Ancillary #1 Cryptocurrency and Blockchain Regulation
Nowadays, digital payments have become an indispensable part of our daily lives. We utilize them every day, from using Apple Pay in stores to shopping on Amazon. Bitcoin, a decentralized cryptocurrency, emerged in 2009 and recently peaked at $65,000 each. As the blockchain, the fundamental technology behind Bitcoin, continue to thrive, more applications such as Decentralized Finance (Defi) and NFTs are trending. While people around the globe are excited about these applications, government officials are concerning their legitimacy and acceptance of regulations. Regulating cryptocurrencies is more challenging than ever before, given their decentralized nature.
Cryptocurrencies are born globalized, so it is natural to consider regulations from a global perspective. Bitcoin and other cryptocurrencies are gaining increasing popularity these days. According to Statista, there are already 80 million Bitcoin wallets created. This number does not even include the number of people buying cryptocurrencies on exchanges. Cryptocurrencies have facilitated the flow of capital and made it extremely fast. Traditional transfer methods such as wire transfer take several business days to send money from one country to another. But with cryptocurrencies such as USDT and USDC, it could take mere seconds to send money across the border without outstanding transaction fees. Also, transferring money this way bypasses regulations, as all transactions are anonymous on the blockchain. Nevertheless, when users want to exchange their cryptocurrencies for fiat currencies, such as the US Dollar, they will have to deal with bank accounts. Therefore, if addressed globally, we can form a global consensus of mandating identity verifications and tax reports when people are trying to exchange bitcoins for dollars.
Cryptocurrency regulations can also be addressed nationally. Even though cryptocurrencies are decentralized, exchanges, which are platforms that people can exchange real money for bitcoins, are primarily centralized and operated as companies. Governments can impose regulations for these exchanges, including mandating KYC (Know Your Customer) procedures before allowing users to trade, collecting trade histories for tax purposes, and fighting against money laundering by reporting suspicious transactions. There are currently two different approaches to regulate. Countries like China has completed banned crypto exchanges and declared it illegal to operate as a business. In contrast, countries like the United States have sophisticated requirements for exchanges to operate on its border, trying to have everything under control.
Consequently, we can address cryptocurrency regulations both nationally and globally. However, since cryptocurrencies are still very decentralized and newly developed, their laws are still in early stages and are to be discovered. As the technology continues to thrive, proper regulations will help ensure it is used for our well-being.
