Cryptocurrency Regulations

In the previous article, we talked about the pitfalls of decentralization and why blockchain technology despite its promises is held down by its own selling points. With no centralized regulations and a lack of qualified managers, there are inadequate protections for users and investors. In this article, we’ll discuss blockchain regulations as they exist surrounding cryptocurrency and their benefits.

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Current regulations

When we speak of blockchain regulations the one subject that comes up is cryptocurrency. There are over 10,000 cryptocurrencies in existence and crypto assets have a market cap of about 1.7 trillion globally. The World Economic Forum also recently released research on the macroeconomic impacts of cryptocurrencies and other stablecoins.

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With crypto scams plaguing the world, this main legal tender that is supposed to fuel a whole new decentralized world has caused a lot of noise lately. A week ago Russia banned digital payments and now India is seeking to ban cryptocurrencies, citing the potentially destabilizing effect the market could have on the economy. Due to the economic effects that the crypto market holds and how this will keep growing, regulations are important for overall economic stability.

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As digital assets intertwine with the economy, large economic regions like the US and the EU are starting to take crypto regulations seriously. In early March, the American President signed off on an executive order on ensuring the responsible development of digital assets. This order outlines the United States government’s approach to handling the risk of digital assets and assessing their potential benefits. This order calls the departments of states like the Treasury Department to build policies along six main points which are; consumer and investor protection; fraud; financial stability; economic competitiveness; financial inclusion and innovation. When put into place these regulatory frameworks will not only affect the US economy but the global crypto economy as about 40 million Americans hold digital assets.

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In June, the European Council Presidency and European Parliament reached an agreement on Markets in Crypto Assets (MiCA). This agreement aims to bring cohesion and understanding to separate member states and their regulations on crypto assets including stablecoins. Some of the frameworks that the MiCa covers include requiring Crypto market players to obtain authorization before operating in the EU and also authorizing only credit institutions and electronic money institutions to issue e-money tokens. It also requires crypto market players to provide information on the climate and environmental impact of the market. This agreement aims to cover crypto regulations and their impact on financial inclusion, sustainability, innovation, and security.

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Laws surrounding digital assets have been sparse for years but are currently being developed globally. Laws like the US policy mentioned above and the MiCA agreement help push towards unified regulatory practices that could frame future digital asset laws globally. Many countries besides the US and European nations are also developing Central Bank Digital Currencies (CBDC) to exist alongside fiat currencies and give them a stake in this new technological innovation. As interests continue to grow, so will regulations.

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Crypto market players are often skeptical of regulations that put a decentralized asset under the jurisdiction of centralized governments but crypto regulations as they stand now and continue to adapt hold some benefits for investors and users alike. Some of these benefits include:

• Improved Security

Crypto and blockchain regulations will create a safer market and general ecosystem. Regulations will come with protections and anti-money laundry laws. These regulations will curb the scams and fraud that are rampant now in an unregulated asset market and create trust.

• Market stability

Having a unified or at least centralized system of some kind will create a structure for the crypto market and potentially build market stability, accurate valuations, predictability, and improve overall investor confidence. This market stability will legitimize blockchain and ultimately the crypto ecosystem fostering widespread adoption and sustainability.

• Spur blockchain integration and innovation

Ultimately with improved security and laws, the crypto ecosystem and blockchain as a whole will be intertwined with traditional systems. This will spur some changes in this industry forcing blockchain innovators to focus on creating real-world business innovations and solutions. These frameworks will remove skepticism from businesses and individuals and make corporations much more likely to invest in digital assets and systems.

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Blockchain technology might not replace traditional systems totally but it holds the potential to greatly diversify current real-world markets and systems and this makes it imperative to create regulations to acknowledge and manage the risks that come with this.

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