Remember the DAO hack?
In the first part, we discussed the role of different tokens and purposes, as it’s crucial to analyse how assets evolve and are perceived by investors. Besides price and volume, what else do you think people worry about the most?
Regulation. And what a day I chose to write about this topic. India is banning cryptocurrencies, yet again. I really don’t grasp how, after so many attempts from so many countries, banks and governments still believe they can impose a heavy hand on this subject.
–this article shouldn’t be taken as financial advisement as it represents my personal opinion and views. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing. You’re always responsible for your own money–
Regulators have a chance, yet again, to create better regulation for everyone. With the rise in value of cryptocurrencies, mainly bitcoin, governments and watchdogs have been trying to find ways to adapt to this new technology. The problem is, due to the lack of centralization in this market it’s hard to apply the same rules as before. If no one owns the infrastructure, the product and the network, how can you block it?
The answer is you can’t. You can try, but the result is almost always the same, as people find new ways to overcome this barrier (like TOR for example). At the end of the day, the harder you try blocking people from accessing bitcoin, the more creative people will become. That’s just human nature at its best. Plus, I wasn’t even taking into account the fact that people are moved by money. Bribes also work wonders in a restrictive system, meaning, banning an asset won’t make that asset disappear. It will simply make it more expensive.
Let me ask you:
What do you think the right path for regulation is?
Personally speaking I see two major trends: the one of censorship and the one of education. Not surprisingly, Governments easily adopt the first stance instead of looking into the second; to be honest, we already have an example of how not to use cryptocurrencies at a nation level. Does the Petro ring a bell? It should as Nicolas Maduro, the ruler of Venezuela, created a national wide cryptocurrency “fueled by Oil and Gold”. I haven’t personally put any money into it, as it does sound more like a pyramid scam than an actual currency, but I might be wrong (as I have been so many, many times). Leave some room for doubt, as even people with (perceived) bad intentions might do good things, like for example demanding banks to accept cryptocurrency.
Before we discuss the different stages of regulation, it’s important to understand what to regulate and what to not regulate.
–again, keep in mind this is only my personal view. If you have different examples or suggestions you would like me to discuss please leave a comment. I always try my best to answer your questions and I’m thankful for your feedback–
Different purposes require different rules
As we discussed before, if cryptocurrencies aren’t all the same and do have completely different purposes, then regulation should be applied differently.
- Cryptocurrency: if we’re discussing a currency-type token, like bitcoin or litecoin, it does not make any sense to apply KYC or to restrict the network in any way. I say this for a simple reason: no one owns the network. If there is no ownership, how can you apply any regulation? Ownership happens at the individual level as users own blockchain outputs and inputs (bitcoin is just a message, right?); there is no company behind bitcoin responsible for maintaining its servers and the state of the blockchain. That is the miners’ job. And the developers? Responsible for creating and maintaining the law, this is the code. Finally, users are the last agent who gets to decide if bitcoin is a currency, by using it or not. Because it’s an open, transparent, permissionless and immutable network, bitcoin and similar cryptocurrencies shouldn’t be regulated.
So we just leave it to the market forces? What about market manipulation or illegal trade?
Of course not. The key word here should be monitoring. As some of you are aware, since bitcoin started being used as a payment system by shady agents, law enforcement agencies have also begun to monitor bitcoin addresses. And, oh boy, does that work! This means transparency both ways: If you try to evade your taxes by using bitcoin, you might end up having a bad time.
So monitoring enables different governments to apply their laws over cryptocurrency, which may or may not work due to the distributed nature of the network, this is, if regulation authorities manage to create frameworks which incentive users to behave well, instead of just punishing bad actors, we may face a different reaction by the community, rather than finding ways to evade regulation.
- Cryptoassets: assets should be seen as any tokens which entitle users to revenue share or interest payments, for example. Different countries have different regulation towards assets, but there seems to be an agreement in the community, when a token entitles its holders to some sort of revenue, it should be seen as an asset. Some cryptocurrencies, like COSS or NEO for example, pay dividends in different formats. The first, shares revenue made from exchange fees with COSS token holders. The second generates an asset called GAS, which can be sold for btc or eth. To me personally, the only difference here should be the following: do you have to make a purchase to get the token or is it free to get? Maybe from an airdrop, maybe from using the platform or even by creating content in it. Utility tokens, as the name states, are used with a clear purpose of utility, not financial gains; applying the same regulation as crypto assets would seem imprudent.
What do I propose?
Nothing but the idea that regulation without education won’t do us any good. The best way to learn is by failing. There is no magic formula for success, right? Only trial and error. Really smart people may learn from other’s mistakes, but failure is still there. The point is: I prefer to risk my capital in order to learn than having someone deciding for me what is good and bad. Teach people how to invest, how to find purpose, how to look into technology; teach people about TA, emotional intelligence or dealing with failure. Banning or imposing too many rules to entering the cryptocurrency market is not the way to go. People need to be protected from scams, from bad agents, and from money laundering, I completely agree. It’s how we chose to act upon that will change the game:
Will we block cryptocurrency or allow for failure to happen?
All in favor say: Aye!
–don’t take me the wrong way; I’m not that crazy to believe people are good in general and to leave the market to regulate itself. Having that in mind, I would personally prefer a very light-hand approach–
There are plenty of reasons to foster regulation, some of which might even sound like conspiracy theories, but who am I to judge? I leave that to you.
The Cartel post
Some of you may have read the original post, but if you want a video analysis of it and a nice “this is absolutely insane” view, check this one out by Cryptoinvestor. The gist of it is that there’s a cartel made of powerful people who are purposely crashing the bitcoin (and overall cryptocurrencies) market. I see where the author is coming from, but he forgot to mention what has happened in the past, more precisely, since bitcoin came to be. If you remember Mt. Gox, then you should know what happen to the price of bitcoin in the aftermath: it crashed more than 80%.
There are definitely many factors that can cause a bear market. I agree Bitcoin futures is a really good target for market manipulation, as wealthy investors could potentially sell a large sum close to the contract expiry date, making a hefty profit two ways: by converting bitcoin into fiat, and by gaining the profits generated from the contract, as by crashing the price they are able to bet against Bitcoin. Is there an absolute clear correlation? I don’t think so, but due to my core belief that:
We might see market manipulation taking place by some wealthy players.
Interestingly enough, the Rockefeller’s and George Soros just announced they’re entering the cryptocurrency market. I’m sure the “entering the market” time-frame may stretch a bit, depending on your own point of view. We should not forget human nature makes people do terrible things like ignoring AML or KYC. Focusing in accountability could be a success factor for any upcoming regulatory framework, I hope.
I’m not going to waste that much time stating the obvious. Need some examples? Be my guest.
Cryptocurrency has a history with hacks. Because it’s a new technology and due to being seen as the internet of money, the market is prone to being hacked. In my opinion that is a good thing. It means it is under constant stress as people will try to break every project in order to achieve maximum gains. I don’t support hacking of course; but it is a clever way to achieve the survival of the fitest: any cryptocurrency which maintains the same level of resilience as bitcoin, should perform well.
The best course of action?
In my mind we shouldn’t impose any type of regulation on cryptocurrencies, only on cryptoassets. Meaning, we already have a centralized system in place that takes into account KYC and AML regulations: the current banking system. Cryptocurrency empowers people around the world to use a currency without borders, governments, laws, monetary policies and economic models attached. This is a good thing, hopefully we won’t destroy it.
No one should ever be blocked from using any form of money they chose to. I accept the consequences of using an unregulated digital currency, but it’s my choice. Making it illegal will only fuel dispute instead of cooperation. Let’s not do that.
Let’s rise above.
Featured image from Shutterstock.
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