updated: 05/16/2022
Bitcoin and other cryptocurrencies are often defined as digital currencies, assets, and platforms for smart contracts. however, when it comes to regulating cryptocurrencies, defining them legally becomes more of a dilemma than many people expected.
Reading: Can bitcoin be regulated
As bitcoin and other digital assets continue to grow in adoption and popularity, it is more widely discussed whether the us. uu. government, or any government for that matter, can exercise control over its use.
Until now, cryptocurrency regulation has been confusingly general and sometimes even ambiguous. Some countries are determined to tighten regulations for bitcoin before digital currencies spiral out of control and become uncontrollable.
Here, we’ll explain what’s happening so far with regulation and what we can expect in 2022.
Is it possible to regulate a decentralized network?
The cryptocurrency was created with the main objective of being decentralized and distributed, two very important qualities that make it difficult, or perhaps impossible, to regulate bitcoin.
Being decentralized, bitcoin does not have a single controlling entity: no government, person or company owns or controls bitcoin and other cryptocurrencies. control of bitcoin is shared among several independent entities around the world, making it almost impossible for a single entity to gain full control of the network and manipulate it at will.
since it was distributed, bitcoin exists in many different places at the same time. this makes it very difficult for a single regulatory power to enforce its will across borders. it also means that a government or other third party cannot technically raid an office and shut anything down. however, with the new regulations, everything could change.
how to approach crypto regulation?
Governments can influence the price of cryptocurrencies in various ways. First, they can regulate the price of digital assets through buying and selling actions through international markets. second, they can get involved in creating strict regulations that could inevitably lead to an increase in cost.
In these two ways, governments have the potential to make some changes, but they are not likely to affect crypto on a larger scale. Since cryptocurrencies are bought and sold internationally, regulation would require extensive efforts in various countries.
The goal of cryptocurrency regulation would be to protect investors, prevent fraud, and reduce speculation among cryptocurrency assets, thereby fostering greater confidence among investors.
there is a central problem that forms the basis of the debate on the regulation of bitcoin: how will the regulations affect investors and the price of crypto assets? Digital assets inherently pose an economic risk, as their value always fluctuates due to various factors, such as international politics and the economy.
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however, in the hands of malicious people, this could have very dangerous consequences. the illicit activities inherently backed by a decentralized global currency run the gamut: financing terrorism, selling and buying illegal drugs, ordering assassinations, tax evasion, money laundering, etc.
Still, one of the most attractive features of bitcoin and other digital assets is that investors can send anywhere from a few cents to billions of dollars worth of bitcoin anywhere in the world, at any time, for a fee.
how will crypto regulation affect investors?
The new rounds of crypto regulation are considered an important step in the development of a crypto economy. New regulations can bring bitcoin, stablecoins, other cryptocurrencies, and nfts to mainstream markets and bring legitimacy and greater security to digital assets.
Some members of the crypto community still fear that regulation could stifle innovation and growth, while others see the need for regulation to prevent scams, money laundering and other types of cybercrime.
While most investors accept that digital assets may be the future, some are still quite reserved about making the leap to digital and are skeptical that regulations will provide adequate collateral.
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how will crypto regulation affect the value of coins?
The cryptocurrency market is constantly changing. there are some crypto experts who fear that the regulations will add too many restrictions on the market. however, if done correctly, regulations can be the solution to add stability and security to investors. if institutions impose sales bans, cryptocurrencies generally respond negatively, but if regulations support innovation within limits, then prices could become more stable.
the current state of cryptocurrencies
Until now, there has been no internationally coordinated regulation effort on cryptocurrencies in any country. The World Economic Forum’s Global Future Council on Cryptocurrencies is working on the risk assessment and policy response to the rise of cryptocurrencies.
Banks around the world are keeping an eye on crypto regulatory trends, with a shared interest in stabilizing their monetary systems. Cryptocurrencies are currently banned in 9 countries, including China, while another 42 countries, from Bolivia to Turkey, have restrictions on banks’ ability to deal in cryptocurrencies or ban cryptocurrency exchanges.
For some of these countries, regulations are a way to protect customers and prevent fraud, others ban cryptocurrencies to avoid destabilizing financial institutions or even to exert more control over citizens.
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In the case of El Salvador, we can see how problematic it can be to use cryptocurrencies on a national level. When the president of El Salvador announced a bitcoin law in June 2021, it held great promise to digitize its economy and drive more investment. In this way, El Salvador became the first country to accept Bitcoin as legal tender. with over 86% of businesses having never transacted with bitcoin, this was clearly a bold move.
During the first few months, its blockchain law showed a number of cracks and inconsistencies that made it unpopular. Almost 70% of the population of El Salvador does not have a bank account, and about 50% of the population is not online. small and medium-sized businesses still face problems with customers who want to use bitcoin for daily transactions, due to its volatility.
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source: statista, law library of congress
Many countries have created creative rules around cryptocurrencies to accommodate this frequently changing currency.
India has proposed that transfers of any cryptocurrency assets be taxed at 30%. in this way, the government reduces the net gain for investors and the general attractiveness of buying and selling crypto assets.
liechtenstein’s parliament, on the other hand, passed the Token and Trusted Technology Service Providers Act, thus becoming the first country to have a comprehensive regulation of the token-based economy . The law provides measures to combat money laundering, clarity on digital security and asset protection. due to liechtenstein’s small size, it may be easier to enforce this law than other larger countries, but we may be able to see how a law like this works and use it as a case study.
In the united kingdom, the treasury announced its intentions to regulate cryptocurrency businesses. The UK is currently leading the adoption of decentralized finance in Europe, with crypto investors generating more than $170 billion in 2020 and 2021. Its regulatory package would resemble the EU markets in the crypto asset package (mica).
In March 2022, the United States received the long-awaited recognition of the potential for regulation of the crypto industry, an executive order to ensure the responsible development of digital assets. The order would ensure that the White House is involved in cryptocurrency research, including creating a legal framework for digital assets. the study would cover security, privacy, finance and a global perspective for usd in the new web 3.0.
A San Francisco-based startup, Ripple, is fighting a Securities and Exchange Commission (SEC) lawsuit. The allegation they are disputing is their involvement in illegal securities through sales of the cryptocurrency, XRP.
In this case, Ripple argues that XRP should be treated as a virtual currency and not an investment contract. Since they are working as a blockchain-based alternative to swift, they are focusing on facilitating cross-border transactions.
This lawsuit is extremely important to the crypto community in the United States. In the event that Ripple loses, most token trading companies would have to register with the SEC as brokers and would make their services more expensive.
cryptocurrencies in the future
While many countries have made progress in regulating bitcoin and cryptocurrencies since their infancy, it will ultimately take a lot to enforce any kind of meaningful global regulation on bitcoin, and the most important factor missing is consensus. centralized opinion.
Cryptocurrencies are currently regulated in the US. uu. by a large number of institutions (cftc, sec and irs), which makes it difficult to create a general regulatory guideline, even only in the states.
Believe it or not, bitcoin can be regulated. In fact, its regulation has already begun with fiduciary on-ramps and compliance with strict KYC and AML laws. While some countries have banned cryptocurrencies altogether, it would take a major alteration to the moral fabric of the constitution for cryptocurrency property rights to be infringed in the US. uu.
It doesn’t matter if there are prohibitions or strict regulations, cryptocurrency cannot be closed and it is not going anywhere. There are still ways to buy, sell, and trade bitcoin, even without a centralized exchange. It would take an enormous effort on the part of any government to completely uproot something as decentralized as bitcoin. Regardless, innovative approaches to bypassing government influence are likely to emerge quickly.
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