Idealists believe humans can thrive without rules, but history tells us a different story. All successful societies impose structure on their citizens. Regulations are the building blocks of a well-ordered civilization, and they are essential for growth and development.
Throughout history, we have seen that any evolving industry goes through a process that more or less ends in regulation.
Now we are at a critical moment in the development of cryptocurrency. In order to ensure that this game-changing technology can thrive, we must free it from the dark side – the selfish forces that use it to meet their short-term needs.
By this I mean corrupt entities who wish to profit at the expense of others, money launderers and criminals.
We didn’t develop blockchain and crypto to put money in those pockets. We developed this next generation technology as a liberating currency without interference or self-interest.
It should be the path to the liberation of financial democracy, allowing everyone to participate in financial markets, not a refuge for the corrupt. So the true idealists who rightly dreamed of a brave new world free from the control of banks and the state will join me in saying: Now is the time to dredge the pond. It is a minority that uses crypto for corrupt purposes, and yet – if we do nothing – their actions seek to tarnish the entire industry.
We should not view regulation as a negative – good regulation enhances freedom and provides a framework for growth. Examine labor rights in emerging markets – regulation is key to making the system work and protecting those at risk of exploitation. Here, regulation acts to support economic growth and freedom.
It is true that the most regulated industries are those with the potential to cause the most damage. From pharmaceuticals to education, regulation ensures that the same high standards are upheld by different institutions, to instil trust across the industry.
Food supply and hygiene are also heavily regulated, to ensure a basic human need. In these sectors and many others, regulation has had positive effects.
And have no doubt, unregulated crypto can cause harm – the naive can be fooled, even the wise can be hacked.
The entire crypto world is driven by one word: freedom. The simple fact that governments cannot access your wallet is already a huge freedom victory. But true freedom comes with rules.
We need to put in place sophisticated regulations. Ensuring the sector is transparent, clear and law-abiding is key to maintaining freedom. We need to ensure that crypto is not a safe haven for money laundering, criminal funds, or other nefarious activities.
So, for my part, I passionately believe that crypto needs to be regulated. Furthermore, I believe industry should actively lead the way – and focus on the positive impact that regulation can bring.
Why? Because until now, crypto has been the new Wild West – and if we want to change that and be part of the reputable financial framework, we have to accept that regulation is a necessary part of growth.
Binance ignored the regulations for too long so it is now banned in many economies as allegations of tax evasion and money laundering are investigated.
Regulation will come anyway as our industry grows – so welcome that. There are those who would completely shut down the industry, banning financial institutions from trading in cryptocurrency and we are playing into their hands if we don’t come to the table and behave responsibly.
Take the case of technology companies. The fact that tech companies harvest data without any limits has led to GDPR and similar laws.
Now they are subject to an imposed framework and huge fines if they do not comply with the regulations. Had tech companies worked more responsibly with customer data and regulators, the constraints imposed could have been much lighter.
We know that, left to their own devices, regulators err on the side of freedom. Working with regulators is key to preserving freedom. Freedom is an effective choice. Previously, companies could choose what to do with the data. Now that choice has been removed.
Dialogue with regulators is the way to preserve this choice. If we want our industry to progress, there is only one way forward: we must help governments shape the regulations. Naturally, measures to prevent corruption will be a key element of this regulation.
We, the pioneers of the industry, should work with them to act as guardians of the system, prevent its misuse, and protect consumers. This will benefit everyone, as regulation without the help of practitioners can lead to errors and misjudgments, unintended consequences and risks.
We are not the first industry to have started without rules. Twenty years ago, only a handful of countries mentioned the word “internet” in legislation. Today, most legal systems have adapted to the new connected world. The same will happen with crypto whether we like it or not. The key is to lead this process and do it well. Thus, dialogue, discussion and debate fueled by informed opinion is the only way forward.
This will involve liaising with policymakers in the UK, EU and US, as well as governments in other parts of the world where crypto mining and processing is currently based .
So what would good regulation look like? Cryptocurrencies are currently largely unregulated in the EU. The European Commission’s proposal Regulation in Crypto Asset Markets (MiCA) is before the European Parliament. It will be part of the EU digital finance strategy and is likely to have a significant impact on the functioning of the crypto market in the EU.
It is useful for experts to help shape these regulations. The World Economic Forum’s Global Future Council on Cryptocurrencies produces some interesting work in this area, such as its paper Navigating Cryptocurrency Regulation: An Industry Perspective on the Information and Tools Needed to Shape Balanced Crypto Regulation.
The Kalifa Review of UK FinTech Rightly recognize that FinTech is not a niche or a sub-sector, but an ongoing technological revolution that is forever changing the way finance works. It also frames the development of this industry around trust and its necessary foundation in leadership, regulation and the rule of law.
Green principles addressing the carbon footprint of crypto will likely be included in future regulations. That’s right – we need to ensure that cleaner technologies and energy sources are used to make next-generation finance sustainable. Above all, we need not view regulation as inherently threatening.
Because cryptography is a disruptive technology, the people involved tend to be out-of-the-box thinkers, who don’t like to be confined by rules.
Others are protectionist, fearing that public attention will erode their profits. Human progress is not driven by fear, however, it keeps us from making the most of our potential.
To be truly smart, we must rise above this natural reaction and embrace the benefits of regulation – policymakers are not necessarily against financial development.
Both at EU and national level, European regulators have expressed their support for blockchain technology and its potential for digital transformation in the financial sector. This regulation aims to create a regulatory framework that is focused on investment and growth and preventing harm. And this is where governments and crypto pioneers agree, growth can only benefit everyone.
We can expect regulation to promote consumer and investor protection, market integrity and financial stability, leading to increased legitimization of the sector. This synergy will attract new investors and allow crypto to grow into the mainstream.
Ultimately, this will lead to greater legitimacy of the sector. In turn, the best operators will rise to the top and become more profitable, with shady competitors disappearing from the market.
Regulation is the next frontier for crypto – it’s a hallmark of our industry’s success. We should not fear it, but rather embrace regulation so that our industry becomes the best it can be.
This is the way to eradicate corruption and to develop a true financial democracy that is inclusive and beneficial to all.
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