Regulating Cryptocurrency: Turning a New Leaf in the Digital Realm

Banking CIO Outlook | Friday, September 28, 2018

Cryptocurrency—a buzzword that delivered security in finance and investments, has taken the market by storm, and piqued the interests of regulators in the retail and investment industry in the process. Not just bitcoin, but the crypto-space as a whole has developed, significantly affecting large corporations and the response from regulators in a spectrum of different areas. From bitcoin mining to bitcoin trading, every authority across the globe has assessed on regulating the cryptocurrency. So why is the world seeing the need to regulate the cryptocurrency and why now? With cash rapidly spiraling out of fashion, the price of bitcoin today has swollen nearly 12-fold since its inception, marking the combined market of crypto-asset worth well over USD 500 billion. While the main agenda remains to regulate cryptocurrencies in order to boost the public’s trust in it, multiple nations are eager to get an edge over the disruptive innovation associated with cryptocurrency. A few of the developing countries seem to be on the verge of joining the ongoing cryptocurrency movement. The most common ideology revolving around smaller economies today is: make the regulations more crypto-friendly, attract tons of investment and talent. However, bitcoin has benchmarked its success only as an asset, not as a currency.

Why is bitcoin a failure as a currency? The lack of mass adoption and niche user base leads equity securities to speculative pricing and bitcoin frauds. Even though the ledgers and codebases are well maintained, and patches are regularly released, there rise in bitcoin trading has paved the way for countless occasions for hackers to exploit. To regulate the risk of hacks, a transaction fee must be paid by the end users to ensure security and convenience during cryptocurrency transactions. In order for the populations to level with the new digital world, initial coin offerings (ICO)—often proved controversial due to many scams, could strike a path by issuing digital tokens in exchange for bitcoins. Despite the significant amount of risks involved, regulations around ICOs in several jurisdictions still remain in a grey area. There has also been a drive to initiate a new prospect called bitcoin exchange-traded fund (ETF) into the global market to track the price of an asset and list it on a stock exchange. This disruptive technology has propelled smaller countries and economies vying to establish themselves as notable hubs for the cryptocurrency.

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