Regulation is one of the most important factors affecting the price of Bitcoin and other decentralized cryptocurrencies. The rise of this new form of finance has been halted whenever a government brings up its policies, with each country taking a different approach to crypto regulation. It also brings up the question of indeed can Government regulate crypto, and how will it go about achieving it.
In essence, the supply of cryptocurrency tokens is not set by a central authority or government. It also relates to cryptocurrencies as a medium of exchange. Transactions using the blockchain can be conducted, authenticated, and recorded in the public ledger without third party interference.
This means there is no “Bitcoin Inc” where feds could simply walk into the office and seize the computers. With this in mind, can Government regulate crypto effectively, and if so, what does it need to do in order to achieve it?
China has taken the most hardline stance to shut down exchanges in their native country and escort miners out of the country through land use regulations. Of course, this has not had a dramatic effect on the price of cryptocurrencies or the speculative boom.
The problem with regulating Bitcoin and other currencies is that they’re conducted over a P2P network. While governments have been successful in regulating venues, such as the Pirate Bay and Silk Road, there are so many cryptocurrencies. The main difference with cryptocurrencies is that transactions can be conducted over exchanges or through direct transactions using your cryptocurrency wallet.
Yet, this doesn’t mean the government is completely helpless against cryptocurrency regulations, or are they?
Pros and Cons of decentralized cryptocurrency
With a lack of regulation, are cryptocurrencies a safe investment? Well, let’s examine the advantages that decentralized cryptocurrencies provide.
- Transactions can’t be reversed or counterfeited
- Some online platforms allow users to retain anonymity until they cash out or exchange their tokens
- Most currencies have a set supply, which will cool inflation as mining more currency become harder
- Investors can execute smart contracts without third parties
- Less transaction fees than credit cards or most major financial instruments
- No paperwork for investing in a token, unlike a share
- Increased competition allowing for greater consumer choice
- Currencies can be issued for special privileges or merit within Dapps and other blockcian function (not exclusively as a store of value)
- Universal access to new tokens
The biggest problem with current monetary policy is that federal interest rates are arbitrary issued and the creditors have no interest in controlling the supply of money. Of course, Bitcoin and cryptocurrencies are not necessarily the silver bullet we’re looking for, at least yet!
Major problems include:
- Volatility in the market affects a token’s ability to serve as a medium of exchange
- High speculation and artificial pricing continue to persist
- Many cryptocurrencies still face scalability issues
- Many blockchain networks struggle to keep up with demand
No matter your opinion over the cryptocurrency craze, it has the potential to completely disrupt monetary policy across the globe. With hundreds of new tokens offered each month, it seems as though the effort to regulate cryptocurrencies will forever remain a game of cat and mouse, with the question of can Government regulate crypto being one of the main points of contention.
Creating legislation that urges the adoption of trailblazing financial infrastructure could provide a sizeable benefit to economic competitiveness. However, granting too much freedom to people might put the integrity of the country’s paper money at serious risk.
So, can Government regulate crypto really?
A balance has yet to be established. Therefore major governments have different reactions to the emergence of Bitcoin and other cryptocurrencies in their respective countries. These responses have ranged from hesitation and fear to genuine acceptance. Something that they can all agree on is that the choice should not be taken lightly.
Overall, the total market of cryptocurrency is quickly rising into the hundreds of billions. Due of this, the world’s governments have implied that they are willing to allow this revolution to transpire. With few exceptions, their key strategy has been – and will continue to be for the time being – to watch from the sidelines.