The term cryptocurrency might have the suffix “currency,” but, from a legislative standpoint, they shouldn’t necessarily be treated as such. Cryptocurrency is used more as a store of value and a form of investment than a currency. The reason? Extreme volatility.
Cryptocurrency prices can fluctuate wildly within a matter of hours, just like what happened to Bitcoin when its $1,000 value in early 2017 reached a whopping $20,000 by year-end.
Currently, there is a lack of regulation in the cryptocurrency sector. No central authority governs cryptocurrencies that’s partly why they can experience such extreme volatility. This is, however, just one of the traits of decentralized currency.
So do we need policies and regulation to stabilize cryptocurrencies? To answer this question, we need to weigh the pros and cons.
Pros Of Regulation
Brings More Awareness
A central authority will educate the people on what cryptocurrencies are, how they work, where to get them, and how to spend them.
Blockchain and cryptocurrency are new technologies, and most people don’t comprehend the intricate details relating to them. Because of this, there are many scams and frauds within the crypto community. Regulation will bring cryptocurrencies into the news and help people learn about the true nature and risks involved when using them.
Introduces an Orderly System
Cryptocurrency exchanges are not all good guys. Some are rogue businesses that don’t adhere to the law and put investor’s capital at risk. This can also encourage criminals to use cryptocurrencies to fund criminal activities. Introducing regulation to the system will help avoid these problems because exchange firms will be under a strict legal system.
Communicate Realistic Concern
Cryptocurrencies are marketed as the future of money because of their security features. Unfortunately, these features can also be a negative as almost one-third of all Bitcoin exchange platforms were hacked, and that’s in 2016 alone. Once the cryptocurrency is stolen there’s no getting it back.
Though regulation can’t stop all hacking, it can, however, communicate with exchanges and users to ensure proper security practices are adhered to. Insurance could also be offered to further protect funds.
Stabilization of Prices
Perhaps another benefit the community could get from crypto regulation is the stabilization of prices. Though cryptos would likely remain somewhat volatile, pump-and-dump groups and market manipulators would not be tolerated, leading to less wild swings in price.
Cons Of Regulation
Regulation could result in unanticipated negative consequences for cryptocurrencies. As this market has not been regulated before, noone knows what could happen.
Possibility of Abuse of Power
Any person in a position of power always has the choice whether to use his or her control for self-interest or the common good. Do we trust the regulators? Is there a chance of corruption?
Regulation for the Sake of Regulation
The problem with regulation and government policies is that they’re often used for formalities’ sake — and that’s all. Opportunists in the crypto community would just ignore or work around lax regulation if it is not airtight.
For crypto to reach the mainstream masses, we will need to see some legislation put in place. Let’s hope that is integrated carefully and professionally so the crypto community can continue to thrive.