One Of the primary reasons why cryptocurrencies became popular was the absence of oversight. No regulation bound transactions between entities. The lack of authorities meant that unnecessary bureaucracy did not slow down processes, and there were almost negligible transaction fees. However, that is all about to change. This article presents a brief discussion on whether there will be cryptocurrency regulation or not.
The defenders of Cryptocurrency say that the entire environment is a trustless system. They hence owe no allegiance to any organization or state, and because of this, Cryptocurrency regulation will have no meaning. The cryptocurrency market is bound by impenetrable algorithms, which act as a safeguard by itself. However, not many buy this theory.
The Alternate Theory
Proponents of Cryptocurrency say that despite many promises, a decentralized ecosystem, much of Bitcoin, the major portion of Cryptocurrency, is based out of China, which bears most of the crypto infrastructure. This acts as an added influence on cryptocurrency trading. The community vying for crypto regulation has pointed out the epic rise and fall of Bitcoin. “Irrational Exuberance” was what Alan Greenspan had retorted during the dot.com bust, and this is what is happening now.
(Graph Source – Statista)
(Number Of Cryptocurrencies Worldwide From 2013 To July 2021)
The Need For Regulations
The main reason, authorities feel, is the potential for fraud. Given the enormous amount of cryptocurrencies, as shown by the graph above, in circulation and the meteoric rise of ICOs, there is a viable case of money laundering and possibly a linkage between Cryptocurrency and terrorism. There is a vehement protest to this, but there is a legitimate concern since a considerable amount of investments are stuck within the ledgers.
The Conundrum Called Bitcoin Regulations
The confusion arising out of the US Cryptocurrency Regulations is borne out of the misconception of definitions. The CFTC or the Commodity Futures Trading Commission treats bitcoin as a commodity while the IRS terms it as a property. The regulations and the taxation system is separate and vastly different.
But there is an even more significant challenge that most regulators seem to miss. Evaluation of a cryptocurrency is not similar to basic tax calculation. This elaborate network of ledgers requires sophisticated software and not the usual analysis on an excel sheet.
Two types of tokens are in circulation today: Utility tokens that define the platform’s purpose and Security tokens representing equity or share in a company. The former does not require an SEC declaration, while the latter does. There have been multiple tickets circumventing the current rules and regulations by declaring themselves utility tokens. By simply banning exchanges, the problem remains just that: a problem, since they allow the entities to move elsewhere and set up shop. The IMF or International Monetary Fund has called in for an international symposium where participation of all members is expected.
There are pointers from Asia, though. The Japanese government had stated in 2017 that Cryptocurrency might one day become legal tender while South Korea has imposed a 20% tax on any cryptocurrency profiting over 2.5 million South Korean Won. The Japanese government has also passed a legislation called the Virtual Currency Act, which has defined Cryptocurrency. It would also enable the majority to buy Cryptocurrency as per the crypto prices.
A minimum set of regulations will bind start-ups to float an ICO, and there will have to be disclosures made regarding the same. Moreover, crypto exchanges will have to be subjected to strict IT Compliances and KYC rules. To this end, the Japanese have amended their Payment Service Act. The Financial Services Agency has undertaken the fundamental changes.
There are myriad issues to be sorted before Cryptocurrency regulations in 2021 and beyond can be implemented. Multiple agencies and the portability of crypto funds between nations are some of the limitations forcing authorities to take a step back. Once these get answered, which will require a herculean effort, the future ahead for cryptocurrencies seems to be bright and assured.
Devraj Lahiri is an IT Entrepreneur by vocation and a content writer specializing in technology. His technology reporting interests include cybersecurity, fintech, etc. His journey has been one of fulfillment thus far as he enjoys writing. Being a native of the City of Joy, Kolkata (India), his passions include writing articles, incredibly technology-related niche alongside long walks through the by lanes of the metropolis, and capturing the lives of others through the camera.