Cryptocurrency Regulation Is Coming, But In What Form?
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Cryptocurrency regulation isn’t a matter of if, but when. Considering some of the news (and incorrect news) like South Korea MAYBE banning cryptocurrency exchanges, and China still making noise about squeezing cryptocurrencies with regulations, it may be no surprise that the market caps took something of a nosedive over the last ten days.
Even the optimistic members of the cryptocurrency community may be tempted to get into the coins that promise better privacy, if only because they may have gotten into Bitcoin in the first place because they figure it’s nobody’s business whether they buy groceries, Viagra, or a private yacht online.
Some Politicians Get Cryptocurrency Regulation…
Nebraska Senator Carol Blood recently introduced three bills that would help to clarify the legal status of blockchain and cryptocurrencies in Nebraska if they pass. One particularly interesting bill would forbid counties and cities to tax cryptocurrencies and blockchain. Her reasoning: Very often, the first reflex of governments when confronted with something new like blockchain is to tax and regulate it, and that’s not necessarily the right answer when a new technology could spur economic growth.
“We do a lot of exporting, and I see the power of blockchain when it comes to exporting things to other countries. … We should make sure that, first of all, there’s a definition of smart contracts in our state statutes,” she told me in an interview. “[Another thing] is that there are a lot of entrepreneurs that are getting involved in blockchain technology … that really want to expand into the United States, but I know that it appears that states have a different set up and they will be overtaxed or overregulated.”
The Colorado legislature is also considering a bill that will direct the state’s chief information security officer to look into using blockchain technology to secure private data from cyberattacks. The bill claims that there are millions of attempts to breach Colorado’s state-owned digital platforms every day and cites distributed ledger technology’s ability to store openly traceable transactions while still respecting privacy.
But Some Politicians Don’t
Remember the huge flap over New York City’s BitLicense? While New York is not exactly the entirety of the United States of America, BitLicense was enough to make entrepreneurs in the blockchain niche leave New York or hesitate to operate in that state if they had been thinking about expanding. So all other things being equal, Nebraska could gain an edge over New York in the ability to attract blockchain entrepreneurs if Senator Blood’s bills pass.
Likewise, lobbyists are currently opposing a bill being considered in Washington that would require more entities to track digital currencies transactions that might be used for money laundering. That’s vague enough when cryptocurrency transactions that are sent across international borders or used to place bets in an online poker game could qualify.
What Can Be Done About It Cryptocurrency Regulation?
When I asked aerospace professionals at a recent industry conference what they thought could be done to communicate with regulators about creating a regulatory environment that’s friendly toward flying cars, their response was essentially, “We need a unified message that we can present to politicians and regulators so that they aren’t getting fifty conflicting messages. This will reduce the risk that they will make decisions that will negatively impact our ability to make flying cars the norm.”
Likewise, entrepreneurs and innovators will have to be willing to work together to communicate with lawmakers regarding what’s needed to create less uncertainty on the regulatory front. It may be true that the ability to self-regulate might be preferable in many cases, but regulators are unlikely to just give up their control over their jurisdictions just on an entrepreneur’s say-so and may even overreach when they can get away with it. It would be convenient if the SEC paid more attention to genuine fraudulent or criminal activity and less attention to the entrepreneur whose ICO paperwork reflects an evolving technology landscape (in other words, they can’t find the rules, or they don’t exist yet).
However, to help themselves, the cryptocurrency and blockchain community could spend less time bickering among ourselves and more time coming up with a unified message that can be presented to regulators.
Ideally, regulators will take a minimalist approach to the cryptocurrency regulation and the blockchain niche to avoid driving innovators away to other jurisdictions that have a less robust legal system.
Blockchain entrepreneurs and investors will like predictability when it comes to regulation and will especially like regulation that doesn’t make their lives difficult. This one thing explains why rumors of South Korea banning exchanges and China banning mining operations can have such a huge impact on Bitcoin’s price.
The IMF’s suggestion that cryptocurrency regulation should be globally coordinated actually makes sense in this light because it will make things more predictable for entrepreneurs who want to operate across state lines or international borders without running afoul of regulations that they knew nothing about.