The Otherside of Regulations for Cryptocurrency

It has long been said that absolute power corrupts absolutely. One regime replaces another. One set of rulers and rules replace another. However, democracy was supposed to supersede all that. We, the people would choose and appoint our representatives. Thereby ensuring a fair system that protects minorities.

Disruption

Bitcoi was introduced to the world in 2008 as a financial solution to the financial crisis of 2007. However, this social experiment also promised a social and political revolution. Anarchy was a major common philosophical underpinning of the Bitcoin developers. Their hope was to bring disruption to institutions.

Power to the People

Echoing the antiestablishment slogans of the 60s and 70, the Bitcoin banner waved high. The difference this time was that the internet had created a medium that could produce a revolutionary product, digital money.

A Brief History

Digital money became a possibility with the advent of cryptology. Slowly financial institutions started using digital money. Soon electronic transfers were offered to the public.

Peer-2-Peer (p2p) Business

With cryptography and the internet in place, there was now the possibility of creating a p2p business, otherwise known as b2b. However payment became a problem. How is it possible to do transactions p2p? In other words, there needed to be a complementary p2p payments system. Bitcoin promised to be the Holy Grail.

Anonymity, Anti-Regulation and the Days of the Wild West

Bitcoins anti-regulation sentiment carried over to altcoins (alternative coins). Altcoins are all cryptocurrencies developed after Bitcoin. Initially all cryptocurrency was also anonymous.

The wild west was re-born, the new decentralised internet “currency” was rife for illegal and criminal activity. Silkroad was an infamous thorn in the FBIs side.

Regulation Trickled In

Eventually the law started cracking down on the criminal activity on Bitcoin. It had to play catch up because the technology was revolutionary.

Once the law had got more of a handle on the general criminal activity, it turned its attention to the ICO boom. ICOs were popping up right and left. Scams, fraud, and hacks were rife and investors unprotected.

Law is still playing catch up, but it is making steady progress. Countries are still divided on their approaches to cryptocurrency, but much progress has been made.

Cryptocurrency Policies

Brazil was an early leader in regulation of exchanges. Malta set up a project to become a cryptocurrency island. Japan is following suite after making Bitcoin a recognisable way of paying for goods and service. America is lagging behind, except in the tax arena. The US (United States) SEC (Security and Exchange Commission) is recently declined a number of Bitcoin financial products as securities. However the lack of clarity if what constitutes a security is still a big problem for the US SEC.

Disadvantages of Regulation

The whole point of cryptocurrency is that it is supposed to cut out the middleman and bureaucracy. Regulation of the cryptospace seems to go against regulations. Regulating requires applying to regulatory bodies and complying with their conditions. This process involves a lot of red tape. In addition, as pointed out above, regulatory bodies are inadequately developed, not well-established enough, and law is not always clear enough to deal with cryptocurrency.

Advantages of Regulations

The otherside of the regulations argument has been taken up by many cryptocurrency projects. These cryptocurrencies rightly point out that, while tedious, regulations protect the buyer and seller. Regulations are a big positive even for the experienced investor and venture capitalist. If an ICO, or cryptocurrency, is regulated that means it is probably not a scam. In addition, mass adoption is unlikely without regulation compliance. In America many banks have frozen bank accounts with cryptocurrency activity.

Cryptocurrency: Asset class or Security and Tax Implications

Tax is a major issue for cryptocurrency, both from the government collection side and citizen payment side. This is because if cryptocurrency is an asset certain laws apply and if it is a security other laws apply. It becomes really tricky because these classes are also taxed differently.

Conclusion

Cryptocurrency has developed rapidly and certainly disrupted many institutions. Law is lagging behind this revolution, but is catching up steadily. To regulate or not to regulate that is the question. Regulation might go against the philosophy of cryptocurrency, but it might be inevitable.