At first glance, cryptocurrencies present an insurmountable challenge for regulators. Crypto was created to build a digital world that prioritised the people over governing bodies – the antithesis to the paper-based world defined by country borders that we currently live in. Adding to this, cryptocurrency is still a new concept. A concept that, at present, has undefined risks.
The unknown risks of crypto create a difficult task for regulators; how can we create a regulatory framework to mitigate the risks if we don’t yet know what those risks are?
Alone, this issue is enough for regulators to be cautious with crypto but add pressure from financial institutions that see crypto as a risk to their existence, and regulators become hasty – shutting crypto out before it has a chance to show its true value.
We can see this hasty approach to cryptocurrency in action within countries such as China, Morocco, and Bangladesh, all of which have chosen to completely ban cryptocurrency. Other countries, such as India, cannot decide on an approach to crypto – initially taking drastic measures and then pulling back later on.
Regulations are without a doubt important crypto and investors need the protection that it brings. However, at the moment, crypto regulations are designed to protect financial institutions – not investors.
Regulators need to strike a balance between protecting investors and protecting the interests of both parties. The current regulatory approach to crypto hinders innovation within the ecosystem, as well as the wider landscape.
Given that crypto has entered a state of hyper-adoption, it is time to accept that it is here to stay. Yes, at one point, crypto may have been the de facto currency for criminals. But those days are gone. To protect investors, regulators need to take the time to understand crypto. It is time to move past the idea that crypto is a tool used to conduct illegal activity.
Furthermore, the blockchain technology that underpins crypto also holds huge potential. If regulators took the time to understand blockchain technology, they would see that transparency is an essential component.
Because it holds more transparency than the traditional markets, single transactions can be easily traced back to the crypto wallets they came from. This means blockchain can actually be an incredibly powerful compliance tool.
We have already seen this in action. In 2016, the largest crypto theft to date took place. 3.6 million Ether was hacked from the Ethereum platform using its crowdfunding mechanism.
To put into perspective, the stolen Ether would be worth around $9 billion. The identity of the hacker remained a mystery – until now. In late February of this year, it was reported that Chainalysis successfully traced the stolen funds using a powerful forensic tool, allegedly identifying the culprit and bringing an end to the mystery.
Cryptocurrencies and blockchain technology have evolved drastically in the time that they have been around, and this is just one example of the potential that blockchain technology has.
If regulators move from a position of fear to curiosity and understanding, – they could not only uncover a powerful compliance tool but also unlock countless applications solving the historical issues that traditional markets have been grappling with for years.
Tristan Roozendaal is CEO of the international cryptocurrency exchange Centralex. He spent nearly two decades building everything from network infrastructures to complete data centres in the IT industry, before having a vision for a truly mainstream cryptocurrency exchange.
Centralex emphasises ease of use, functionality, and a simplified experience. Headquartered in Hong Kong, Centralex’s growth is currently focused on EMEA and APAC. A family man, Tristan’s love affair with cryptocurrency started when he built and scaled his own mining rig operation. Proud to have started at the bottom in the industry, he is driven by a passion to make a better future.
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