Regulation involves the use of laws or administrative rules to guide and prescribe the conduct of people. It ensures efficiency in any given organization and functions as an oversight on persons and bodies by kepeping their actions in check and within limits.
Can regulation take place in web 3; a decentralized and permisionless web?
Web 3 was developed to enable individuals have complete rights and ownership over all assets, data, and information and without the interference of any external body in the exercise of such rights. This automatically removes any form of regulation to be adopted by web 3. Subsequently, there has been a massive ongoing adoption into web 3, most especially cryptocurrency. Over 300 million people use cryptocurrency all round the world . Leading cryptocurrency, Bitcoin is also in really stiff competition with other investments such as stocks and gold, and has even topped these other investments at some point. This has attracted investors from all round the world including notable companies and of course malicious ones.
The lack of a regulatory or enforcing body on cryptocurrency has made the security of assets very hard to guarantee. Cyber theft and hacks are very common occurences in web 3, the anonymosity feature of the web have been used to the advantage of malicious people to defraud users. These occurrences have not gone without the notice of governmental bodies whose duty is to protect its citizens, thus necessitating regulation on cryptocurrency. A uniform regulation would be impossible to adopt due to the different economic situations in different countries, hence some countries have decided to make regulations on cryptocurrency as it pertains to their countries.
Most countries including the USA and the United Kingdom that allows the use of cryptocurrency has limited its use to being a medium of exchange, a digital asset, a store of value but not the acceptable legal tender in the country. These countries have also taken further steps to regulate the use of cryptocurrency in their country. For example, the Financial Crime Enforcement Network (FINCEN) of the United States, proposed a regulation in 2020 to impose data collection requirements on cryptocurrency exchanges and wallet. The United Kingdom which is well known in itsadoption of Decentralized Finance has announced that crypto businesses in the country shall be regulated.
Recently, Indonesia announced their plans to tighten crypto regulation, “2/3rd of crypto exchange directors must be Indonesia citizens residing in the country.” This new regulation was made sequel to the financial crises caused by Zipmex, a South-east Asia- focused cryptocurrency exchange which halted withdrawals on the platform by users.
Accordingly, actions in cryptocurrency have been seen to affect the general public regardless of whether one is an investor or not. An example of this is the Proof-of-work mechanism employed by bitcoin and was formerly used by Ethereum in validating transactions. This mechanism consumes so much energy in its action that it poses a threat to the climate. This obviously does not sit well with the government that has put in so much to conserve energy and mitgate climate change, just recently, a statement was made by the white house stating that banning may be a possible option for mining( POW).
The constant fluctuation of values of cryptocurrency could also be a threat to the economic stability in a country with many investors. This has been perceived by various of the world and measures have been put in place to avoid this. The United States have been very instrumental to these actions, as the values of cryptocurrencies are pegged to United State Dollars (USD). A drastic movement in USD would have an effect on crypto coins. When USD appreciates, tokens become more expensive for non US investors who make purchases in fiat; this helps to reduce the inflow into the crypto market. This has put the United States in a position where they can indirectly affect and regulate cryptocurrency through policies and bodies like the FOMC.
The Federal Open Market Committee (FOMC), a body in charge of reviewing economic and financial conditions, determines monetary policies and assesses the long term risks in the face of stability and sustainable economic growth. These functions are carried out during their meetings, populary known as the FED meeting which occurs eight times in a year.
The reports of the just concluded FED meeting stated the interest rates would be increased, the effect of this is that companies would have to borrow at a higher rate hence would conserve their spending. This conservation of purchasing power spreads to almost every retailer, consumer and investment strategy including cryptocurrency. Reports and charts have shown that the US monetary policies have affected prices of cryptocurrencies than even US stocks. This is the fifth consecutive raise in the last six months, it is a conscious attempt to control inflation.
Is regulation good or bad for crypto?
Most investors opposing regulation of cryptocurrency fear that it could bring about a dictatorship where the opinions of the community are not considered and could suppress innovation and growth. Others believe that there is a need for regulation to ensure the security of their assets and prevent the constant hacks and money laundering carried out with cryptocurrency.
Insecurity of cryptocurrency is becoming an incessant occurrence and the fact that the perpetrators go scot-free is a great source of worry and anger to many. If regulation is applied correctly would address the issues of insecurity without tampering or trying to exert control on other parts of cryptocurrency. The right application of regulation with the right interest will not only help ensure security but also address the fears of the community by still making their rights still accessible to them.
Regulation would help to boost the confidence of investors as there are certain rules already in place should in case of an attempted fraud. Just recently, the founder of the LUNA coin, Do Kwon, that crashed leaving investors in losses worth millions was arrested by the South Korea government and movement is being made to freeze $67 million worth of bitcoin linked to him. Whether or not the crash was completely the fault of kwon, the knowledge that one maybe prosecuted would make cryptocurrency founders take extra measures in securing the assets of their investors.
The answer to the question whether regulation is good or bad for crypto would largely lie on the body in charge of the regulation. The main aim of the regulatory body should be creating a better and more secure web for investors. A regulatory body whose aim is to make drastic change or implement harsh policies on these protocols would create a very harsh financial environment for investors. Once, investors agreed to be bound by a regulation, it shall be enforced regardless of it is favorable or not, at least until it is overruled by a newer regulation.
For example, the President Biden recently made an executive order on cryptocurrency in the United States ;the country shall be partaking in cryptocurrency research including the legal framework of a digital asset to ensure security, privacy, finance and find out a global perspective of USD in web 3. While no one may know the true intention behind the research, however on the surface, it appears that the US is planning a regulation on cryptocurrency borne out of the need to make the web better and more secure for its investors.
All the measures that have been put in place to regulate cryptocurrency are simply scratching the concept. Despite the increased regulations on cryptocurrency, illegal actions and hacking still occur daily without any force in place to check them. This is due to the decentralized nature of cryptocurrecy, it could be really tasking trying to enforce laws that directly affect crypto coins as its control is vested in the hands of various persons.
Cryptocurrency is becoming massively in use by various persons all round the world and very soon, the need for regulation would become almost imperative. It is up to the pioneers and stakeholders in the sector to look for a means where the actions of investors may be questioned but without encroaching on the rights of investors to make legal and reasonable transactions as well as the right to actively participate in the development and decision making as regards the cryptocurrency in question.
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