Cryptocurrency Regulations
With Elon Musk’s promotion of Dogecoin on Twitter, the trend of meme coins has gone wild over the Internet, and cryptocurrencies have grasped the public’s attention one more time. 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. However, as blockchain applications are fundamentally decentralized, uncontrolled illegal activities are uncommon in blockchain communities. Many will worry about how cryptocurrencies should be regulated, and they may argue that regulations should be efforts of global cooperation. However, national laws and policies are more appropriate for cryptocurrency regulations because every country has its own needs to prevent money laundering activities and to throttle domestic and foreign capitals while legislating internationally is not feasible due to discrepancies in the extent of control between major players countries such as China and the US.
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, which is most people’s only means of holding cryptocurrencies. Cryptocurrencies have facilitated the flow of capital. Traditional transfer methods such as wire transfer take several business days to send money from one country to another. But with cryptocurrencies such as Tether (USDT), a 1–1 USD pegged cryptocurrency, it could take mere seconds to send money across the border without outstanding transaction fees. For instance, once I attempted to purchase a cosmetic hoodie unlisted in 1 hour from a personal seller’s website, I did not have enough money in my US banking account. If I had to wire transfer, it would be too late. Luckily, the seller accepted USDT, and it took only 3 minutes for me to exchange Chinese Yuan for USDT and purchase that hoodie.
However, even though transferring money through blockchain is exceptionally convenient and cost-effective, it challenges government agencies, as all transactions are anonymous on the blockchain. Nevertheless, there are viable methods for governments to regulate cryptocurrencies. Even though cryptocurrencies are gaining public recognition, spending them in real-life scenarios is extremely rare. Therefore, exchanging cryptocurrencies for fiat currencies, such as US dollars, is the dominant way traders and investors put their money in and out of the market. This has provided places for government agencies to intervene. The government may require exchange platforms to be certified before allowing them to operate in the country. They may also require the platforms to exercise identification processes and report all trading activities that are fiat currency related to them. Consequently, government officials may see how real-world money flows in and out of the cryptocurrency market, even though transactions on the blockchain are still completely anonymous.
To put it another way, by knowing the flow of capital, government agencies now may track and identify possible money laundering activities through cryptocurrencies. For instance, even though China has imposed a complete ban over cryptocurrency exchanges, many exchanges still offer Chinese mainland users service. This is not out of mercy. Instead, these exchanges report their Chinese users’ trading activities to Chinese officials, and the officials utilize that information to identify and fight money laundering crimes. In 2021 alone, the Chinese police department has arrested over 1,100 criminals for buying cryptocurrencies by income from telemarketing scams. National level regulations are proven to be effective in fighting money laundering crimes.
Some may argue that cryptocurrencies regulations should be addressed globally, given blockchain communities’ decentralized and globalized nature. Indeed, it will be ideal if there is a unifying solution for cryptocurrency regulation for the whole world, and it may be possible through the efforts of decentralized autonomous organizations (DAOs). However, reaching a global consensus for cryptocurrency regulation is unfeasible because major countries have discrepancies in cryptocurrencies’ regulation control and importance. The US prohibits its citizens from attending most initial coin offerings token selling campaigns like initial public offerings in the stock market but still allows citizens to trade on certified exchange platforms. China, in the meantime, has imposed a complete ban on cryptocurrency exchanges and initial coin offering events since 2017. However, Chinese citizens can still access many exchange platforms and trade indirectly in the Chinese Yuan through over-the-counter trading. On the other side of the world, South Africa has no regulation on cryptocurrency. Not to mention that most developing countries have no extra effort to deal with cryptocurrency regulations, given that they are still worried about their economies. Thus, a unifying global solution to cryptocurrency regulations is not achievable at this moment.
Bitcoin and its successors have grown from the ground up to a multi-trillion-dollar market, continuing to thrive in merely thirteen years. While they offer tremendous opportunities in cryptology, finance, fine arts, etc., cryptocurrency regulations are indispensable for their continuous development. It is essential to think about how national laws and policies should be implemented according to the growth of the cryptocurrency market and the needs of each country. While global approaches are impracticable now, effective national policies can be made, should be made, and will be made to help this new industry thrive.
