The Case For Crypto Regulation
Since the formulation of financial systems, humans have been trying to beat the system. Be it the Ponzi schemes, money laundering, insider trading, there have always been people who believe that they can beat the system. This being said, of noticeable concern is that some individuals have actually beaten the system and for quite a sum.
Prior to the formulation of stringent measures on some of these markets, as well as prior the spotting of some of these ‘quick-buck making’ schemes, the laws were pretty frivolous, allowing people to pretty much do as they wished. The financial system back then seemed like some sort of ‘Wild West’: few knew of the products which mathematicians conceived, little to no knowledge on a mechanism to implement them and few laws were there protecting investors or consumers. This gave a leeway for individuals with a bit of knowledge on the system and wishing to take advantage of the entire scenario to dupe either investors or consumers with almost no checks whatsoever.
A lot has since changed as more and more people came to understand the inner workings of the financial system and the inter-linkage between the different players within it. Furthermore, nations began getting involved more and more with this system, necessitating the formulation of laws to ensure that the cross-border relations remained strong.
However, in all this, it was assumed that these laws covered nearly every swing in the financial pendulum. For this assumption to hold, one key variable needed to hold: the monetary mechanisms underlying financial system needed to remain constant as governments needed to keep control of the money in the system through the Central Banks. Given that the system seemed self-sufficient, these parameters were expected to hold long into the future, or so we thought.
A paper by Satoshi Nakamoto released back in 2008 changed the view of the entire world on this system, threatening to reshape the destiny of its players long into the future. It was underpinned by a theory that the power of money needed to be given back to its owners: the people. If this power went back to them, it would be easier for them to make their own decisions on how to benefit from it, ensuring that the problems experienced in the 2008 financial crisis stopped short and the words principal and agent ceased existing.
All in all, the paper was a ground-breaking success tale as many across the globe began accepting the new form of money, causing a new uprising within the already existing system. However, teething problems were to follow on soon after this and, in this case, took us back to the pre-law era.
While cryptocurrencies came with a handful of gifts in one hand, they also showed the world how unprepared it was to adopt a new financial system; the previous system worked just fine but with the increased acceptance of these cryptocurrencies, urgency and pressure keeps mounting on governments and regulators to pursue methods of regulating the entire system. Their problem is further exacerbated by one ideological difference: innovation versus protection.
A thin line exists between innovation and protection as innovation comes with its own new framework previously unaccounted for and which some can take advantage of. As such, with regulators main role being protection, they need to find a way to do this without seeming to be anti-innovation, otherwise, they risk being seen as being anti-innovation. This very fact is the largest hurdle regulators will need to jump.
Finally, however, it now seems that there is hope as governments have begun looking into this system. However, the question remains, what exactly are they looking to solve?
Cryptocurrencies are a new phenomenon in the global economy and are deemed to reshape our view of it. However, the fact that they are new means that this concept sends us back to the 20th century, the previously described period with a new system, few people with an understanding of it and minimal laws governing it. That being said, the current generation stands at a vantage point in that the evolution of science and technology, as well as lessons from the past, have led us to understand some of the loopholes that need to be covered as we forge a framework.
Key among these is illegal activities. As previously stated, over the years, individuals have been quite enthusiastic about finding ways to beat the system. One major problem has been money laundering – a situation where an individual has access to money through illegal channels and seeks to find a way to make it ‘clean’/legal by getting it back into the system in three levels: placement, layering, and integration.
Cryptocurrencies have come as a method which people with money from questionable sources can integrate it back into the system and get away with it. With ICOs (Initial Coin Offerings) coming into play, individuals have found themselves receiving money from people of all walks, some whom would not have been so forthcoming with the money had it been going into a regulated system. Furthermore, some cryptocurrencies have brought with them some controversy regarding their operations as their architecture allows for criminals to send and receive money privately and without being traced. All in all, such privacy is worrying especially to the financial system which has built robust frameworks over the years to ensure that such occurrences or activities are avoided in total.
Furthermore, the core of this problem has been with civil protection. Both consumers and investors have a right to be protected from unscrupulous individuals veiled by a computer hoping to make a quick buck out of them. Cryptocurrencies have been presented as a gamble by many as a result of the same, with people still skeptical of the people on the other side of the computer.
Financial regulators have been tasked with coming up with a solution to these. With some of the best global minds backing wither side of the aisle – the financial system and the technological system – it will be interesting to see how the developments on this issue unfold. However, recommendations such as ensuring that the individuals offering the coins are registered and having the cryptocurrencies tracked to ensure that they do not originate from individuals operating in otherwise clandestine deals will need to be reviewed before a final stand can be taken on the entire issue.
It comes as no surprise that governments have different stands on different matters especially on financial matters. Each takes a hard stand, in most cases, one that will favor its competences in a specific area or operational field. Different governments have made different decisions regarding cryptocurrencies with some such as China banning them while others such as Japan took a much softer approach to the entire issue.
The G20 summit epitomized this divide as some nations displayed optimism in the future of cryptocurrencies – such as France – while others displayed a complete lack of interest – as was the case with Brazil through their Central Bank President. So far, the key deliberation will be on the cross-border aspect of the cryptocurrencies. The difficulty is tracing them is bound to raise issues with some governments and the difficulty in tracking them will further compound the problem. However, a date has been set by the summit members.
The world waited with baited breath for July, the month when a resolution regarding the regulation of cryptocurrencies will be provided. Currently, all factors are being considered and hopes remain up that the entire issue with go resolved. Key in the minds of the regulators is that the technology backing them is fluid and has a lot of uses in the modern day and age. Therefore, a lot is needed to guide the world out if its current ‘Wild West’ situation into the modern digital financial age.
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