Regulation is a hugely controversial topic in the world of cryptocurrency, but although it has a loyal and devoted fanbase due to the lack of regulations, more and more traders and investors are welcoming the proposal of new regulations. In a notoriously volatile market, regulations could mean more stability within the market and provide more protection against scams and losses.
Even though most investors accept that the topic of regulation will come up at some point, many cryptocurrency enthusiasts believe that regulations will hinder crypto innovations and that regulation simply goes against the spirit of cryptocurrency.
Unlike traditional currencies, cryptocurrency is decentralized and isn’t currently backed by government authorities. Regulations are being considered in governments across the globe, which specialists say will protect investors, making it a good thing.
However, many investors say that regulations are wildly complex and complicated, which could hinder their application. Let’s take a look into whether cryptocurrency regulation is really that complex.
Who should regulate cryptocurrencies?
When it comes to cryptocurrency regulation, nothing causes more confusion than exactly who should be responsible for the regulation. Each country and government has its own rules when it comes to cryptocurrency – some treat it as property, others see it as a commodity whilst some countries ban its use altogether.
This means that setting up a standard and global regulation may not be the best, or easiest, approach. Instead, it is suggested that it should be done on a country-by-country basis, as is the way with standard currencies, and integrated this way. In terms of cryptocurrency regulation, this is perhaps the biggest hurdle that is yet to be overcome.
How should cryptocurrencies be regulated?
The unique characteristics of cryptocurrencies also pose potential challenges for regulation. There are many different ways in which it can be approached to enable customer and trader protection, whilst also ensuring that it can still be innovative and exciting. One of the ways is to remove any confusion surrounding cryptocurrencies and tax.
Blockchains, on which cryptocurrencies are traded, don’t work without a token and these tokens need to be traded to amass worth. This means that there is always a chance to make a profit, to which governments need to work out the appropriate tax response.
Another way is to regulate the exchange rate within cryptocurrencies. Almost all FOREX (foreign exchange) flows through banks or currency exchanges – it’s just what you do with it afterward which is up to the trader. Unless you are a professional crypto trader, then your transactions should run through a regulated exchange. Once the flow between cryptocurrency and fiat, and vice versa, is done through exchanges, then this means that it will be much easier to combat scams and illicit behavior.
Without regulations in place, many banks, especially in the UK, refuse to make crypto exchanges, which is understandable as they fear the funds could be used for money laundering purposes or by criminals. Regulating the exchange rate makes cryptocurrency a much more widely accepted currency.
Why cryptocurrency regulation would be good for investors
Regulating cryptocurrency, although it has some downsides, would be an overall healthy development for the crypto industry, especially where everyday investors are concerned. Having better regulatory guidance could help reduce the speculation that has long come with cryptocurrency and less speculation could result in higher investor confidence.
Investors of crypto currently have little to no protection within the market as there are no regulations in place that ensure the protection of any assets. By creating and following regulations, cryptocurrency could be a huge leap forward for many investors, as well as businesses.
There are some benefits to businesses who accept or pay using currencies such as Bitcoin, however as the market is unregulated, this is a huge concern for many. As a result, businesses who want to use cryptocurrencies within their model and do so, often find themselves being scammed or opening up their networks to hackers, instigating a huge cyber incident response.
Regulation of cryptocurrencies would also create a much safer ecosystem within the market. Frequently dubbed “the wild west”, the crypto market doesn’t have a good reputation in terms of safety due to the lack of regulation in the industry. Currently, cryptocurrency isn’t subject to any requirements which prevent fraud or manipulation. There are nowhere near the same standards that are in place elsewhere for other markets.
In recent years, crypto crime has grown massively and, last year alone, around $14 billion worth of crypto was stolen. Even the most enthusiastic and experienced traders know that there are new and constantly evolving risks for cryptocurrencies.
By adding regulations to the cryptocurrency market, it opens up the opportunity for new traders, both individuals, and businesses, who will then have much more faith in the market. It also opens up new international trading and business channels, which are so often restricted by currency conversion and time zones. Given that, however, there are complexities involved that may take a few years to iron out.
Author: Natalie Wilson