Despite the doubt surrounding regulation of the blockchain and cryptocurrency industries, a regulated blockchain ecosystem has the potential to be beneficial to the community as a whole. While imposing some of the existing stocks and securities regulations will preserve the status quo, it may also diminish the disruptive nature of blockchain technologies and the promise of the revolution that the technology once held.
Regulations Are There For A Purpose
For years, one of the primary drivers of blockchain’s success has been the anti-establishment beliefs by the crypto community. As such, the thought of conceding the libertarian nature of blockchain technologies to regulatory bodies goes against the foundational beliefs upon which the blockchain ecosystem was built. However, it is already clear that in order for blockchain adoption to succeed, there is a great need for regulations that will establish trust in the technology.
Indeed, thanks to blockchain, true peer-to-peer borderless exchange of value is possible. In addition, new innovative start-up funding models are making it easy for literally anyone to invest in promising projects. However, we have to admit that cryptocurrencies are also being used for illicit activities. Fraudsters are taking advantage of uneducated investors through scam ICOs. Eventually, the crypto-sphere will have to assimilate a certain degree of conventional methods of doing businesses to curb this practice.
What Does Blockchain Regulation Truly Mean?
On one hand, when referring to the regulation issue in regards to blockchain, it most certainly made in reference to KYC and AML regulations. More precisely, Know Your Customer (KYC) and Anti Money Laundering (AML) regulations in regards to the purchase and sale of securities. In fact, towards the end of 2018, various blockchain-based entities made efforts to ascertain the true identity of their customers, in an effort to avoid potential regulatory crackdowns.
On the other hand, we could refer to blockchain regulation in regards to securities regulations. One of the burning questions raised by critics of blockchain technology is whether or not crypto-assets can be classified as securities. In respect to the United States, the main tool that can make this determination is the “Howey Test”. In detail, the Howey Test is a test designed by the U.S. Supreme Court to determine whether a particular transaction is fit to be an “investment contract.” Hence, the test will have to be applied to each crypto-asset with varying implications.
The Implications Of A Regulated Blockchain Ecosystem
In the case of security issuance regulations, a degree of protection will be given to unsophisticated investors. However, this may lead to limitations on who can invest in token offerings. Despite this, increased regulation would give the blockchain industry legitimacy, eventually making people more comfortable in investing in blockchain technologies. Also, increased regulation would improve on the quality of the token issuances, but also lead to exclusion of promising projects. Moreover, the need for customer identification may lead to poor user experiences.
Eventually, the rules and regulations that could one day govern how blockchain companies conduct business will better fit the crypto-sphere and token-sale model. However, at the moment, the imperfect utilization of current regulation is more suitable than no regulation at all.