This is probably a question that pits the crypto community against each other. Crypto enthusiasts who have been around since the inception of Bitcoin would likely view government regulations in unfavourable light. After all, cryptocurrency was initially created to be free from third parties and any form of regulation. Enforcing regulations on cryptocurrency would naturally seem like taking a step backwards rather than progress.
Ideological views aside, could government regulation be beneficial or disadvantageous from a more pragmatic perspective?
Limits growth for the industry
The internet as we know it today, might not have thrived if regulations were stringent and the GDPR was imposed in its early days. New developments grow exponentially without the presence of strict regulation. With this in mind, it’s possible that stringent frameworks might stifle the growth of cryptocurrency and blockchain businesses.
Regulation isn’t “evil” in itself, but it has the potential to put up barriers that prevent rapid growth. In 2017 alone, the unregulated ICOs raised over $5.6 billion. Had frameworks been put in place, it’s unlikely that such a sum could have been raised.
Users get more protection
That being said, there are still some benefits that regulation can bring about to the cryptocurrency sphere. At the moment, most crypto enthusiasts are traders and investors — digital tokens are still not part of the day-to-day, mainstream mode of payment. For cryptocurrency to become a mainstream mode of payment, it’s important for regulators to protect the interest of users to prevent them from falling to theft, hacking, and scams which are rampant in cryptocurrency.
In Japan, cryptocurrency is regulated under the same policies as those used to regulate the financial service sector. Stringent anti-money laundering policies are put in place and Know Your Customer (KYC) processes are also imposed. While these policies seem to go against the ideology and raison d’etre of cryptocurrency, Japan is still recognised as one of the most crypto-friendly countries in the world. With these regulatory frameworks in place, Japan has the largest Bitcoin trading volume. Additionally, more than 3.5 million citizens are engaged in cryptocurrency trading.
Take out scammers who give cryptocurrency a bad name
One of the reasons why many are still hesitant to embrace cryptocurrency is because of the scammers and thieves which are prevalent in the crypto market. Pump and dump groups, fake ICOs and other scammers give cryptocurrency a bad name. Many crypto investors and traders have fallen to phoney schemes and were unable to recover their losses.
With government regulation, scams in the crypto market would not be so rampant. Only when people feel more safe about using cryptocurrency, can they appreciate the development of the blockchain technology. At the moment, people are still wary about trading, investing or even using cryptocurrency as a mode of transaction. It’s essential to create trust among the public for cryptocurrency to become a mainstream mode of payment.
Will government regulation is good or bad for cryptocurrency? That depends on the goal of majority of the crypto community. At the moment, there are many altcoins created to solve different problems and different communities have different ideals for cryptocurrency. If the end goal is to make cryptocurrency a mainstream mode of payment, government regulation could be a good thing. However, too much regulation from the government could potentially stifle growth in cryptocurrency’s still infantile stages. The best way to determine whether government regulations are good or bad is to observe the outcomes of different governmental regulations. Only then will we know which policies are benefits the growth of cryptocurrency and which do not.