Bitcoin is evolving into a global currency that is accepted by certain people in every country on the planet. It’s also becoming a virtual currency that users use to make cross-border purchases. Bitcoin is, in theory, the world’s first decentralized money. That is to say, and it does not have a single central repository. Furthermore, Bitcoin is not managed by a single entity. And because it is virtual, it can only be found online.
The prohibition of this and other virtual currencies could lead to the extinction of future inventions. Some analysts fear, however, that their continuous development and use would jeopardize the stability of the current financial system. Bitcoin and other digital currencies are thought to be the catalyst for the next financial crisis by some. Because some people may choose Bitcoin over fiat currencies, the current global financial system will be destabilized as a result.
In this article, you will get to know about the regulation of cryptocurrency.
Reasons To Regulate Cryptocurrency
It will improve investor safety
There’s a reason why crypto is referred to as the Wild West by Gensler. Scams abound, and few regulations exist to prevent market manipulation or insider trading.
Furthermore, there are risks that many investors overlook. How confident are you that your money is safe if you put your savings into a crypto platform that pays interest? What if the platform goes out of business or is hacked? Regulators may be able to resolve these issues in the future.
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Money laundering and tax evasion could be prevented
Many say that criminals use crypto trading’s anonymity to launder their stolen funds, necessitating regulation. There is concern that cryptocurrency cash is being used to fund terrorists or to launder money obtained from unlawful operations.
As a result, most large cryptocurrency exchanges have protocols in place to ensure that they know who their customers are. Before they may register an account or make a deposit, users must provide personal information such as their name and photo ID. However, there are still lots of KYC-free exchanges where people can trade without revealing their identities.
Without further regulation, the crypto economy will never attain its full potential
Although mainstream adoption has increased significantly in recent years, there is still a long way to go. According to a Gemini survey, only roughly 14% of Americans own cryptocurrency at the present. Retail investors may be encouraged to put their toes into the crypto waters if regulations safeguard them.
It would also likely boost institutional investors’ confidence, as they must adhere to stringent compliance and risk management guidelines. For example, if it is discovered that a financial institution engaged in bitcoin assets that were later linked to unlawful operations, it may face criminal charges.
It’s impossible for cryptocurrency investors and users to know they’re in safe waters without defined norms, which is a significant roadblock to future growth.
Overall cyber safety
People’s Bitcoin investments are virtually at risk due to cyber security vulnerabilities and online fraud. Hacking is one of the most severe risks to financial organizations like banks, and the Federal Reserve has been the target of multiple cyberattacks in the last decade. Cyber assaults can cause a cryptocurrency investor to lose a considerable amount of money.
Governments can impose regulations requiring cryptocurrency holders to protect their clients’ investments by regulating Bitcoin. Furthermore, if service providers handling their investments on their behalf lose them, investors will be able to resolve their concerns or recoup their funds.
Ways To Regulate Cryptocurrency
The most straightforward way for the government to control cryptocurrencies is to levy a tax on every fiat currency used to purchase a virtual token. The key problem is that this would have to apply to specific tokens, and a cryptocurrency owner could just cash out with another coin. Furthermore, many early adopters and ardent supporters prefer cryptocurrencies to traditional fiat currencies as a medium of exchange for fundamental goods and services.
2. Crypto Exchanges
Almost all foreign exchange passes through banks or currency exchange businesses; it is up to you to decide what to do with it after that. In the cryptoverse, it should be no different. Unless you’re a professional trader, who would self-identify as option four on a list like this, you should conduct all of your transactions through a licensed exchange.
It will be easier to combat illegal activity and ensure that taxes are paid once the flow of fiat to crypto and vice versa is mostly through exchanges. However, in order for this to occur, banks must first create exchange accounts.
3. Exchanges Manage ICO
This has two advantages: it creates a new economic model for the exchanges and serves as a central control point for curbing unlawful activities. Exchanges are putting their reputation on the line with these projects, so they’ll be motivated to do their homework.
If an exchange wishes to offer initial coin offerings, it should be required by regulation to ensure that the ICO fits specified standards. The tech and crew should be audited and background vetted at the absolute least. Just in case, run the whitepaper through some plagiarism tools.
Customers should go through the Know-Your-Customer and Anti-Money Laundering processes before investing. These two procedures, when taken together, should help reduce fraud on both sides significantly.
Of course, you can’t stop others from acting foolishly, but at the very least, you can warn them. As a result, each ICO investing process should begin with a quiz to ensure that the investor knows what could happen to their funds. It’s done on equity crowdfunding sites, and ICOs should follow suit.
In the end, the character of any new cryptocurrency legislation is what matters. Heavy-handed regulation that severely restricts the activity of lawful projects may be harmful. However, reasonable regulation that weeds out bad actors may be able to foster an environment in which legitimate enterprises can thrive.