Regulations of what

xuanling11
Coinmonks
Published in
2 min readOct 26, 2022

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Photo by Joshua Woroniecki on Unsplash

There are certainly regulations coming to crypto, but what regulations and how far do regulations apply?

There are many possibilities that regulations of crypto can go very wrong, and let me explain here:

Crypto is a peer-to-peer communication device that facilitates the transaction from one user to another without the third party’s involvement.

In the traditional sense of transaction, we have a client or seller deal with a user or buyer with a middleman to facilitate communication or transaction, likely an institutional financial service provider like Visa through credit card service, PayPal through fintech service, debit card as banking service or cash through “trust” of banknote.

Regulations are heavily applied to intermediaries since they facilitate transactions involving financial information and private information protected through other regulations.

Now, we are back to crypto.

If you are using centralized crypto services such as Coinbase, there is nothing different than the middleman regulations case.

This is important that if we assume, crypto payment is nothing deviate from cash payment, credit card payment, fintech payment, or debit card payment.

If the above assumption is correct, why do we need crypto regulations on the payment system?

So regulations are expanding beyond payment transactions such as unsecured investment assets like Defi and other functionality provided through Web3.

It started to get tricky here.

What power up the core of Defi, Web3, DApps, and many more is a protocol that can create smart contracts.

You see where I am going. Regulations can restrict ways smart contracts function, types of financial instruments that allow them to offer, and provide protections to users or even restrict on the protocol.

The worst case of regulation is to restrict a protocol.

What is a protocol?

A protocol is a ground rule of communication that is preset for both parties to communicate on.

Regulating a protocol is like regulating an operating system such as a Windows platform or iOS in Apple.

Rather the regulations should apply to applications on the platform such as DApps an example.

Regulating a protocol will kill the possibilities of the crypto space and push the technology backward.

Therefore, no regulations on a protocol.

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