Cryptocurrencies have started to stabilize and the new wave of regulations has started. The Governments of various countries who used to look at cryptos with suspicion have now started thinking about appropriate regulations. This year we are seeing headlines everywhere, informing saying that a regulation is being drafted. This kind of news is coming from all around the world, The United States, where the regulator is actively researching blockchain and cryptocurrency industry to come up with the proper regulations, Australia, which is funding the research, European countries, such as France who recently passed the first cryptocurrency bill and Asian countries. But why are lawmakers in a rush to prepare the regulatory framework for digital assets? There are several main reasons.
Scams, frauds and other violations related to crypto
All countries are concerned with scams and crypto related wrongdoings.
The number of cases when companies were scamming crypto traders or holders has increased significantly. For example, a report made by the Australian regulator stated that while in 2017 there were several cases. It turned out that traders were simply not reporting it. After encouraging them to talk to local authorities, the number of scammed individuals sky-rocketed. Without proper regulations, companies have the right to offer crypto trading on their own terms and lure customers with promises of guaranteed high returns.
Due to there being no such thing as a crypto regulation in many countries, most traders had to rely on company reviews similar to this Bitcoin revolution one by InsideBitcoins, which provided at least some information. The government archives were simply not enough as they contained only the registration number.
Another issue was the illegal payment process within some countries. Thanks to cryptos transactions carrying more anonymity than other platforms, tracking the history was sometimes impossible. Therefore money laundering and black market payments were quickly becoming problematic. Mostly cryptocurrencies are used for purchasing illegal drugs. Many are funding gambling accounts with cryptocurrencies in the countries where gambling is considered illegal or is strictly regulated. Nowadays most of the sports betting websites or online casinos accept and even encourage deposits in crypto.
Lawmakers often emphasize the possible link between cryptocurrencies and money laundering. Some people find the link is highly hypothetical and consider it more of a fear of lawmakers rather than a real threat. However, the last news about money laundering came this April concerning two people in New York who laundered 2.8 million USD from 2013 till 2018. For the money laundering crime, defendants have been using Bitcoin and Western Union payments. Apparently, it is not just a fear but a real threat as in this case two people were conducting the crime for six years, hence it will not be surprising to know that it is not the only case and many other cases are still unveiled.
Avoiding taxes is a common problem for all governments around the world. Companies and people have the ability to avoid taxes via cryptocurrencies. Anonymity is to be blamed here. If someone chooses to sell some product or service and receives money via cryptocurrencies he or she has the ability to not disclose information about the transactions and hence, can avoid taxes. Moreover, the problem concerns crypto traders as well. Without proper and clear regulations in place, many do not know if they should report profits made by trading crypto or not. This causes big confusion until today and is the root of further complications with the government.
While most countries are concerned with cryptocurrencies, many welcome the blockchain technology and want to develop it.
Countries with leading economies, such as the United States, Japan, Russia, and various other EU countries, are interested in developing the Blockchain further, and utilizing it in their economy as much as possible.
The blockchain provides opportunities to automate much of the countries’ transaction systems, therefore freeing up or simply accelerating the process.
However, development cannot begin without a clear regulation and definition of cryptocurrencies as tradeable assets or just hobbyist commodities.
The root of the problems mentioned above is the nature of cryptocurrencies since it is decentralized and anonymous banks and lawmakers do not have the ability to check the transactions and observe the digital currency flaw. The best way to solve the crypto related issues is to set the regulatory framework for cryptocurrencies. In the best case scenario, the regulations should minimize crypto related scams and ensure that nothing hinders the development of innovative products and technologies. However, not all countries are trying to achieve these results. Countries like China or South Korea have completely banned anonymous crypto transactions. While the prime minister of Russia has announced that the government is not interested in cryptos anymore and regulations in this field are not relevant for the Russian lawmakers.