Why Are Countries So Eager To Regulate Cryptocurrencies?

News, Opinion, Regulation | September 2, 2019 By:

Looking at the cryptocurrency map of the world we see most of the countries come off as Grey Areas, allowing cryptocurrency trading without any significant government interference. However, in recent months, we’ve started seeing various countries draft bills for introducing a comprehensive regulation.

The most recent country to have done this was Chile, followed up by further talk in the EU for a Union-wide regulatory framework. All of this then begs the question, why would the government want to regulate an asset that’s pure nature is to not be centralized? How can they control and what will they receive?

More Control Over The Market

Control is something that every government has problems with. Especially governments who have a lot more political oppositions. During recent years, the European Union has seen multiple states have very strong Conservative candidates that threatened the whole notion of the Union. In fact, two countries have already seen a conservative party come into power (literally and figuratively), Austria and Estonia.

Should these countries jeopardize the level of control already imposed by the Union, it could fling the whole continent into chaos.

Therefore, a centralized regulation was decided to be essential for a non-centralized asset. With this under their belt, the EU would ensure any outside influence on its crypto market to be minimal. Furthermore, the local governments would be able to protect their citizens from any potential cryptocurrency scams. That was the idea that the South Korean government had when it banned ICOs and it was a good decision, as more than 80% of ICOs conducted in 2018, turned out to be scams.

Furthermore, there are other reasons for imposing regulations, such as foreign influence over the markets. One such country is Georgia, which hasn’t yet imposed regulations, but seeing how the overall interest in the blockchain is growing, it could potentially do so if necessary.

According to experts from a local financial news website, the government is anxious about moving to a completely free market with dozens of foreign and local companies exchanging millions of dollars neary every single day. Although they agree that it would bring much more financial security in the long run, there could be short-term interferences from long-standing political enemies that are quite well versed in hacking technologies.

Which is why several ministers have asked for a minimalistic regulation, demanding that companies don’t have any “unwanted” outside influence on the local consumer.

Some countries have a bit more selfish reasons to introduce cryptocurrency regulations. For example, Norway, which is famous for its heavy restrictions on gambling activities, is afraid that cryptocurrencies may jeopardize their imposed laws. Thanks to the difficulty and sometimes impossibility to track crypto transactions, all of its barriers to protect the citizens and maintain a “gambling monopoly” would be foiled.

But control is just one part of the reason.

Additional Tax Income

Currently, most grey zone markets rely on just revenue tax submitted by the companies registered on their territory. Taxing profits from cryptocurrency trading is pretty hard as there is not enough data to go around. Thanks to the predominant anonymous nature of the crypto market, the government can’t just force the companies to show their customer logs, unless that is included in the law. However, the biggest opposition is the fact that logging customer trading activity deletes the whole purpose of cryptocurrencies.

Countries with the most crypto traders, such as the USA, South Africa, Japan, and South Korea would see millions if not billions of dollars in annual income just from these taxes, therefore it’s understandable why they’re so eager to introduce it.

Safety

Safety can be classified as the sub-reason of Control. Most countries where the debate is still in full swing, talk about the threats that cryptocurrency may bring. Money-laundering, Terrorism Financing and accessing the black market is much easier with cryptocurrencies as the process of the transaction is not overseen by anyone, it happens peer-to-peer. Only in a few cases can we see a middle-man such as a crypto exchange or a wallet provider.

But most people with evil intentions tend to overlap these issues, create their own crypto wallets and get away scot-free with their money laundering activities.

One of the countries that push this agenda the most is the Russian Federation. In fact, the President, Vladimir Putin put forward a deadline for the government to adopt a regulation, for preventing these money laundering and fraudulent activities.

Is the regulation worth it?

For the market itself the regulation would definitely slow it down, but on the other hand, it would make it much safer. Having a license to operate a crypto exchange or any type of crypto service always boosts a company’s reliability, which then prevents any scammers to conquering the market.

Sure there will still be some gullible victims in the future, but the regulation is guaranteed to reduce it significantly. The countries themselves may indeed get more income through taxes, but in all honesty, there is no need for that extra income.

The more buying-power a citizen has, the better they are for the economy. The more revenue the government has the more risks there are for corruption, bad investments and various problems.

Therefore, it’s only reasonable to say that. In the grand scheme of things, for the long-term, a regulation could actually support Blockchain development but hinder personal financial growth for the participants.

But, on the other hand, the regulation can lead to more bureaucracy within the nation and the elimination of the competition level of the industry.

Overall, it is definitely not a win-win situation, somebody will have to lose, be it the individual trader or the government.