Cryptocurrency markets have often sold themselves as having an advantage: they are largely unregulated by government agencies by design. The underlying idea of decentralized finance was a utopian vision, in which money was not controlled by governments, with governments seen as unpredictable.
Regulation a Key Ingredient
However, recently industry leaders have come to see regulation by government agencies as a key ingredient that is necessary for the wide scale adoption of cryptocurrency and decentralized finance by a greater swath of consumers. A recent article in Ars Technica highlights this shift, and goes so far to say that if regulation doesn’t keep up, the crypto industry may move out of the U.S.
In the United States, the lack of regulatory clarity threatens to slow down not just mainstream adoption of new technologies but also innovation in digital payment options, potentially cutting off consumers and businesses nationwide from sought-after conveniences, simply because regulators can’t keep up with how digital assets are being used today.
Fraud on Crypto Platforms
One obstacle to wide scale adoption of crypto is the epic level of fraud on crypto platforms. PaymentsJournal has covered this extensively, noting how smart contracts can include code which divert funds in crypto transactions, amounting to theft. For customers who are used to the Federal Reserve guaranteeing their bank accounts should banks go under, and are used to fraud being a rare occurrence, crypto seems like the wild west. For widespread adoption, the U.S. has to create regulations which prevent fraud and security risks associated with digital assets.
Applying Regulations to Crypto
According to James Wester, Head of Cryptocurrency at Mercator Advisory Group, the call for regulatory clarity is not necessarily about determining what’s illegal and what’s not.
“We have plenty of regulations on the books that cover payments, securities, options contracts, derivatives, and every other type of financial product or service,” said Wester. “Financial services is one of the most regulated industries we have. We also know a lot about risk, compliance, fraud, and security and how to regulate them in traditional finance. What the call for regulatory clarity in crypto is about is the application of those regulations to digital assets and cryptocurrencies.”
“It’s about determining which agency is responsible for policing bad actors,” he added. “It’s about how ownership of digital assets, a topic that will be vital in an evolving digital economy, should be treated from a legal and regulatory perspective. To this point, the process to determine those things has been slow—arguably, too slow—and lacked leadership. If any good comes out of the FTX bankruptcy from a regulatory standpoint, I hope it will be that interagency posturing and taking a wait-and-see approach is no longer considered acceptable.”
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