Why regulation is needed to take cryptocurrencies mainstream
Cryptocurrency

Why regulation is needed to take cryptocurrencies mainstream

This is a contributed article by Samuel Leach, Founder of Yield Coin

 

While at first glance it may seem that any level of regulation in the cryptocurrency market would come at the detriment of continued innovation, you only have to look a little closer to realize that the opposite is true. Bitcoin’s volatility in the past twelve months stands testament to why regulation will be fundamental to the mainstream adoption of cryptocurrencies, and why, without it, the future of cryptocurrencies remains uncertain.

 

Regulation: friend or foe?

The layer of additional protection and trust that regulation intrinsically adds to a market would not only benefit cryptocurrency investors and contributors, but also the ever-increasing number of projects underpinned by blockchain technology. In the current unregulated environment, anyone can theoretically set-up a new cryptocurrency and raise significant capital without having to face the repercussions of investors if they fail to implement their plans.

It’s crucial that as a community we reevaluate our attitudes towards regulatory oversight and focus our collective efforts on working with legislators to implement meaningful regulation. These must encourage the growth of ethical projects created with a genuine purpose and protect investors from rouge schemes which tarnish the name of the industry. It’s also a comprehensive regulatory landscape that will encourage investment from larger institutions who, to date, have shown concern over volatility in the market.

 

Working with industry experts

One thing that is crucial is that regulators work with industry leaders and not against them. It is experienced cryptocurrency traders and project founders that understand the sector best, and, more importantly, recognize not only its strengths, but also its flaws. In order to shape legislation that allows the industry to thrive, regulators need to listen to industry leaders and fully understand the cryptocurrency environment’s needs.

One of the principle reasons the market needs regulation is to separate projects which are trusted from those which are not. A fundamental element of the FCA approval process in the financial services industry is the submission of a detailed business plan. This is a simple, but crucial requirement that acts as a basic filter to get rid of those who aren’t even providing basic viable business plans.

This same process should be applied to cryptocurrency projects. Under the guidance of leaders in the crypto space, an appointed regulatory body should work to understand what a ‘standard’ business plan for new cryptocurrencies looks like. Before subsequently verifying the founders of these projects, requesting and validating their business plans, and monitoring publicly available information to ensure they aren’t promising ‘get rich’ schemes. 

 

Creating a new framework

The question of whether regulatory framework should be modeled on existing legislation in the technology or financial sectors, or a combination of both, is an interesting one given that cryptos are fundamentally underpinned by blockchain technology – and would cease to exist without it. Over-regulation will inhibit the technological growth that has supported the development of Bitcoin and other cryptocurrencies like it. As such, regulators need to tread carefully so as not to stifle further technological developments. For regulation to be effective, they need to be focused towards ensuring the security of investors and enforcing measures which reduce the number of rouge projects – rather than implementing measures to restrict the development of new technologies in the sector.

Avoiding over-regulation is crucial, and the only way for regulators to do so is to become embedded within the community and sit down with industry leaders to create an open dialogue which allows them to understand where the boundaries should be set. Much of the hesitancy towards regulation within the cryptocurrency community stems from concerns over the implications of unnecessarily restrictive regulation, not the principle of regulation.

When it comes to regulating new markets, there is often the tendency to act over-cautiously and implement regulation which eventually ends up stifling an entire market. The way we protect this new environment is a particularly sensitive subject considering the widespread nature of the industry – with projects ranging from creating a token to raising capital for a green eco-friendly solar farm to creating a decentralized mobile network. The scope of projects in the crypto space is so wide that many of them will be hit hard if regulation is hastily implemented.

Ultimately, the lack of guidance within the space is hindering its potential growth, and the absence of a regulatory framework often leaves new businesses guessing how to prove their reliability and trustworthiness to prospective investors. It has become clear that without effective, balanced, regulation the cryptocurrency landscape, and the projects it funds, will struggle to reach mainstream adoption. In order to ensure the future of cryptocurrencies, industry leaders, and the entire community needs to come together and work with legislators – not against them.

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