Government regulation of crypto currency – is the risk worth it?

In the past two years, crypto currency has taken the financial world by storm. The market cap of crypto currencies has increased from $7 billion in January 2016 to over $450 billion today and this number is constantly growing every day. However, it also comes with a lot of risk and a lot of responsibility that needs to be looked at from all angles to ensure that it doesn’t get out of hand, while still maintaining its potential benefits.


Regulations will hinder innovation

Governments have taken a tough stance on digital currencies so far. This has been especially true for banks who continue to resist open payment options. However, these regulators are slowly beginning to loosen their grip as people from around the world begin to call for less restriction on crypto currencies. Not only do they want safe and secure banking opportunities, but they also want lower fees and quicker transaction times. But with more innovative opportunities come more risks. Although governments are starting to turn a blind eye, we will have to wait and see how things shake out with regulators before we can truly start trusting this option in investing our money. Banks may be resistant at first, but once they see that there is no way back, they will inevitably change their tune or face public backlash if they don’t. Governments are well aware of this opportunity and already feel threatened by the decentralization blockchain brings to the table. They know full well that one day soon, the control over money could shift into the hands of every individual without bank account- something they’re clearly not ready for. Governments are tightening regulations just enough to make sure they get what they want while still seeming democratic enough in allowing crypto use at all. With more innovation comes more risks; however governments should let go sooner rather than later because when you have power like theirs, your days are numbered anyway . The responsibility falls onto them to take necessary precautions before losing total control of the financial market.


Existing regulations are all we need

Cryptocurrency has only recently been on the minds of many in terms of how they can use it, not just how to regulate and tax it. The market’s main motivator and allure has been that digital currencies allow individuals to circumvent, sidestep or work around traditional banking systems for myriad purposes. In order to understand this, one must first understand what a cryptocurrency is. Cryptocurrencies are secure digital currency with encryption keys so no one else can spend your money or control your finances without permission from you. Banks and governments generally have a mistrustful relationship with cryptocurrency given its nature and penchant for circumvention. It’s these aspects that make crypto-regulation contentious as well as difficult. Many people view crypto as untrustworthy because of hacks on exchanges and wallets; moreover, it may be too late to ban them entirely. However, cryptocurrencies are still less than 1% of global financial activity which means there is plenty of room for growth if their reputation improves. One option for regulating crypto is through taxes. For example, some countries like Japan have adopted a transactional approach to taxing cryptocurrency transactions where each time money changes hands (e.g., when someone buys something using Bitcoin), it triggers a taxable event which will go towards funding public projects. But before anything like this happens, we need more dialogue about what regulating crypto could mean for society and companies alike. One thing is certain: the sooner we start developing clear regulations, the better our chances of success will be in bringing crypto into mainstream use and achieving mainstream stability

Although governments should always strive to be prepared for new technological breakthroughs, I believe that existing regulations are enough for preventing risks involved in crypto. This does not mean, however, that tech companies don’t need stricter requirements at least related to personal data storage and breach notification laws. This would involve alerting users every time a data breach occurs which would also help deter hackers since they wouldn’t know who was affected by an attack since everyone would be notified simultaneously. There’s no denying though that further research should be done on making blockchains tamper proof so users can benefit from decentralization while keeping sensitive data away from malicious third parties.


Changes may be good

In general, cryptocurrencies can be mined without this specialized hardware. CPUs are most common at this point, so you don’t need much in terms of a computer’s power to start mining some coins. However, as cryptocurrency becomes more mainstream, the use of GPUs and ASICS will become more popular. The best computers for cryptocurrency mining are called Application-Specific Integrated Circuits (ASICs). They offer a better hash rate than most GPUs or CPUs and work better when mining Bitcoin or Ethereum as they were designed specifically for that. A CPU may take months to find one block, but an ASIC could do it in minutes. As such, there has been a huge increase in demand for these devices and suppliers are struggling to keep up with demand. It’s not uncommon for GPUs to go out of stock, which means people who want to mine coins might not be able to get the components they need. There have also been reports of GPU prices going up by over 200% since the beginning of 2018, partly due to their increased popularity in crypto mining. If you’re looking to buy a GPU for gaming purposes and don’t intend on using it for crypto mining, this shouldn’t really concern you.

This type of system makes sense for miners because it ensures that anyone who wants to join the network can do so, unlike bitcoin where new users need expensive equipment just to contribute. But would government regulation like what happened in China help protect investors from being scammed by shady ICOs?

On March 6th, 2018, China announced its intentions to stop all ICO projects while they review current ones already completed. We’re still waiting to see how this affects other countries’ decisions about regulating the industry. Some believe that regulations will only drive business underground into countries without rules governing them. Others think tighter regulations could actually help legitimize the market, driving innovation and growth in the blockchain space.

In order to combat money laundering and cyber attacks through fraudulent ICOs, regulators may introduce restrictions on how much money can be raised through token sales, how many tokens should be sold during each campaign and how many tokens should remain after completion of a project for operational costs. Regulations could also dictate that any company conducting an ICO must publish a white paper detailing every aspect of their project before launching any token sale campaigns; including technology architecture diagrams, financial plan projections, key team members and relevant contact information. So, does this mean that ICOs will no longer be available to small and medium businesses? What if I’m a big fan of owning the latest iPhone but I don’t have the funds to purchase it. Would it be possible for me to purchase Apple stock instead of an iPhone in the future? With stricter regulatory measures, we’ll likely see a shift away from ICOs and towards equity crowdfunding platforms, like Kickstarter. This way, startups and entrepreneurs will still be able to access funding for their projects, but consumers won’t be putting themselves at risk for scams or becoming victims of fraud. As crypto mining becomes more widespread, governments will need to decide whether or not to restrict mining activity. One of the first, and most important considerations, will be whether or not it’s technically feasible to enforce a ban on mining for digital currencies. If a ban can’t be enforced, then this decision may lead to an inevitable influx of black market activity as people seek ways around the law.

If you’re curious about how cryptocurrency works and the basics of how you can get started in crypto mining yourself, head on over to our article: How Do You Mine Crypto?


Crypto should be left alone to grow

The inherent risks of bitcoin have been explained by many, but that doesn’t mean there are no rewards. No one could predict just how quickly and powerfully bitcoin would take off. When you take on risks, sometimes you get rewarded- and with cryptocurrency that was certainly true.

What do governments think about all this? Governments are all different in what they think should be done with cryptocurrencies because each country has different priorities. One thing most countries seem to agree on is implementing tax regulations to discourage underhanded trading, but many places like China have taken a hard stance against it altogether. In America, the IRS views crypto as property for taxation purposes. That means any time you buy or sell your bitcoins for dollars or euros, you owe capital gains taxes. However, mining bitcoins counts as self-employment income which means 1099s will need to be filed for every transaction made during the year. And the general consensus among governments seems to be that crypto transactions can be monitored easier than cash transactions so people who want to stay anonymous might not want to rely solely on cryptos. There’s also some worry that since Bitcoin only allows 7 transactions per second, scalability might eventually become an issue down the line. Some countries such as India have banned bank accounts from dealing with cryptocurrencies while others have regulated them as securities. The UK’s Financial Conduct Authority (FCA) released guidelines last month specifying when someone needs to register their cryptocurrency business with them and where they are subject to other rules, like where ICOs must provide certain investor disclosures if they’re selling tokens considered securities. In short, cryptocurrency isn’t perfect, but its decentralized nature still offers something that traditional fiat currency doesn’t: anonymity. For now, government regulators aren’t pushing too hard to regulate crypto exchanges and wallets because they’re afraid of stifling innovation. Eventually though, these currencies will likely come under more regulatory scrutiny. Several countries have already implemented laws limiting its use within their borders. The US Congress even held hearings about regulating cryptocurrencies last November, with Republican congressman Brad Sherman suggesting stricter measures were needed to prevent fraudsters from taking advantage of unwitting investors. Others maintain that stricter regulations would be counterintuitive, citing the example of apps like Venmo where users’ personal data is automatically uploaded and shared without consent- but nevertheless Venmo hasn’t faced much public criticism because it does offer additional privacy protections like two factor authentication. It remains to be seen how these debates will play out over the next few years, but so far governments haven’t shown a lot of urgency in regulating the industry despite the immense amount of debate going on around it. This lack of regulation is a blessing and a curse- on the one hand, it allows for the technology to grow and innovate at an unprecedented rate, but on the other hand it means less security for cryptocurrency owners. As with anything new, it will take time before we have all the answers.

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