Why regulation matters for cryptocurrencies
Cryptocurrencies have the ability to transform the economy and banking system. But that progress is being delayed by actors pushing for either complete de-regulation or bans.
Both extremes have their appeals. A completely hands-off approach might allow for the creation of an entirely new world order. But as we have seen through several high-profile incidents, there can also be costs. A complete ban - similar to the one currently in place on the Chinese mainland - might limit the danger of citizens falling victims to exchange hacks and fraudulent currencies - but also means lagging behind on a critical new field of technology.
Some jurisdictions toggle back and forth from openness to cryptocurrencies, only to shut things down several weeks later. It can be whiplash inducing. The Securities Exchange Commission in the United States has shut down several ICOs in the middle of the sale, forcing money to be returned to investors. Other companies built on the blockchain and digital currencies have raised money only to be blocked from implementation without a license - leaving investors in the lurch.
Tentative approval yesterday does not guarantee final approval tomorrow. The space can be so dynamic that something published just a few months ago such as CNBC's "Complete Guide To Cryptocurrency Regulations Around The World" can seem hopelessly out of date.
The good news is that more and more jurisdictions are moving in the direction of pragmatic regulation. In South Korea - one of the world's most active cryptocurrency markets – government and local agencies agreed early this summer to build a series of regulations to guide the crypto markets.
Let’s look at three jurisdictions that are leading the way with sensible approaches to cryptocurrency regulation.
Bermuda became the first country in the world to implement a unified framework for fintech companies looking to use the country as a home base. This year the country passed an ICO Bill and Digital Asset Business Act to attract blockchain and virtual currencies. Its government is also looking to amend the country's Banking Act to create a new type of bank specifically designed to cater to local fintech companies.
Mauritius convened a Regulatory Committee on Fintech and Innovation-driven Financial Services earlier this year, which led in part to the creation of a fintech framework. Now passed by parliament - the country wants to welcome a wide variety of businesses based in the crypto markets. Disclosure: My company Fincross is registered through Mauritius. We will file for an extension to our current license to cover cryptocurrencies soon.
Japan has been a leader in Bitcoin and digital currencies. The country recognized Bitcoin as legal tender late last year, having already recognized Bitcoin exchanges. Bloomberg reported in April that Japan is moving towards legalizing initial coin offerings in the country, although approval may take more than a year. Bitcoin Magazine called Japan "a template" for cryptocurrency regulation with its steady approach to building clear frameworks for crypto currency exchanges.
As we can see, there is a role both for large, developed economies and smaller specialty financial centers in developing sensible rules and regulations for cryptocurrencies. The development of regulatory frameworks will help turn the massive interest in the sector to sustain investment and allow for continued connections to form between the legacy financial system and the bold new digital one.