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Crypto Regulations, Are They on the Right Track?

Crypto regulations

October 22, 2020 | 

597 Views | 

JOHN K MWANIKI | 

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The debate on cryptocurrency regulations has been on for some time now. While some users believe it's the move in the right direction, others feel different. Whatever happens, though, the crypto economy is headed mainstream. Immediately it becomes the public utility, then regulation is inevitable.

After the assurance that regulations are a must, the next concern is on its state. The various crypto users and jurisdictions provide for varying cases. 

This article looks into the current crypto regulation state. By the end of the article, you should be able to discern the direction of crypto regulation. It will look into the reasons for and against the control. It will also cover the future of crypto regulations.

Let's get to it;

Reasons for Crypto Regulations

Cryptocurrency regulations have received several supporters. Some of the reasons for supporting the rules are;

1.    Encourage Investment 

People fear what they do not understand. The most affected are the institutional investors such as banks and hedge funds. All technology needs to pass "safety" tests. They should then enter into familiar regulatory territory before they pick it up. For example, they only started using Bitcoin when it became available through shares. Several other cryptocurrencies also now have futures. Litecoin, Ethereum are all following Bitcoin's lead. 

Cryptocurrency is already at the core of a lively system of trade. Still, the market is a little shaky. Regulations will go a long way toward inviting large players. They will stabilize digital currencies and help manage illegal use.

2.    Promote Innovation 

With the major players in the field always at loggerheads, limited innovation happens. 

For now, rounds of funding can raise millions in ICOs and private offerings. Still, it is challenging to find investors that diverts from the core task. The regulation encourages investors to fund efforts to innovate more on virtual currencies. They will also develop more stable platforms. 

3.    Safety 

The most significant benefit cryptocurrencies stand to gain is stability. It will receive the backing of major players such as insurance and law enforcement. The institutions' take-up will promote certainty and predictability. 

From a consumer point of view, better and more robust regulations will make it more attractive to use. They will invest in digital currency due to the reduced possibility of losing money.

4.    Ideal for Institutional Investors 

The biggest consumer of cryptocurrency benefits has been individual consumers. They come with a lower threshold for risk. Yet, the biggest beneficiaries of various crypto projects are institutions.

A robust regulatory framework is imperative before institutions can embrace cryptos. They need custom-designed solutions based on blockchain and cryptocurrency. Think of the medical industry, communications, insurance, enterprise-level cloud services, and many others.

5.    Stop Crypto Use in Illegal Activities 

Regulations will also affect its most notorious counter-arguments, which is criminal activity. The anonymity afforded by decentralized transactions aids illegal activities. Criminals use digital currencies for drug, human, and weapon trafficking. It is also used for money laundering.

Regulations need online personas linked to real-world identities to promote trackability. An example is the FATF Recommendation 16. Of course, many people are very uncomfortable with this. Also, there are two camps of anonymity vs. regulated anonymity viewpoints.

Regardless, people will have the choice to choose the right way. It might turn around the disastrous perception that crypto is only used for evil.

Reasons Against Crypto Regulations

Many still feel that regulations will take away decentralization from cryptos. They will also miss the versatility that makes cryptocurrencies what they are. This is an interesting argument that hasn't found its balance of the good vs. the bad. It might be because regulations are still underdeveloped, though the disadvantages are undeniable. 

Proponents of the free form crypto run argument cite some valid points:

1.    Exclusivity

These regulations meant to increase investor confidence might end up locking them out. Regulations such as D and S will stop eligible investors from getting into the sector. They provide strict rules on those who can pass the eligibility criteria.

Such regulations are to protect investors and make the market fairer. Still, it is counter-intuitive that many do not get to access these benefits after all.

2.    Decreased fluidity

A big attraction of digital money is its ability for instant, self-served services. A few clicks of a button, and you can transact, trade, and invest. Still, with in-depth KYC and AML, a lot of these transactions are no longer routine. Verification and safety protocols take time and effort. It also kills the user experience essential for cryptocurrencies.

3.    Loss of autonomy

The whole point of cryptos was to provide the average user with the power of autonomy from "Big Brother." So far, crypto coins have been successful. Regulations reintroduce the same oversight found in traditional banking.

The Current State of Crypto Regulations

Regulatory policing within the cryptocurrency market is still in its infancy. Many bills, such as the Omnibus bill are on the proposal level. Same to the one from the European Union Commission. They seem to have a long way to go. The crypto traders and other legislations have to approve of them. It means the bodies involved need to pick up more momentum and gather support to push the bills through.

There should be a deep, thorough set of regulations. It should provide a framework for all crypto technologies and applications. It involves a deeper understanding of the frameworks. Regulators also need to craft agile laws to target various unique aspects.

The Future of Crypto Regulations

So far, nothing is frightening enough to warrant opposing cryptocurrency regulations. The only concern is if the anonymous transactions and privacy remain. Still, security outmatches the need for anonymity. 

The world is on a global transformation and adoption of cryptocurrencies. Even institutional investors with fragile regulatory frameworks are joining in. It is likely to grow until the industry matures and reaches the notoriety of banks. Policymakers are crafting laws to ensure both issuers and users are well taken care of. They want to get to a point when the industry is ideal for smart investors.

Bottom Line 

Cryptocurrency trading has to mature beyond its current phase to take over the world. That means regulations will have to come into play. It will help police transactions and protect users from themselves and criminals online. It's not a question of whether to regulate; it is only a matter of when. 

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