06 Mar, 2019 at 20:55pm
Regulation is a rather touchy subject when it comes to cryptocurrencies, with many people arguing against it. When the digital currencies were first introduced, the idea behind them was decentralization and to not be regulated - in the current political climate, we have seen many politicians try to change this.
Regulation is relatively new to the crypto world but in reality, it is an age-old concept of managing something in accordance to a set of rules or trends. A great example of this being put into practice is with the stock market and the Regulation Fair Disclosure regulation that the SEC issued in October, 2000. Reg FD requires publicly traded companies to disclose information to all investors at the same time, preventing certain investors from benefiting off of information before all the other investors in a company have heard about it. Oddly enough, the same investors who benefitted from inside information also fought against this proposal.
When it comes to who can impose regulations, industry-wide ones are typically controlled by government organizations, such as the SEC in the United States. This can lead to arguments amongst some people as the regulations could be used to push one’s political agenda, however, this is often not the case.
When looking at this practice, it can be dated back to ancient early Egyptian, Greek, Indian and Roman civilizations where business regulation existed. More modern day regulation like industrial regulation can be traced back to the Railway Regulation Act of 1844, in the United Kingdom. It is safe to say that this is nothing new to the world.
In a large majority of the world, there is some form of control placed on what can be done with the virtual coins. The simplest of this is whether coins like Bitcoin are deemed as legal tender, in which most countries they aren’t. Despite the payment methods not being deemed as legal tender by the Financial Crimes Enforcement Network in the USA, many businesses use them to accept payments, whether it be online or in-store.
In other countries, financial regulators are looking at creating a new category for cryptos. One instance of this is in Japan where the Financial Services Agency was reportedly considering placing cryptocurrencies into a new legal category that would be called “crypto-assets”.
It goes without saying that regulation is one of the most sensitive subjects when it comes to cryptocurrency, many people are strongly against any form of regulation and, on the contradictory side, many people are for regulation, provided it isn’t too extreme. Before jumping as to why regulation could be bad, it’s important to take a look at some of the reasons regulation could actually be a benefit to the ecosystem surrounding the virtual currencies.
One of the more controversial reasons that this may be a good thing is taxes. Everyone has to pay them, not everyone likes them. Don’t get me wrong, I’m not the biggest fan of taxes but if I have to pay them, I’m going to. Many people refer to the phrase “taxation is theft” and whilst that could be considered true, there are actually many other benefits to taxes that most people don’t realize. State-funded schools are only possible due to funding from the government, along with state-funded organizations and things like the police force. If you live in the UK, it is highly likely that you’ll have used the government-funded NHS at some point in your life. When it comes to how taxpayer money is being spent, not everyone agrees but on a whole, it is generally spent where it is needed and where it is most useful.
Another reason that people may be for regulation is to help prevent and minimize the criminal activity that happens with the coins. That criminal activity could include money laundering, which happens to be linked to anonymous bitcoin debit cards, and financing terrorism. Japan has aimed to tackle the prior of the two by setting rules to prevent money laundering whilst safeguarding customer’s assets. Some countries have opted to take the extreme approach and, like China, decided to ban all crypto trading and exchanges as a part of their regulations.
The final reason on my list that means regulation could be a good thing is to prevent insider trading. Insider trading has plagued stock markets and cryptocurrency markets since the day they opened - regulations have been introduced to try and combat this in the stock market. Preventing this illegal activity of using confidential information for one’s benefit is incredibly important, especially when everyone else ends up losing out from it.
When it comes to regulation, there is an instant reason that pops to mind as to why it may not be the best idea. The initial idea behind cryptos was anonymity, not forgetting decentralization. Regulation, in a sense, destroys these core principles and leads to people’s anonymity being breached. A prime example of this could be KYC. Know Your Customer leads to consumers that use exchanges having to submit personal identification in order to verify their accounts to continue trading. If you value your anonymity, well, this may be a reason why you are against regulation. Whilst some companies consider compliance with this unnecessary, the wide majority try to comply where they can. In one case, Poloniex completely disabled normal user’s accounts access to withdrawing their funds unless they complied with KYC verification, after explicitly stating that withdrawals would still be enabled without KYC.
In regards to decentralization, regulation is essentially a central body, in this case, the government, taking control of cryptos and imposing rules and restricting actions. This is, essentially, the opposite of decentralization which is supposed to aim to migrate planning and decision making away from a central, authoritative group. A government acts as this central, authoritative group or party that seeks to control planning and decision making - quite the opposite. On a positive note, however, some local divisions of the government are implementing blockchain technology.
When it comes to adoption, regulation may be our best bet at encouraging people to take up using the digital coins and it may also be our best bet at getting governments to accept this concept. Acceptance from governments may help with the mass-adoption of currencies, like Bitcoin and Ethereum, as if they are recognised as an actual currency, and not a made-up thing, people may consider using them on a day-to-day basis for transactions and purchases, especially if they are more widely accepted at stores.
Image Sources - SmallBusiness, Hacked and Pymnts.