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Can Regulation Help Cryptocurrency Mature?

digital assets, regulation, cryptocurrency, bitcoin, Financial

Across the globe, there have been increasing stories of governments seeking to regulate the largely unregulated cryptocurrency markets. Due to how novel and unusual digital assets are, financial watchdogs have been taking their time in assessing how to approach creating legal frameworks for the space. However, with regulatory rumblings from various key players growing louder, it is certainly a matter of when rather than if the crypto space will indeed be regulated in some fashion. Owing to the unique properties of digital assets, this will likely prove difficult in practice.

Encouragingly, very few jurisdictions around the world have attempted to ban cryptocurrencies outright. Even a court in China, a nation with a real love-hate relationship with Bitcoin, recently classified Bitcoin as property, stating that although ICOs and trading are banned in China, there is no rule to say that possessing cryptos is unlawful.

The cryptocurrency sector has already evolved considerably over its ten-year existence. Whereas the idea of “know-your-customer” regulations and government-sanctioned fiat-to-crypto on-ramps for selected investors is the antithesis of what attracted many early pioneers, others now hold that regulation is needed to help respected firms provide more secure custody solutions. The goal is to give the planet’s largest money managers the familiar buying options and to reduce the numbers of ICO-related scams plaguing the industry’s investors.

Does Cryptocurrency Need Regulation?

Legislative clarity could certainly be good for the price trends of Bitcoin and other leading cryptocurrencies supported in whatever frameworks are created to govern the sector. One area that is frequently cited with regards to regulation is the initial coin offering. Although they have been around for a while now, ICOs really hit the mainstream in 2017. Largely using Ethereum’s smart contracts and token issuance, an absolute slew of blockchain-based projects held their own entirely unregulated token sales throughout the year to finance their plans. Countless start-ups with little more than a vague business idea and a slick website would routinely be dumped with tens or hundreds of millions of dollars from investors hoping to get in on the next moon shot.

Of course, all this attracted more than a few scam artists too. Just about every conceivable trick has been tried to get people to part with their crypto – from fraudulent endorsements of the business elite to projects promising the moon yet never getting off the ground. As a result, a load of the seemingly legitimate ideas has failed, leaving investors high and dry, so there is an argument to be made for regulation. Countries like the USA and China have outright banned the unregulated ICO as a form of crowdfunding. This has encouraged some more committed firms to go down the regulatory route and offer tokenized securities that are SEC-compliant.

It’s difficult to assess the true impact these regulatory measures have had. With the market conditions of 2018 can the sudden drop in the fortunes of those running initial coin offerings be attributed to the more regulated environment or have people just realized that not every company using the word blockchain in their branding are going to be the next Google or Amazon? A clearer picture will likely emerge as more national governments advance their own legislation going forward.

Can Bitcoin Even Be Regulated?

What really scuppers any effort of regulation, however, is the fact that Bitcoin, and other cryptocurrencies that have a lot in common with it, are a novel asset class. Since they’re entirely intangible and do not exist on any system within the control of a centralized authority, they are incredibly difficult to confiscate, if stored correctly. Vast amounts of value can be transacted or carried across any border without asking for permission from any bank or government. All the user needs to do is remember a string of 12 or 24 words.

Whilst regulation can easily have a big impact on the institutional and retail investor space – with fewer scams and more trusted brokerage services – it seems likely that there will be a whole separate Bitcoin economy occurring outside of the massive financial institutions.

Since no country or company controls a public blockchain network, policing and regulating cryptocurrency’s actual use would be incredibly difficult.

Some Closing Thoughts

Ultimately, greater regulation of the cryptocurrency industry is inevitable at this point, and some financial regulators of the world have already done it in a multitude of different ways. Some nations have come down heavy on the innovation and will likely persist in doing so, no matter whether digital assets will become a permanent fixture of our future society or not. Meanwhile, nations such as Switzerland, Albania, and Malta are actively pursuing liberal regulation in an effort to encourage blockchain and digital asset start-ups to set up within their borders. Regulation from other economies will likely come in dribs and drabs and follow this diverse trend, while an attempt of a worldwide ban is as good as an impossibility now.

All that said, it is the companies that are being regulated, not the digital assets themselves. No matter what regulation comes, it will near always be possible to transfer value via the Bitcoin network. However, since no one can read the future, the only recourse we have is to wait and see.


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