The digital and digital-first economy promises to bring new opportunity for business, innovation and growth. Yet for many this comes with some serious new risks and uncertainties. A specific set of issues is emerging in the cryptocurrency space. For those managing money in this space, the challenge is to balance the code and the law, without restricting access or distorting markets.
For individuals, where such financial transactions would otherwise be illegal, there is the risk of having precious funds frozen or being blocked by authorities. This is by no means limited to cryptocurrencies, and is a common occurrence in other contexts. Cryptocurrencies are the only mechanism of virtual payment transfer and are one of the most widely used mechanisms for anonymous and anonymous payments.
The need for governments to regulate this space is in demand. Underpinning all of this is the challenge of value – how do cryptocurrencies be valued, understood and administered. This requires placing a complex market setting under the direct control of regulators. Ultimately, a compelling solution is needed in which the law recognizes blockchain technologies as a new and legitimate form of payment, and equips financial services providers, the marketplace and individuals with the necessary security and discretion to permit and manage cryptocurrency usage in a lawful way.
Unfortunately, governments and regulators around the world are struggling to understand the impact of cryptocurrencies. From time to time it feels like cryptocurrencies are constantly being banned or banned again. It is important that governments are informed on the fundamental principles for regulation, based on the knowledge of their constituents, and do not keep busy doing regulatory legwork unnecessarily.
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We think that to facilitate reliable regulation, the competencies of regulators should be provided with the right tools and education about cryptocurrencies, along with a push to publish the appropriate material.
So, what does this mean? First, we need to work together to share the best knowledge of this space. With a growing number of people making the shift from cash to cryptocurrencies, policymakers and specialists need to create a more thorough understanding of how this new form of payment is reaching millions of people, who need better access to finance. Cryptocurrencies are advancing to unlock ways to address pressing problems for humanity such as remote and low-quality health care, micro-credit, daycare, and education.
Second, regulators have to be properly informed and prepared for the technical complexities of regulation in an emerging space. Financial services providers should research how cryptocurrencies operate, how to evaluate the impacts on their business models, and how to create, employ and incentivise ethical behaviour.
Third, regulators need to provide authorities with training and tailored guidance on how to define, apply and regulate bitcoin and other cryptocurrencies. We do not want to be cornered by the legacy laws and regulation of the past. Rather, to avoid imposing burdens on market actors, we need to be able to exempt cryptocurrencies and similar token-based transaction modes from the many existing laws.
Here is where the challenge is in the sense that cryptophones demand a new system of laws. It is important to break the law to make something better; yet the problem is that it is too easy for bitcoin to self-perpetuate and outgrow the system of laws that are now in place. In order to not impose burdens on industry, we need a new model of government.
We are currently creating the framework for a new system. The initial path will aim to focus on identifying rules that improve the regulatory landscape for new payments technologies and cryptocurrencies, and to determine the regulatory mix. Ultimately, the system should create a regulatory environment that enables innovation to co-exist with regulators, and allows everyone to benefit from the benefits that cryptocurrencies bring.
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