After the capitalization of the cryptocurrency market began to rapidly approach the $ 1 trillion mark, government institutions began to make serious efforts to develop laws and regulations that govern it. The response was a protest against such attempts and the desire of protesters to justify their position on the nature of cryptocurrencies, created in order to avoid state and banking control. Government regulation is incompatible with the libertarian beliefs of investors attracted by promises to end the tyranny of inflation and the monopoly of state banks. However, with each new blockchain problem, hacking of wallets and exchange services, or speculative price fluctuations, the number of those who want to reduce risks increases.
Current situation
Cryptocurrency emerged as an alternative means of payment to traditional fiat currencies. Over time, it has developed into a highly risky speculative investment asset. Later, a mechanism for collecting the initial ICO capital using the same technology arose, which became an additional source of instability. The current situation in the field of cryptocurrency regulation is characterized by two conflicting trends. On the one hand, there is a growing need for clear rules by which transactions are performed. Their development and widespread adoption would attract more institutional investors to this area, which would serve as an additional impetus for development. On the other hand, there are concerns that strict restrictive regulation, which does not take into account the specifics of cryptocurrencies, may, on the contrary, slow down or even stop the development of cryptocurrency technologies.
Main cryptocurrency vulnerabilities
Many hopes related to cryptocurrencies and blockchain have not materialized. Thus, the promised security and reliability of payments turned out to be significantly lower than expected.
Potential monopoly pressure
Collusion between miners can compromise the security and timeliness of cryptocurrency units. The formation of large mining pools gives them a speed advantage and the ability to extract monopoly profits from mining.
Hacking vulnerability
Since cryptocurrencies are not a universal means of payment, communication between the buyer and the seller is required to exchange them for goods, services, or fiat currency. It is provided by exchange services acting as intermediaries. Making it easier to find counterparties, they, at the same time, increase the risks of cryptocurrency owners, as they become objects of hacking and theft.
Money laundering and financial crimes
The absence of common international rules allows jurisdictions to maneuver in search of the safest conditions for criminal activity.
The main directions of regulation of cryptocurrencies
- Consolidation of international efforts
The decentralized nature of cryptocurrencies makes local regulatory efforts less effective. Attitudes towards cryptocurrencies range from a complete ban (Algeria) to encouragement (Japan, Estonia). In these conditions, users always have the opportunity to manipulate jurisdictions. The development of common international rules should help to solve the problem.
- Development of a unified legal definition of cryptocurrencies
For the entire existence of cryptocurrencies, their legal definition has not been given, which is valid in all countries. The same can be said for ICOs. They do not have a single nature and can be considered as a currency, commodity, share of ownership, security, credit, deposit, financial derivative or forex contract. The creation of an internationally agreed taxonomy is an important challenge for regulators.
- Development of clear rules of taxation
The circulation of cryptocurrencies (exchange for fiat and mutual exchange) can generate profits that should be subject to taxation. This year, the United States passed a law clearly clarifying in which cases capital gains tax is paid on these profits. In other Western countries, the same clarity does not yet exist, especially when it comes to crypto dividends.
- Development of uniform rules for the operation of exchange services
Users of exchange services must have a bank account. This makes it easier to identify and collect taxes. However, for the services themselves, this rule does not always work. Only a few of them have bank accounts. For example, a Bitstamp account is opened in Slovenia, and Coinbase is in Estonia. The banks’ position is clear. They fear the illegal use of the money they hold. If the activities of exchange services are subject to certain rules, then these fears will ease, and large banks will be able to open accounts for such companies.
