Why Stronger Crypto Regulations Are Urgently Needed

Why Stronger Crypto Regulations Are Urgently Needed

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With its borderless ideals and reputation as the currency of the underworld, cryptocurrency has always been both difficult to regulate and difficult to trust.

But as it becomes more mainstream, regulators have a huge opportunity to break the mold and make it safer while allowing its benefits to flourish. Regulators also have the ability to protect young traders, who may not realize that crypto is still unregulated.

Until now, regulatory frameworks have generally focused on a paper-based world and national borders, which crypto is specifically designed to eliminate.

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Additionally, as crypto is still a very young ecosystem, it is not easy to fully understand how it works and the associated risks, which makes creating regulations tricky as it is difficult to know what the framework should encompass.

New regulatory attempts around the world

From extreme to insufficient, the regulatory approach has primarily been to protect the current financial system (as opposed to genuine cryptocurrency investors). This has resulted in outright bans from the crypto market in some countries, such as China, Algeria, Ecuador, Nepal, Nigeria, and Bolivia.

In South Africa, they have banned cross-border transfers, meaning that cryptocurrency exchange in the region can only be done by registered South African companies so regulators can keep tabs on anything. happens. But isn’t that precisely what crypto was designed to avoid?

There is no doubt that some level of regulation is needed for cryptocurrency to become a mainstream exchange. Investors must be protected, volatility must be reduced and scams curbed. But isn’t there a better way to do it? One that doesn’t stifle innovation or flexibility.

Crypto Opportunity

In a recent survey, nearly 30% of investors indicated that they believe cryptocurrency regulation increase its value – but it’s about finding the best way to do it that doesn’t also destroy all the inherent advantages of money.

So where could this opportunity begin? Blockchain, the technology that underpins cryptography, is a great starting point for regulators.

Just as we didn’t build highways and put floating traffic lights in the sky when we invented commercial air travel, we shouldn’t apply the same rules and framework that we use for national currencies to cryptography.

There is also the question of sustainability.

Bitcoin in particular is energy-intensive, currently using 16 times more energy than 2017 levels. That’s the annual energy consumption of 15 million people, more than some smaller countries. And if left unregulated, it could have huge impacts on the future of the planet.

In 2021, Tesla banned Bitcoin payment due to the impact of its currency mining on the environment. But completely banning cryptography is not the solution. The European Union is leading the way with new draft rules to focus on the sustainability of crypto, working with experts to ensure it can move forward in a way that’s kinder to the planet. One such rule the EU hopes to implement is a limitation on proof-of-work mining in favor of the more environmentally friendly proof-of-stake.

What needs to change

Crypto regulation varies around the world and the lack of global coordination is one of the challenges. The OECD recently surveyed 43 countries – 13 had no indication of the classification of crypto assets.

In the UK, the government is expected to publish its plans to regulate the crypto market and the US government has produced a nearly 70-page bill in response to Terra’s UST/LUNA collapse that devastated the industry of crypto, wiping out US$60 billion from the market. market. These progressive attempts at crypto regulation by the UK and the US show that attitudes towards crypto are changing – we can no longer ignore the space.

These regulatory measures also stand in stark contrast to countries like India, which controversially announced crypto regulations, including a 30% capital gains tax on crypto transactions plus a 1% transaction tax. . This, unsurprisingly, did not go well. These actions may look like opportunistic efforts to increase national tax revenues, but at the expense of growth and innovation in the sector.

Trust is one of the biggest barriers to adoption. In the UK, 71% of consumers have no intention of buying cryptocurrency; 31% say it’s too risky. So how do you increase trust in cryptocurrency? You control it through strict regulations. Here are the three steps we consider essential to cryptocurrency onboarding and adoption:

  1. Global regulatory coordination: As with traditional finance, the rules must be globally consistent. Local variations are acceptable, but the guide rails must be the same.
  1. Sturdy rulers (with real teeth): We need fines for abuse of regulations. For example, if a cryptocurrency or exchange encourages or condones fraudulent activity, dollar fines are required.
  2. Education: Right now, even crypto enthusiasts are often misinformed. The industry must help educate newcomers and expand the market.

Crypto is a different beast compared to traditional financial products and mechanisms. Regulators would be well advised to take a “move fast and break things” approach to help revive the mainstream. Speed ​​is key to making the most of the crypto opportunity: the chance to unlock an entire industry and help retail investors reap massive financial rewards.

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