Until recently government’s attitude towards cryptocurrency was as to an elephant in the room — they saw it, but pretended they didn’t. Maybe, they hoped that its success won’t last long and it would self-destruct soon. But in 2017, which we can without any doubt call the year of crypto, ignoring the existence of such powerful and spreading phenomenon became impossible, so cryptocurrency regulation is the question number one.
Opinions among crypto community have divided into two contradicting groups: some crypto enthusiasts flinch with disgust every time they hear word “regulation”, some, in opposite, see it as the only and essential way for crypto to become full-fledged substitute of fiat money.
Usage of cryptocurrencies, despite recent growth in interest, is still quite narrow, so now it can cope without regulations to more or less extent. But the speed with which cryptoworld is developing is incredible, and soon it will become huge financial sphere, that must be regulated for the security and convenience of usage. Regulation doesn’t mean ban or total control of cryptocurrency — it is just set of rules that helps to manage complex system. The aim of regulation is to set working relationship with cryptocurrencies, and nothing more.
There are four main reasons why cryptocurrency should be regulated:
- To make it equal participant of financial world
Crypto economy is inseparable from traditional economy. If it was completely independent, we wouldn’t count the value of crypto coins in dollar equivalent. Fiat money was here for too long and it wouldn’t disappear in one second, giving up position to digital currency. So, at least for some time, these two contradicting systems — old and new — must cooperate to provide people with convenient financial solution. And that is impossible without regulation.
2. To win people’s trust
Many people don’t enter the world of cryptocurrencies precisely because it is unregulated. As it is not recognized by government, they don’t trust it. To achieve global acceptance of crypto, it must be legal and regulated, so people would use it without any fear. Regulations secure crypto users from possible frauds and scams.
If early adopters of cryptocurrency and professional traders are ready for the risks in the cryptomarket, laymen want to invest their hard-earned money in something trustworthy. Regulation ensure that both parties fulfill the terms of the contract, making crypto more reliable and attracting new users.
3. To protect users from frauds and scams
Non-regulation of cryptocurrency also gives its opponents an excuse to call it “fraud”, “bubble”, “perfect technology for laundering money” — and, without regulation, crypto is really more vulnerable to the above-mentioned issues.
Hiding from taxes using crypto is another issue. We all pay taxes. Taxes are deducted from salaries, retirement benefits, childcare allowance — in other words, from any type of income. Those taxes are used to improve well-being of citizens. And, at the same time, there are no taxes from cryptocurrency operations — this huge market that operates enormous sums of money. Doesn’t seem fair, does it?
4. To avoid market manipulations
Over 60% of mining power is concentrated between the top five mining pools. Don’t forget about “whales” that can affect situation on the market place any time they want. Decentralized and non-regulated cryptosystem doesn’t seem safe enough. Concentrations exist across currencies, exchanges and pools, which can result in the classic “too big to fail” scenario. Regulation will help to protect users from sudden changes and keep cryptosystem from bursting.
Conclusion
You may like it or not, but in our modern world everything that is not regulated seems malicious and untrustworthy to most people. Without regulation they see only negative sides of cryptocurrency such as money laundering, illegal transactions and so, naturally, they don’t put much confidence in it. But with regulation crypto will become just another form of money, another way to make payments or store assets — and it will be a huge step to the global acceptance. To make it full-fledged currency, to make it available and secure for all people — it must be regulated and it certainly will be.
There is no unified strategy or consistent approach for governments how to handle digital coins, because the world has never encountered anything like crypto before. So we can see a wide range of reactions: China banned cryptocurrency exchanges, Belarus officially allowed operations with tokens and mining of cryptocurrencies, Japan recognizes Bitcoin as legal method of payment, Germany has confirmed that cryptocurrency is financial instrument. There are countries that still haven’t announced any official stance towards cryptocurrency, but as we are witnessing its mass adoption, they will eventually have to approve policies for regulation digital currency.
Non-regulated cryptosphere is conducive for frauds and scams. Legitimation and regulation of cryptocurrencies will open it for a wider circle of potential users. It is not threat to the decentralized nature of cryptocurrency, it is welcomed and long-expected result of spreading and acceptance of crypto money. Regulation will help to overcome high volatility inherent to cryptocurrency and diminish market manipulation. Bitcoin’s price goes high every time one or another country finally regulates and recognizes it as a legal method of payment — isn’t it a shining example, that regulation affects crypto in a good way?
Of course, there will be a lot of challenges in the process of cryptocurrency regulation. Nobody even knows how to do it, because cryptocurrency is something world has never seen before. Cryptocurrencies require flexible approach and careful consideration from governments. As it becomes more and more influential and prevalent, it needs to be regulated to protect users from malicious actors and manipulations from big investors. Regulation will make it much easier for cryptocurrency to become globally accepted full-fledged substitute of money.
