Crypto Regulation and What it means for the Industry
In recent times, efforts have doubled towards regulating crypto assets. This is partly because crypto assets, in their more-than-a-decade-long existence, have moved on from the niche market built on the premise of searching for a purpose to a more mainstream presence as alternatives to poor payment systems, weak currencies, and speculative investment policies.
Massive growth in the market capitalization of crypto assets and their transition into the regulated financial systems has also been a major influence in these growing efforts to regulate them, coupled with their increasing innovative lights blazing through and beyond the rims of finance. Even the lack of crypto issuers and hedge funds, plus the current decrease in crypto valuations, are also partakers of the mix.
It’s challengingly difficult to apply an already existing regulatory framework to crypto assets or even develop a new one. This can be attributed to the rapidly expanding crypto industry and the struggles of regulators to garner relevant skills and talents needed to keep pace given stretched resources and myriads priorities. More still, data are tricky and patchy, which makes it hard to keep track of thousands of actors who may not be subjected to identity verification processes or typical disclosure.
Understanding the Concept of Crypto Regulation
The word “regulation” has always been a pinprick sensation within the crypto community, such that any reference to its implementation is regarded as an opportunistic and capitalist endeavor. There’s no doubt that the growing success of blockchain stems from its anti-capitalist inclinations and any involvement with regulatory bodies goes against that very belief upon which the blockchain community is built. But, in recent years, it has been strikingly clear that blockchain can succeed greatly by integrating traditional means of doing things.
Although blockchain as a technology can foster by itself, giving rise to peer-to-peer value transfer and bringing innovations to payment gateways and processes and investment projects, it’s however important to look at the other side of the picture in which cryptocurrency can be used for transfer of value for illicit activities. Despite crypto regulation being anti-crypto and nefarious in many ways, people are now seeing the need for the regulation of the blockchain ecosystem.
Contextually, the term “regulation” is often mentioned in the crypto community concerning three major concepts: Know Your Customer (KYC), Anti Money Laundering (AML), and Securities regulations. Whereas KYC and AML regulations were created to verify the identity of customers as well as assess the risks of them using business acquaintances as an avenue to foster money laundering and other illegal activities, securities regulation deals with the protection of investors by making sure that funds are used for their intended legal purposes.
Pros and Cons of Crypto Regulation
Crypto regulation has now been implemented by some countries that have come to accept how much of a mainstream push a merger between the traditional work technique and this new blockchain-oriented work system can be. While crypto regulation seems to have growing advantages, there are disadvantages as well lurking on the horizon.
There is no denying that a lot of benefits abound in the regulation of crypto issuances. Although the Securities and Exchange Commission (SEC) may find it unnecessarily hard to adapt to the change, such security issuance regulations do provide a level of protection for both sophisticated and unsophisticated investors. The ICO madness that wrecked the crypto community towards the end of 2017 is major proof we needed to create investor protection laws that would dissuade investors from losing their money to just any project with a decent whitepaper or spectacular pitch and no plan or product. Had ICOs been subjected to strict regulatory procedures, those potential fraudulent ICOs would be greatly discouraged.
A more regulated crypto ecosystem will surely lead to increased quality of token issuances. Adherence of issuers to securities laws puts token issuances on a high level of scrutiny, hence discouraging fraudulent and poorly thought-out projects from holding an ICO.
Legitimacy Boosters Within the Industry
The crypto market is undoubtedly a risky deal when compared to traditional capital markets. Even though the industry does create a faster, more accessible, and reliable ecosystem for both investors and businesses, the risks involved discourage big-league investors from venturing into the market. And if these big league investors — especially institutional investors — were comfortable enough to invest in crypto, demands and prices will skyrocket simultaneously, which in turn will legitimize cryptocurrency.
Exclusion of Investors and Valuable Projects
Although crypto regulation can indeed increase the overall quality of projects within the industry, it can put a strain on potential projects in terms of finances or regulatory measures. Not to forget that a larger part of the popularity status of cryptocurrency and ICOs can be attributed to their simplicity as well as their fast-moving investment process, which allows companies with great projects to raise funding without having to worry about what regulations to follow.
Poor User Experience
Most users have a bad experience while trying to purchase or trade tokens. This affects the entire fundraising ecosystem for private companies and the ease of investment. Previously, the token investing experience was simple with easy customer identification procedures which are implemented as part of KYC and AML to combat terror attacks and money laundering, and so these regulations are often viewed as somewhat inconvenient.
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