Opinions on the potential regulation of cryptocurrencies vary from person to person, whether or not those people even have crypto holdings themselves. There are those who believe that regulation would hurt digital coins, as it would remove from them at least some part of the decentralized nature that makes them tick. There are others who believe that regulation would at least drive some more infrastructural investment, which would help cryptocurrencies to attain stability and become less volatile.
What is often lost in the mix of these conversations is a significant question. Quite aside from talking about how cryptocurrency regulation would affect the coins, there is at least as much uncertainty over what Bitcoin regulation would look like. As governments talk, in usually vague terms, over the possibility of regulating cryptocurrencies, it seems like a good place to start the conversation would be pinning down how crypto might be regulated. And some answers might lie among the following examples.
How do you regulate crypto?
The most prominent example of a government intervening to affect the way cryptocurrencies are used is China. The Chinese government has shut down exchanges in the country and used existing land use regulations to push miners off Chinese soil. Even that, though, has not ended the use of crypto in China, because the infrastructure of Bitcoin and other cryptos means that they can still be traded even with restrictions on exchanges. You can’t entirely stop something that doesn’t have a hard physical source.
Does this mean crypto can’t really be regulated?
No, it doesn’t mean that. It does make it harder, but there are ways to at least disincentivize crypto, or at least certain uses of it, among the general public. For example, the most likely way we will see crypto regulated by the major economies in the West is by taxing the money that is used to cash out a digital token. So if, for example, you won big at the Ethereum casino at Cloud Bet, and wanted to use the winnings to make a big-ticket purchase, the point at which you sought to turn ETH into USD would be where the government would step in.
So you could never turn crypto into fiat without a tax hit?
Not so fast. The difficulty such a law would run into is that it can only apply to specified coins. So if the government regulated Bitcoin, ETH, XRP and Dogecoin, holders could simply move their assets to Litecoin and cash out from that. New tokens are minted so often that there would be a tonne of loopholes, and new ones could be created as quickly as the government shut the existing ones.
It very much depends on what you see as being the most important aspect of cryptocurrencies. There are potentially some merits in allowing crypto to be regulated. Volatility and high speculation mean that you can very easily lose your investment as quickly as you gained it, and a lot of exchanges lack the infrastructure to keep up with demand, which harms the scalability of a coin. If keeping out of the hands of government is your entire reason for adopting cryptocurrencies, you might well see volatility as a price worth paying. If you see it as an investment from which you would like to benefit financially, then you might prefer some regulation.
What is certain right now is that nothing is certain. Such luminaries as Changpeng Zhao have made clear that there have been failures in crypto and there will continue to be others. If, and when, the crypto picture settles to something more constant, there will be winners and losers.
What happens with regard to regulation, particularly in the more powerful economies, will decide to a large extent who wins and who loses.
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