CRYPTO CURRENCY NEWS:
Viktor Prokopenya is a London-based fintech investor and the Founder of VP Capital, an investment vehicle focused on the technology sector.
Could we live in a world without rules? The theory is that we could live without government. Our ancestors did it. This is known as anarchy, which can be described as disorder and lawlessness.
In reality, humans have found that regulations are the building blocks of a harmonious society and are critical to development. To promote positive culture, we need rules and structures.
The Noble Prize-winning economist Elinor Ostrom observed that when people have to manage shared resources such as land, fisheries, or water for irrigation, they spontaneously construct rules.
Indeed, through history, we have seen that every evolving industry goes through a process ending to a greater or lesser degree with regulation. The most dangerous industries are the ones that are most tightly regulated.
Take the case of the pharmaceutical industry – heavily regulated now, so that around the world, people can rely on affordable and safe drugs to protect their health. Opportunistic conmen were selling fake cures to the public before regulation.
Education is another example where regulation ensures the same high standards are upheld by different institutions, to engender trust across the sector. To protect a fundamental human right, food supply and hygiene are also tightly regulated. These industries, and many others, have seen positive effects from regulation.
Currently, this debate is raging around crypto. Tesla CEO Elon Musk was recently asked whether the US government should be involved in regulating the crypto space. He said that it was impossible to destroy crypto but it is possible for governments slow down its progress. ‘I would say, ‘Do nothing’.’
The whole crypto world is driven by one word – freedom. It is already a major win for freedom that governments can’t access your wallet.
However, it does not mean that crypto should be used for criminal purposes and its image ruined by a minority using it for money laundering or crime.
This is particularly the case in emerging markets, where we must protect the system and consumers alike. Take a look at Cambodian employment rights, which will inevitably decline if there are no strong regulatory frameworks. Regulation acts to promote economic growth and freedom.
Therefore, ensuring the industry is transparent, clear and law-abiding is the key to retaining freedom.
So for my part, I passionately believe that crypto needs to be regulated. Additionally, I believe that the industry should lead the way and be aware of the positive effects regulation can have.
Because up to now, crypto has been the new Wild West – and if we want to change that and become part of the reputable financial framework, we have to accept that regulation is a necessary part of growing up.
Binance ignored regulation for too long and look what happened – it is now banned in many economies while allegations of tax fraud and money laundering are investigated. As our industry grows, regulation will be inevitable. Let us celebrate it. Some would ban cryptocurrency from financial institutions, and they will try to stop the industry. We must not play into their hands and be responsible.
Take the case of tech companies. The fact that tech companies were harvesting data without any limits led to GDPR and similar laws. They are now subject to strict regulations and can face huge fines if their actions don’t conform to them. The restraints could have been lighter if tech companies were more responsible with customer data and regulators.
This is because, left alone, regulators err on the side of removing freedom. Collaboration with regulators is key to freedom. Freedom is essentially choice. Companies used to have the freedom to decide what data they wanted. This choice is no longer available.
Dialogue with regulators is the way to preserve this choice. We must work with governments to create regulation if we want the industry to grow.
Hiding from this fact is childish and irresponsible towards employees, partners, and consumers alike. A ‘head in sand’ approach can lead to you not being able to see the reality. It is better to create this shift than to adapt.
We, industry pioneers, should act as custodians of the system, preventing its misuse and protecting consumers. Regulating without practitioners’ help can result in mistakes, misjudgments, unintended consequence, and risk. We are not the only industry to have started without rules. Twenty years ago, there were only a few countries that used the term “internet” in their legislation. Most legal systems today have adapt to the connected world. Cryptocurrency will be the same, regardless of whether or not we like it. This is where leadership and good governance are key. Dialog, discussion, and informed opinion are the only way forward.
This will involve liaising with policy-makers in the UK, EU, and US, along with governments in other parts of the world where mining and crypto processing is currently based.
So what would good regulation look like?
Cryptocurrencies are at present largely unregulated in the EU. The European Commission’s proposed Regulation on Markets in Crypto Assets (MiCA) is before the European Parliament. It will be part of the EU’s Digital Finance Strategy. It is likely to have a significant impact on the operation of the EU’s crypto market.
Again, here it is useful for experts to help shape this regulation. We must ensure that crypto does not provide a safe harbour for criminal funds, money laundering, or any other nefarious activity.
The World Economic Forum Global Future Council on Cryptocurrencies is producing interesting work in this field, such as its paper Navigating Cryptocurrency Regulation: An Industry Perspective on the Insight and Tools Needed to Shape Balanced Crypto Regulation.
The Kalifa Review of UK FinTech rightly recognizes that FinTech is not a niche or sub-sector, but a permanent technological revolution that is changing the way finance works forever. This review also highlights the importance of trust in the industry and the need for regulation and leadership.
Some green principles addressing the carbon footprint of crypto are likely to be included in future regulation, and this is quite right – we have to ensure that cleaner technology and cleaner energy sources are used if we are to make next-generation finance sustainable. We don’t need to view regulation as being inherently dangerous.
Part of the problem here is that crypto is a disruptive technology, so the individuals involved tend to be out-of-the-box thinkers, who do not like to be confined by rules.
There are others who are protectionist, fearing that mainstream attention will erode their profits. Fear does not stop us from achieving our full potential. Human progress is not driven by fear.
To be truly clever, we must rise above this natural reaction, and embrace the positives regulation brings – because rule makers are not necessarily against financial development. By and large, they realize that this is a genie that cannot be put back in the bottle, and can only be tamed and made into a friend.
Both at the EU and at the national level, European regulators have expressed support for blockchain technology and its potential for digital transformation in the finance sector. This regulation has a clear goal: to create a regulatory framework that encourages investment and growth.
And here is where governments and crypto pioneers agree, growth can only benefit us all.
We can expect regulation to promote consumer and investor protection, market integrity, and financial stability, leading to increased legitimization of the sector. This will allow crypto to grow into mainstream and attract new investors.
In time, this will lead to greater legitimacy of the sector. This will lead to more legitimacy for the sector and make it more profitable.
Regulation is the next frontier for crypto – it is a mark of our industry’s success. It is not something we should fear, but rather embrace regulation as the next stage in crypto development.
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