There has been a lot going on in the crypto world as regards regulation. Various experts have been calling for the regulation of different cryptocurrency assets in the ecosystem.
In the same way, some believe that regulation of the crypto industry is against the idea of what blockchain, the technology behind cryptocurrency is about.
Before delving into this article, we need to have a perfect understanding of what regulation entails.
Regulation refers to establishing rules, laws, and guidelines by governments, regulatory bodies, or other authorities to control and oversee specific activities or industries.
The aim of the regulation is to protect members of society from harm, in the example of crypto that deals with finance, the regulation is put in place to prevent people from getting scammed.
Crypto regulation entails a constitutional set of rules, laws, and instructions that have been drafted by the government or regulatory bodies to govern or protect the activities of crypto users. These activities range from trading, buying, and selling cryptocurrencies.
You might be confused with the difference between cryptocurrency and blockchain and use them interchangeably, a lot of people also feel that way.
However, it is worth noting that Blockchain and cryptocurrencies are two different entities.
Cryptocurrencies are virtual or digital currencies that are can be used to make transactions and pay for goods and services, they are not tied to any physical assets or issued by the central bank of any country.
Cryptocurrencies are volatile and their value is determined by the market demand and supply.
The Technology behind it is the blockchain, a distributed database or ledger that is shared among the nodes of a computer network
There are different schools of thought on these, some of which believe that cryptocurrency should be regulated, while others believe that it should not be regulated as it will defeat the purpose of “decentralization” which cryptocurrency stands for.
Taking a critical look at both, they seem to have solid points.
Looking at the events that rocked the cryptocurrency ecosystem last year, making a case for cryptocurrency regulation might not be far-fetched.
Luna, FTX, Celcius, and several other cryptocurrency enterprises collapsed and made several cryptocurrency enthusiasts lose a lot of money. Since there is no regulation in place there’s no way people will recover from their loss.
Investors of LUNA also saw their investment go down the drain as the UST stable coin deppeged and left a lot of cryptocurrency enthusiasts in despair.
A lot of scrupulous elements are now using cryptocurrency to scam people by creating a lot of shady projects and rug-pull investors without consequences. This is made possible due to the lack of regulation and the volatile nature of cryptocurrency.
Senator Pat Toomey, a Republican from Pennsylvania and the ranking member of the Senate Committee on Banking, Housing, and Urban Affairs, stated that the failure of a cryptocurrency enterprise like FTX is more human lack of credibility than crypto failure itself.
Toomey also suggested that future regulatory efforts could focus on ensuring that customers have access to regulated crypto custody services, which would provide greater reassurance that their assets would not be used for inappropriate purposes and enable them to sleep more comfortably.
Anonymity is also one of the problems raised to support the regulation of cryptocurrency, the absence of KYC and the anonymity of users make it liable as a tool by terrorists and money launderers.
Another rationale was the volatility of cryptocurrencies, which central banks claimed can jeopardize the stability of other countries financial systems.”
In the definition of cryptocurrency above, we stated that it is a “decentralized currency”. This implies that it is not under any third party. If regulation is put in place, this shows that the main purpose of decentralization which the technology is meant to achieve has been defeated.
This brings another question, can cryptocurrency really be regulated?
Taking a case study from Nigeria, while there is no law that has stated that market activities involving cryptocurrency are illegal, however, the central bank of Nigeria has directed all financial institutions involved in the country to stop any dealings with cryptocurrencies.
However, despite the ban placed on financial institutions in Nigeria, the country still ranked as the crypto most obsessed country in the world and one of the highest in terms of crypto peer-to-peer transactions in the world.
Some African countries have seen it as a way to get cross-border payment since remittance platforms like Paypal are having issues with operation in the African market.
Some experts also believed that crypto needs less regulation and not more. Too much regulation will make people more susceptible to scams. Regulations are sometimes not safer, as it has been proven that ineffective regulations sometimes lead to greater financial risk.
A good example is when US regulators urged banks to invest in mortgage-backed securities (MBSs), this turns out to be a disastrous mistake as MBSs caused a major financial crisis in 2008 .
Whether crypto investments are regulated or not, there is always a need to make them safer. Cryptocurrency is well known to be volatile, and a great technological invention, but people behind inventions need a solid regulatory environment.
Cryptocurrency regulation is not one way or simple, it is multidimensional, with an increase in the popularity and use-case of cryptocurrency, government, and regulatory bodies will need to balance innovation and investor protection.
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