For an industry that has provided a censorship-resilient and non-government issued system of payment, it is hardly surprising that regulation is one of the biggest concerns in cryptosphere since Satoshi Nakamoto created the foremost distributed ledger, Bitcoin.
While cryptocurrencies have undoubtedly lived up to the billing of creating a reliable and immutable means of facilitating peer-to-peer transactions, even the most ardent cryptocurrency maxis will agree with the fact that they have at the same time facilitated some of the biggest heists, money laundering, and other forms of financial crimes. Amsterdam-based blockchain analytics firm Crystal Blockchain reported that an estimated $7.6 billion worth of cryptocurrencies has been stolen since 2011.
The Challenges of Regulation
One of the biggest challenges faced by authorities in the quest to clamp down on bad actors through regulation is how to do so without stifling innovation in the blockchain and cryptocurrency industry. Countries with hardline cryptocurrency regulations risk missing out on emerging opportunities and investments in what is regarded as one of the fastest-growing industries. In a similar manner, countries with unregulated and unclear cryptocurrency laws unknowingly create an atmosphere of uncertainty amongst investors. Simply put, the presence of rigid regulations and the lack of them can negatively impact the growth of the industry. However, with the growing popularity of cryptocurrencies as an asset class, it has become crystal clear that regulations are inevitable. Rafaela Romano, editor in Chief at Cointelegraph echoed these sentiments in a statement:
“The regulation of crypto is completely inevitable. As the industry develops, regulations begin to emerge. However, regulation is not a good or bad thing, it all depends on how the regulation is done. When we are talking about the maturity of the sector, regulation is essential to attract hard money. Without clear laws, investors cannot put money into the industry.
However, laws can be made simply for taxes on investors and companies or they can be designed for the healthy development of a new industry. The guidelines by which laws are made will always define whether it will be good or bad for the industry. Fortunately, Bitcoin was created to be resilient to censorship and even prohibitive regulations aren’t enough to stop people from accessing the industry.”
Inevitability of Regulation
Having established the fact that regulations are increasingly inevitable, concerted efforts must be made by the authorities, industry stakeholders, and members of the broader cryptocurrency community to ensure that regulatory frameworks protect investors and create a welcoming environment for blockchain and cryptocurrency businesses to thrive.
A necessary step to achieve is to set up a regulatory body responsible for the creation and promotion of cryptocurrency regulations and also to oversee its enforcement, as is the case with other established financial markets like the stock market, commodity market and forex markets. In many countries, the Securities and Exchange Commission (SEC) regulates the cryptocurrency sector even though it ideally serves as a financial watchdog in the stock market. In other countries, Central Banks propose laws and regulations guiding digital asset issuance and utility.
The lack of a regulatory standard and uniformity in operation is undoubtedly responsible for several high-profile legal hassles in cryptosphere, one of which is the SEC’s class-action lawsuit against Ripple. According to the regulatory body, Ripple unlawfully conducted the sale of unregistered securities during its XRP token sale. SEC’s classification of XRP as security sparked debate amongst the cryptocurrency community, with the majority calling for clear and documented regulations to promote order and accountability.
Cryptocurrencies as an asset class have evidently progressed beyond the ‘fad’ or a ‘bubble’ stage. To further attain widespread acceptance, progressive regulations are inevitable. However, authorities must be open-minded in their approach to ensure that the fight against fraudulent purveyors does not stifle innovation.