The (attempted?) regulation of cryptocurrency
By Reuben Machinga
Cryptocurrencies are here and we are most definitely excited! For regulatory authorities, on the other hand, the arrival of crypto has been somewhat less exciting. For them, it’s more a pain in their side rather than a cause for jubilation. Why, you may ask? It very well may have to do with their nature. Cryptocurrencies may be hard to define, hard to tie down to a single place, and, we cannot deny this, have been a vehicle used by people with malicious intent.
Why regulate?
Before we dig into all of that, perhaps we ought to understand regulators’ raison d’être. In classical economics, perfect markets have agents armed with perfect information. They know everything there is to know about all their transactions. Call them omniscient. Coming back to our world, we’re far from Godlike. Imperfect information (imperfect people?) characterises our markets.
Regulatory authorities, then, have to step in, ostensibly to safeguard vulnerable agents.
To illustrate my point, just think of this. Do you know your bank’s financial health? Really? I mean having an intimate knowledge of not only their reserves at the central bank, but also where they invested or how risky those investments are. I don’t, and I suspect you don’t either. For this reason, so…
