Initially, the lack of regulation was one of the advertised benefits of cryptocurrency. However, pitfalls of this came to light really fast as the lack of regulation means that you are lacking protection as well. And while money launders or terrorist groups definitely don’t care about it and focus on how this type of system benefits them, regular law-abiding people might lose their money because of the absence of security. Owners of $534 million lost in the Coincheck hack can attest to that. However, cryptocurre4ncy still isn’t regulated and changes to this particular aspect of it will, most likely determine if it has a future.
What’s the State of Cryptocurrency Regulation Today?
At the moment cryptocurrency is not regulated by any major regulatory authority in any country. In fact, the relationship between crypto and those relevant regulatory bodies is a matter of concern.
Take the UK Financial Conduct Authority (FCA). Like all other bodies of its kind, it does not regulate cryptocurrency in any way, but operations with it are not banned. For you as a user this means that you can use crypto in any way possible. However, you are devoid of any protections, which you would have had if crypto was treated the same way FCA regulates money transfer services. Those protections mean that if you get defrauded or your money is stolen, you’ll be able to file a report, get the authorities involved, and get your money back. At the least, you can hope to get some compensation through court.
With unregulated crypto, you get none of that. Therefore, if your accounts are hacked and your money is stolen, it’s lost forever. No one bears the responsibility of compensating you because no one was responsible for protecting that money. The FCA states this explicitly on its page dedicated to cryptoassets. That page is a warning about using cryptocurrencies, even if it’s presented as a source of general information instead of alert.
The situation is similar with all major financial regulatory authorities in the world. Various American regulatory bodies posted multiple articles that warn consumers off cryptocurrency and reiterate the risks caused by the lack of regulation.
Admittedly, those are the risks that one must be wary of. The aforementioned Coincheck hack is considered the biggest theft in history, and it’s not the only time when crypto was hacked and stolen without a trace. There was also the Mt. Gox hack, which lost about $450 million, and quite a few others.
All things considered, it’s impossible to deny that cryptocurrency transactions do need regulation, if only for the protections it brings. And authoritative regulatory bodies are quick to state that they aren’t offering any security to crypto users.
At least, this is the situation in the vast majority of countries. Some, like China and Morocco, simply banned cryptocurrency exchanges altogether. Therefore, their residents can’t really use crypto in any meaningful way.
But there are some other countries, which one might call more progressive in this matter. For example Japan, which, in a way, suffered the most from crypto hacks. Probably, it’s because of those incidents that Japan is now one of the few countries where cryptocurrency markets are managed by self-regulating bodies. In Japan that is the Japanese Virtual Currency Exchange Association, which works closely with the Financial Services Agency trying to enforce compliance with its rules.
For that matter, various financial regulatory bodies, like FCA and SEC, are also trying to enforce this kind of compliance into the businesses that use crypto. However, those same businesses use the absence of a legal framework for cryptoasset regulation to evade responsibilities that compliance will require.
What Does the Lack of Crypto Regulation Mean?
The lack of regulation for crypto, combined with explicit warnings from regulatory bodies and highly publicized news about crypto hacks, means that people don’t trust it. Of course, there are some enthusiasts who advocate it, but they are few.
And if people don’t trust it, they aren’t using it as well. Therefore, they aren’t putting the pressure onto governments and regulatory authorities that would make those come up with a solution.
Surprisingly, it seems to be exactly the thing that the governments want. After all, not a single government in the world today is welcoming of crypto. Even those that don’t ban or restrict it directly don’t seem inclined to recognize it as a full-fledged currency.
If one looks at it this way, the warnings about the risks of crypto issued by various authorities seem to be staged. No doubt, the risks are true. But is the situation itself truly so bad? Is it impossible to make cryptocurrency safer?
It’s definitely possible, and doing this will even resolve one of the major issues that governments seem to have with crypto. Making it regulated is the step that needs to be taken in order to increase the security of crypto transactions. Doing this will also provide the governments some semblance of control. However, due to the decentralized nature of the blockchain technology, this will only be an illusion of control. Perhaps, this is the reason why no one has moved to attempt regulating it yet.
The good news, however, is that some governments seemingly admit the inevitability of digital currency. They aren’t willing to accept existing coins, but some are starting to consider issuing their own. Local cryptocurrencies of this type don’t have any major success yet. However, the fact they exist already shows that the world is moving in the right direction.
Does Crypto Have a Future?
Cryptocurrency definitely has a future because it offers too many benefits to be forgotten. However, at the moment, it doesn’t have the legal support necessary to reach its full potential. The absence of currency regulation is a major problem because it makes crypto too risky an investment. Also, it’s part of the reason why it can’t be equal to fiat currencies.
Getting reputed regulatory bodies to acknowledge and manage crypto, at least to some extent, is an essential step. Without it there can be no future for crypto as it won’t be able to develop.
