Cryptocurrencies have become some of the most important technologies in the last few years, as they have emerged as groundbreaking solutions so that people can finally have an option to fiat money. And even if, at first, they seem only to be suitable for tech enthusiasts, things have changed lately. Now, cryptocurrencies have disrupted plenty of industries and brought a way to benefit from more decentralized solutions. Bitcoin is the first one to start the crypto trend and is what has inspired all the other altcoins. Bitcoin is the largest cryptocurrency by market cap, and even if cryptocurrencies are volatile, people have more confidence in the Bitcoin price because it has been in the market for the longest period and has withstood plenty of changes over the years.
However, as cryptocurrencies are decentralized, this can mean that they operate outside jurisdictions. The laws surrounding the use of cryptocurrencies differ from country to country, as some of them have supported the usage of digital coins, while some have banned them. Others are neutral and haven’t applied that many regulations. Yet, this can make individuals stay away from investing in crypto, as they might not know what to expect from their part, especially because of the volatile nature of cryptocurrencies.
So, do cryptocurrencies need regulations? Let’s discover together.
Do cryptocurrencies need to have regulations?
Cryptocurrencies work with the help of blockchain technology, a digital ledger that records all transactions regarding the use of a cryptocurrency. These blockchains are transparent to everyone, so anyone can access them, which increases transparency to a great extent. Even though, at first, cryptocurrencies were only appealing to tech enthusiasts, things have changed in the last few years. Now, individuals are using cryptocurrencies daily to purchase services and products. But, because cryptocurrencies have increased in popularity, governments and other regulatory bodies have started to pay attention to crypto assets and determine if they can introduce some regulations around them.
Nowadays, tax officials, law enforcement agencies, and legal regulators are all trying to discover in which category they should place cryptocurrencies and whether they belong to the current legal frameworks and legislation. However, currently, no universal law applies to the regulations that cryptocurrencies should have. This is why countries worldwide have adopted different rules and legislations that apply to the crypto landscape.
Cryptocurrencies are no longer seen only as a trend but as something bigger, so this is why they can’t be treated as a fleeting fad. So, over the years, cryptocurrencies have started to be seen as an alternative to fiat money. Still, they also have begun to be considered a viable investment, which offers an important investment possibility.
What are the consequences of not regulating cryptocurrencies?
Unfortunately, because cryptocurrencies are decentralized and anonymous, they have become appealing to cybercriminals who are looking for new ways to steal people’s money. However, a good regulatory framework could make people feel safer, as these laws could safeguard people’s crypto funds against fraudulent practices. The anonymity of cryptocurrencies has made them the perfect asset that cybercriminals are trying to pursue, and this is why cryptocurrencies have also been associated with terrorism financing, money laundering, and plenty of other illegal acts.
Countries worldwide should implement measures and legislation such as Anti-Money Laundering (AML) or Know Your Customer (KYC) to reduce these risks in the crypto space. Unfortunately, the lack of regulations can also increase volatility in the crypto market, as excessive speculation and price manipulations can contribute to many fluctuations.
On the other hand, if the laws from the crypto space were clearer, more people could be interested in cryptocurrencies, as this could lead to better discipline while also increasing transparency. So, even if this might not be obvious from the start, clear regulations in the crypto market could provide better security for everyone, which is missing from an uncontrolled environment. This could allow cryptocurrencies to be used in more sectors and by more individuals.
Because cryptocurrencies don’t have laws, governments have difficulty collecting and imposing taxes on all cryptocurrency-related operations. However, cryptocurrency regulations could solve these issues, allowing regulatory bodies to tax crypto transactions. But, there is also an issue, as crypto is borderless, and legislation can only be applied to a specific country.
This is why governments worldwide should try to build a more unified regulatory framework to facilitate cross-border transactions.
What are the current approaches in crypto regulations?
There is no universal law for crypto regulations, as they differ from country to country, and there are numerous opinions and concerns regarding regulating cryptocurrencies. For example, the crypto-friendly countries Malta, Estonia, Switzerland, and El Salvador are recognized worldwide as crypto hubs, as they offer the best environment for cryptocurrencies to prosper and encourage wider adoption. However, some countries with heavy regulations, such as Algeria, Nepal, Bolivia, and China, have a stricter approach and have banned many operations, including initial coin offerings (ICOs) and trading.
There is also a middle ground between the two, represented by countries with a balanced approach. These countries see the advantages of blockchain and cryptocurrencies, but they have also started to look for regulations to address the risks in the crypto space, such as money laundering.
Wrapping up
As you can see, there are different views on the regulations of cryptocurrencies, and they differ hugely from country to country. Even though cryptocurrencies’ decentralized and unregulated nature can seem appealing to some, for others, this can pose plenty of challenges, both for individual investors and for bigger financial systems.
Crypto regulations could offer some advantages, as they could safeguard stakeholders’ funds, improve market stability, reduce the chances of financial crime, ease taxation, lead to more innovations, and offer better global collaborations. Even if it might seem hard to incorporate regulations into the crypto landscape, navigating the present challenges could make things much easier.
