Bitcoin continues to shine among cryptocurrencies in spite of continuous influx in recent months. The crypto coin rose over 1000% in 2017 and EU legislators in charge of securities, banking and pensions have issued a combined warning to residents over the mad rush for cryptocurrency.
The EU warning comes in the wake of the recent statement by IMF chief Christine Lagarde that international regulation of cryptocurrencies is inevitable. Her concerns stem from the fact that cryptocurrencies have gained a notorious reputation as the currency of choice and mode of payment preferred by criminals in their illicit financial activities.
Her comments are in line with the IMF’s view that regulatory decision should focus on what people are doing if they’re properly licensed and supervised to check crime and fraud. The International Monetary Fund looks poised to get more actively involved in preventing the illegitimate use of crypto coin.
Why does bitcoin and other cryptocurrencies need to be regulated?
The first thing people are quick to release is extra disposable income. It’s put into long-term investments built around speculation because it’s only human instinct to gamble with extra income.
When bitcoin broke the $10,000 barrier, it was a reflection of the overflow of mainstream investment it received in 2017. The crypto-economy is rising at astronomical heights on a daily basis and no one seems to be able to stop its run. A crucial reason why cryptocurrencies are so attractive is because they are unregulated, unsupervised and decentralized. In October, 2017 the market share surpassed $150 billion. The big question is, why would anyone want to rain on bitcoin’s parade?
Regulators are fretting about the appeal of cryptocurrencies to criminals, especially hackers who use it to collect ransom and hide from law enforcement. The decentralization of bitcoin ensures there’s no central authority for its administration, hence, it can be distributed on a peer-to-peer basis.
The underlying protocols for cryptocurrency transactions do not require personal user details and the data stored on the blockchain’s public ledger isn’t necessarily linked to a person’s identity.
Three EU regulators have cited the extreme volatility and potential for severe losses as reason enough to be cautious when buying or holding virtual currencies. Cryptocurrency trade isn’t regulated by the EU, which means traders and investors don’t benefit from the protection of regulated services such as protection for their funds if bitcoin ever went out of business or was hacked and funds diverted.
Comprehensive regulation would first separate cryptocurrencies based on archetype and function, tokenize assets in a way that mirrors real-world financial laws and regulations and utilize the full power of blockchain to perform oversight functions.
What are the current regulations for bitcoin and cryptocurrencies?
The old ways of establishing trust and regulating currencies are changing. According to Bill Maris, CEO of Google Ventures, regulation often lags behind innovation. An incredible feature of blockchain technology is its ability to regulate itself without any institutional frameworks. The more regulatory framework should be built in on-chain to achieve a decentralized cryptocurrency that is inclusive, sustainable and transparent for all.
Cryptocurrencies already have an indirect impact on traditional stock exchange and interest is significant enough that any event in blockchain technology affects share prices. The US Securities and Exchange Commission warned that companies who attached “Blockchain” to their names to scam investors place themselves on the watchdog’s radar.
Regulators around the world are bringing down the hammer hard on fraudulent, illegitimate ICOs, cryptocurrencies and their founders. Cryptocurrency trading experts, Crypto Coin Judge predict that regulators will take a harder stance on cryptocurrencies, especially Bitcoin in 2018. The actions are expected to have a short-term impact on crypto coins and token prices.
ICOs and Cryptocurrency regulations in Asia and the Middle East
China has banned ICOs and cryptocurrencies, calling it a disruption of traditional financial order and in South Korea they’re looking to ban virtual accounts used for crypto trading and allow legitimate accounts for new trades. In other words, no hiding under anonymity if you want to trade bitcoin in South Korea, it comes under financial institutions instead of the decentralized platform that boosted bitcoin’s profile.
In Abu Dhabi, market regulators are considering a framework for crypto exchange operations. The framework according to the Financial Services Regulatory Authority will be risk-appropriate, robust and transparent with a goal to supervise VC intermediaries and exchanges. Rules on Know-Your-Customer and anti-money laundering rules will apply to token transactions.
Russia’s Cryptocurrency bill
At the end of 2017, the Russian ministry of finance and Bank of Russia presented a joint bill for the regulation of ICOs and cryptocurrencies at the meeting of the public council. Instead of rallying behind the cyrptoruble, Russia’s national cryptocurrency, the finance ministry believes a common cryptocurrency for several countries would be more robust and promising than a cryptocurrency for only Russia.
The bill allows for the establishment of ICOs but places restrictions on people who are not qualified investors. It also redefines mining and the accompanying tax for it. Entrepreneurs and individuals can engage in mining but a tax will be levied based on business activities.
How should cryptocurrencies be regulated without reducing the value?
Follow the Japanese example
Japan seems to have it all figured out where cryptocurrencies and regulations are concerned. It’s been approved as a form of legal payment since April 2017. There are ATMs exchanging bitcoin for cash and stores like Bic Cam accepting bitcoin as payment for purchases. You even get a discount when you use bitcoin to pay utility bills.
When Mt Gox collapsed, regulators stepped in and enacted laws to regulate the exchange, maintain capital reserves, implement Know-Your-Customer (KYC) procedures and separate customer funds. While most developed countries are trying to pull bitcoin down in the name of stringent regulations, Japan is taking measures to encourage responsible use and safeguard citizens’ investment.
Create an ICO framework
ICOs make sense when there’s a team behind it with a legitimate product or service to offer. If you’re investing in an ICOs because of the hype, you might lose all your money. Experts have advised there should be a clearly stated set of rules and regulations outlining acceptable practices. Someone should be responsible for funds raised and there should be a refund mechanism if things go south.
If governments and financial institutions around the world want to regulate cryptocurrency, it’s possible to create laws, make the process transparent and unattractive to criminals without killing bitcoins or crippling the power of cryptocurrencies. A SEC framework that guides cryptocurrency operations would hold the virtual currency accountable, carry value for investors and serve as a means of exchange.