, the reflection of this idea in the financial system in the form of crypto assets was only possible thanks to the existence of blockchain technology.  

            More than 15,000 crypto assets have been created by using blockchain technology hitherto. The market value of crypto assets is around $2 trillion as of the first quarter of 2022[ii]. In other words, except for the recent drop[iii], the overall market capitalizations of crypto assetshave exceeded the market capitalizations of many of the most valuable tech companies in the world, such as Apple and Microsoft[iv]. 

II. DIGITAL MONEY PROJECTS (CBDC) BY CENTRAL BANKS IN RESPONSE TO CRYPTO ASSETS

            In the face of this severe economic greatness, Central Banks, which form the core of the international financial system, started to put digital currency (Central bank digital currency “CBDC”) projects on the agenda in order not to lose their dominance over money supply and payment systems and to ensure the sustainability of the traditional financial system[v].

            In the most general sense, we can express digital money as a payment instrument issued by Central Bank that has cash equivalence but its stored digitally[vi]. However, when we examine the characteristics of digital money by going into the details of digital money projects, although we observe that digital money has some common aspects with crypto assets, still it differs from these assets in some aspects especially in an idealogical sense.

            In this context, it is seen that the technological background in terms of both digital money and crypto assets is blockchain technology in general. In addition to this, digital money is similar to crypto assets in that they include the aim of reducing transaction costs, which have an essential place in the financial system. However, the first and most important distinction between digital money and crypto assets comes from the aspect of being centralized. Unlike crypto assets, central banks are behind digital money. Moreover, there are similarities and differences between digital money and crypto assets in terms of transparency. Indeed, although it is foreseen that the public ledger in digital money will be open just like crypto assets, keeping this openness limited to a limited authorized user constitutes the aspect of digital currencies that distinguishes them from crypto assets.

            On the other hand, it is predicted that digital money and crypto assets will differ in terms of privacy. In this context, while there is anonymity in that it is not requested to have personal customer id to complete the transaction using crypto assets, it is foreseen that the real user identity condition will be sought in the transactions to be made in terms of digital money[vii]. Within the scope of all this information, it is observed that digital money has contradictions to the decentralized finance (deFi) principle adopted in crypto assets[viii]. Besides, this contrast is the primary motivation for issuing digital money anyway. Indeed, the main purpose of digital money is that a transfer to be made between wallets is under the control of Central Banks[ix]. This will serve to strengthen financial integrity, financial stability and an effective monetary policy[x].

III. WILL BANKNOTE AGE TAKE ITS PLACE IN THE PAGES OF HISTORY?

            Whether digital money can replace crypto assets and whether Central Banks can regain complete control over money supply and payment systems through digital currencies will undoubtedly the essential topics of the future. However, if we leave all these discussions aside, it seems likely that the banknote age will take its place in the pages of history with digitalization of money soon…As a matter of fact, it is reported that the use of banknote has decreased with the increasing use of alternative payment methods, especially by the younger generation[xi]. Moreover, the Covid-19 Pandemic has further accelerated the trend of decreasing usage of banknote[xii].

IV. POSSIBLE REFLECTION OF THE END OF BANKNOTE AGE IN THE FIELD OF LAW

A. In General

            The scenarios decrease or complete disapearance of banknote use, in other words, digitalization of money will have a critical reflection in the field of law. For instance in respect of tax law, with the spreading usage of digital money, it will be possible to establish a system that will make it harder for taxpayers to evade taxes. In this regard, the intensity of tax offences is anticipated to be decreased in this system. Indeed, recording digital money tranfers through distributed ledger technology will prevent false records from being created by changing or deleting information in accounting systems of companies. Thus, there will be no deception in the records and inventories that form the basis of the taxpayer’s declarations in the tax administrations’ tax inspections. Because of the immutability of blockchains, the income obtained through transfer from trade relations with a third party is secured by cryptography in the system as a block in the chain.[xiii]. These records with digitized timestamps can easily be traced back to its origin[xiv].

B. In Terms of Criminal Law

i. Possibility of Counterfeiting on Digital Money

            In terms of criminal law, it can be said that the effect of digitalization in money will bring about a change in the definitions and elements of crime related to banknote. Indeed, in digital money produced based on blockchain technology, counterfeiting activities such as printing counterfeit money or transfering counterfeit money to economic system would be almost impossible in the face of the approval process included in blockchain technology. The hacker who intends to fraudulently delete or alter transaction history in the database or add new chains would have to obtain the majority (%51) of the entire network, which is practically impossible[xv]. As a result, it can be said that cryptography will be more effectively substituted for special watermark applications or other security features, which are measures to prevent counterfeiting in banknote[xvi]. In addition, it seems likely soon that the offence for the person(s) who produces, stores, sells or purchases or convey into the country an instrument used in the production of counterfeit banknote will be a thing of the past or as a other option, they will be adapted according to digital money[xvii].

ii. Significant Gains on Proving Process of Crimes

            In a future where banknote is not in circulation and digital money is transferred via blockchain technology or systems to be established by Central Banks, significant gains will be obtained in terms of proving some crimes. Indeed, in the face of the possibility of the ease of tracking digital money transfers, it is likely possible that people will dare to commit the crime of embezzlement on digital money whose possession has been transferred to them due to their duty.

iii. Fighting against Bribery, Corruption and Money Laundering

            Finally, one of the crucial points is that the ultimate transition to digital money will be an important milestone in terms of fighting against bribery and corruption[xviii]. Besides, it will be of utmost importance to fight against money laundering and thus preventing the financing of terrorism. As matter of fact, it will be easier to catch the person(s) who gains benefit, which is the main element of these crimes and the main reason for appetite to commit these crimes, from these crimes. It will play a key role as an important deterrent.

V. CONCLUSION AND PESSIMISTIC SCENARIO: MORE DIGITALIZATON ON MONEY MORE CYBER CRIMES

            We have presented above the optimistic scenarios in a future, where digital money replaces banknote, especially in terms of ease of proof and deterrence against comitting certain crimes in terms of criminal law. However, in such a future, as a pessimistic scenario, we may encounter the risk of not ensuring data security with digitalization. Even nowadays, the news of the theft of personal data stored by large companies in the digital environment and their sale in the environment called “deep web” and the ongoing litigation processes in this context are situations that we are not unfamiliar with[xix]…Considering the intensity that will arise with the use of digital money in all purcasing and selling transactions after the digital money replace banknote and benefits that are directly gained by perpetrator after thefting activities on digital money unlike the benefits indirectly gained by perpetrators stealing personal data, cyber ​​security will be probably become one of the important topics in the future. In a nutshell, a future in which we will be dealing with cybercrime awaits us without us realizing it.

[i] Due to a large real estate and credit bubble

[ii] https://www.statista.com/statistics/730876/cryptocurrency-maket-value/

[iii] https://www.cnbc.com/2022/05/12/bitcoin-btc-price-falls-below-27000-as-crypto-sell-off-intensifies.html

[iv]https://www.washingtonpost.com/business/is-crypto-really-worth-3-trillion-i-ran-the-numbers/2021/11/10/8b0c6a14-421e-11ec-9404-50a28a88b9cd_story.html; https://tr.euronews.com/next/2021/08/16/kriptopara-piyasas-n-n-toplam-degeri-yeniden-2-trilyon-dolar-gecti

[v] Federal Reserve Board discussion paper issued pros and cons of a potential U.S. central bank digital currency, Press Release, https://www.federalreserve.gov/newsevents/pressreleases/other20220120a.htm; European Central Bank, Eurosystem launches digital Euro project, Press Release, https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.en.html; The Annual Program for 2020, The Presidency of the Republic of Turkey, Department of Budget and Strategy, About the blockchain-based digital money project of Central Bank of Turkish Republic, pp. 86; Central Bank of Turkish Republic, Press Release about the digital Turkish Lira R&D Project, 2021/40, September 2021, https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Duyurular/Basin/2021/DUY2021-40; China leads in race for digital currency, https://www.dw.com/en/china-digital-currency-yuan-bitcoin/a-55134692;  The Eastern Carribbean Central Bank to Issue World’s First Blockchain-based Digital Currency, https://www.eccb-centralbank.org/news/view/eccb-to-issue-worldas-first-blockchain-based-digital-currency; For detail information about digital currencies project: A World Tour of Digital Currency Projects, https://www.americanbanker.com/payments/list/a-tour-of-10-nations-digital-currency-projects

[vi] Tommaso Mancini-Griffoli/Maria Soledad Martinez Peria/Itai Agur/Anil Ari/John Kiff/Adina Popescu/Celine Rochon, Casting Light on Central Bank Digital Currency, IMF STAFF DISCUSSION NOTE, SDN/18/08, November 2018, pp. 7.

[vii] Tobias Adrian/Tommaso Mancini-Griffoli, The Rise of Digital Money, FINTECH NOTES, Note/19/01, July 2019, pp. 3.

[viii] In general terms, deFi is an expression that meets an open-source and transparent financial system that does not depend or need any central or authority. Deniz Alp İmamoğlu, Kripto Para Birimleri ve Türk Hukukunda Düzenlenmesi, Seçkin Yayıncılık, 3. Baskı, Ankara, 2022, pp. 95, 96.

[ix] Mancini-Griffoli and others, Casting Light on Central Bank Digital Currency, pp. 8.

[x] Mancini-Griffoli and others, Casting Light on Central Bank Digital Currency, pp. 11

[xi] Tanai Khiaonarong/David Humphrey, Failling Use of Cash and Demand For Retail Central Bank Digital Currency, INTERNATIONAL MONETARY FUND, WORKING PAPER/22/27, February 2022, pp. 18.; For the European Central Bank’s strategy to increase the use of paper money against this trend, see: Eurosystem’s Cash 2030 Strategy; For the key note speech of Fabio Penatta, member of the executive board of the European Central Bank,               on           this         subject,  see: https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210615~05b32c4e55.en.html

[xii] For the report on the decreased use of paper money in the Covid-19 Pandemic, see: Financial life during the COVID-19 pandemic, July 23, 2020, McKinsey & Company, https://www.mckinsey.com/industries/financial-services/our-insights/a-global-view-of-financial-life-during-covid-19

[xiii] To clarify the issue, it is important to underline money transfer method in blockchain technology. In the framework of the working logic of the blockchain, when person A wants to send the currencies to B, firstly this transaction becomes a block. Then the transaction is broadcast to third parties in the network. After that the third parties give a confirmation for validity of the transaction. Then, this transfer is added to the chain as a new block and the money is sent from A to B. This records can not be deleted or altered. For detail information about this system, see: Ece Su Üstün, TBK Kapsamında Geleneksel Sözleşmeler ile Mukayeseli Olarak Akıllı Sözleşmeler-Blokzincir Teknolojisi, Seçkin Yayıncılık, 2. Baskı, Ankara, 2022, pp. 31.

[xiv] For instance.: EU Inches Toward Blockchain in Fight Against VAT Fraud, https://news.bloombergtax.com/daily-tax-report-international/eu-inches-toward-blockchain-in-fight-against-vat-fraud-1; On the ease of detecting suspicious transactions in the CDBC world, see: What If Central Banks Issued Digital Currency?, Harvard Business Review, https://hbr.org/2021/10/what-if-central-banks-issued-digital-currency

[xv] Ece Su Üstün, TBK Kapsamında Geleneksel Sözleşmeler ile Mukayeseli Olarak Akıllı Sözleşmeler-Blokzincir Teknolojisi, pp. 40.

[xvi] Tarik Hansen/Katya Delak, Security Considerations for a Central Bank Digital Currency, FEDS Notes, February 2022. https://www.federalreserve.gov/econres/notes/feds-notes/security-considerations-for-a-central-bank-digital-currency-20220203.htm

[xvii] For instance Article 200 of Turkish Criminal Code: “Any person who, without permission, produces, stores, sells, purchases, receives, transfers or conveys into the country an instrument used in the production of money… shall be sentenced to a penalty of imprisonment for a term of one to four years and a judicial fine.

[xviii] About the effect of the blockchain technology to fight against corruption, see: Per Aarvik, Blockchain as an anti-corruption tool, Case examples and introduction to the technology, Anti-Corruption Resource Centre, U4 Issue, 2020: 7, pp. 10-14.

[xix] 533 million Facebook users’ phone numbers and personal data have been leaked online, https://www.businessinsider.com/stolen-data-of-533-million-facebook-users-leaked-online-2021-4 ; The decision of the Turkish  Personal Data Protection Authority for the one of the famous food/supply delivery company of Turkey, due to stealing the company stored data about the customer personal datas by hackers, see: https://www.kvkk.gov.tr/Icerik/7168/2021-1324