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Cryptocurrency is no longer at its infancy stage; it’s already grown and maturing very fast. Blockchain projects, in particular, have been used to settle real-life crisis and key players actively supporting them. Such big names include Microsoft, IBM, SBI and many others.
While the name cryptocurrency, may contain the suffix “currency” in it, –the legislative standpoint of it shouldn’t necessarily be treated as such. Why? Cryptocurrency is typically more of a store value. It is also more of a form of investment than mere currency—extreme volatility.
The current condition of cryptocurrency
The prices of cryptocurrencies fluctuate wildly within hours. A great example is Bitcoin’s $1000 value in early 2017 which hit a whopping $20,000 by the end of the same year.
What we should all clearly understand is that currently there is no regulation in the crypto sector. No central authority may govern cryptocurrencies, that’s partially why they may go through such extreme volatility.
In short, there are security and safety issues in the crypto world making it way too challenging for mass adoption. We can relate to the past Mt. Gox explosion and the recent BTC debacle as examples on why public adoption on crypto may never succeed in its current condition. However, this is only one of the traits of decentralized currency.
So, to determine whether we need regulations and policies to stabilize cryptocurrencies, here are the advantages and disadvantages that will help us weigh and answer this question.
Advantages of regulations
Creates more awareness
The central authority will take responsibility for educating people on the various types of cryptocurrencies, what they’re, where to get them, how they work and even how they can spend them. Cryptocurrency and blockchains are new technologies that most people aren’t familiar with nor comprehend the intricate details pertaining to them.
For this reason, there are many scammers and frauds taking place in the crypto and blockchain industries today, the same reason there isn’t enough security. However, regulation will put the cryptocurrencies on the limelight and help the mass learn more about the risks involved and their true nature when using them.
An orderly system
Anyone with good knowledge about cryptocurrency will agree that not all exchanges are good guys. Some of them are rogue businesses that don’t follow the law and hence put investors’ money at risks. Such misconduct can encourage criminals to use cryptocurrencies to fund their criminal activities, such as the dark web, who use Bitcoin as their form of payments.
Introducing regulatory systems will help keep criminals away and avoid such problems as the exchange firm will be put under a strict legal system.
Realistic concerns addressed
Cryptocurrencies are often termed as the future of money because of their fantastic security features. However, these features can be easily altered especially bitcoin where almost all exchange programmes got hacked. Well, that happened in 2016 alone, today we may not be informed how many more. Once the crypto is stolen, there are no ways of getting them back.
However, if regulations are put in place, they may not stop the hacking but can communicate with the various users and exchanges to make sure there exist proper security practices and that they are adhered to every time.
Some stems may also be put in place to help the public recover their finances when lost to criminals. Insurance, for instance, could be an excellent option for investors to protect their money.
Price stabilization
Another significant advantage that regulation may bring to the crypto world and the overall community is the stabilization of the cryptocurrency prices.
No one would wish to sell their bitcoin triple less the amount they sold in a few months—quite humiliating in itself.
Well, as we said earlier, cryptocurrencies are bound to be somewhat volatile.
Fortunately, regulations will help uproot the pump and dump market manipulators and business groups. Financially unstable crypto businesses would also not be tolerated giving the market some stability and less wild swings in prices.
Disadvantages of Regulations
Unplanned consequences
The grounds of regulations are also slippery; they often may result in unexpected consequences. This market has not been regulated before, which makes us think of all the uncertainties it may carry. Remember that regulations may not stop the hacking but only develop mechanisms to counter them, which brings us to believe that the fraudsters may either get smarter or simply hack the new mechanisms in place, making it a double tragedy.
Abuse of power
Just like many other market regulations in place, the aspect of abuse of power is always developing. Anyone in a prominent position has to choose between common good and self-interest—the latter is often the case.
What grounds do we have that the crypto industry won’t fall under corrupted regulators? Why should we trust that the new regulators in the crypto markets will be trustworthy? We should ask such questions and think rationally before coming up with an ultimate decision regarding regulation.
Regulations for the sake of regulations
The challenge in the connection between the government and regulation is that they’re frequently used for the purpose of formalities—nothing more. The opportunists in the crypto world would work around tax regulation or merely ignore depending on the tightness.
We may be hoping that the new regulations will help stabilize the various cryptocurrency prices and even manage to control the security of investors’ wealth. What if nothing of that is done?
Conclusion
Indeed, crypto regulation can work some things out, but too many regulations will definitely kill the market—any market in fact. Another noteworthy point to understand here is that regulating cryptocurrency is quite a considerable risk, as it is the first time.
However, based on the above annotations, we can confidently and emphatically state that for cryptocurrency to succeed in the future, as we’ve always claimed, regulations are not just paramount—they are inevitable. The main problem that needs to be addressed is investor reassurance, and the only method to provide reassurance for the ordinary investor is regulation.
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