Compared to traditional finances such as cash, cryptocurrencies offer a wider range of benefits in some aspects but it is still something that brings fierce debates. One of the biggest topics of discussion is the fact that cryptocurrencies operate on a decentralized basis, which works by eliminating other intermediaries, such as banks and other financial companies.
The last year has been quite a turbulent one for cryptocurrency and the digital assets economy. There have been a number of reported scams and scandals, which have contributed to losses equating to trillions of dollars, as well as coin collapses. With the crypto market continuing to expand, the risks of scams and scandals will likely increase alongside. As such, there have been calls for cryptocurrency exchanges to become regulated like banks. But, is this a good idea? Let’s take a look at some of the reasons behind this.
Is There A Need To Regulate Crypto?
The rise in the popularity of cryptocurrency and the blockchain technology has only inspired new possibilities for the future of payments and the finance industry. But, further than this, the cryptocurrency infrastructure is still home to plenty of risks and issues, such as crypto scams, which have left investors out of pocket and with reduced faith in exchanges where they happen. So, there is increased demand for crypto to be regulated in order to protect people as technology develops.
What Would Regulation Look Like
If the world of cryptocurrency were to be regulated, it would mean replicating the regulation that is seen for more traditional financial institutions, like highstreet banks. The criteria for licensing and authorisation will be clearer, particular authorities would be designated in terms of responsibility and generally, everything is much more clearly defined.
Pros and Cons Of Regulating Cryptocurrency
Pro: Provides Stability
The world of cryptocurrency is renowned for being volatile, and whilst this does help some people make a lot of money, it also results in people losing a lot of money. So, if the industry were to be regulated, it would help to legitimise and stabilise the industry for more consistent and longer term investment opportunities.
Pro: Reduce Scams
Another benefit of regulating cryptocurrency would be that it would reduce scams. The lack of regulation contributes to significant amounts of fraudulent activity, with investors having no protection if they were to become a victim, except for being able to work with solicitors like WRS to trace their lost funds. Regulation would ensure the cryptocurrency platforms held some responsibility and investors could trade with slightly more confidence.
Pro: Protection Against Market Manipulation
The room for scammers to generate things like pump and dump schemes would be reduced, providing more fair market conditions for all investors.
Con: Increased Transaction Costs
With regulation will likely come increased transaction costs, as the overall costs of providers will increase with the need for regulation. However, for most investors, the stability the regulation would provide wouldn’t result in it being a deterrent.
Con: Stifled Innovation
Something that has set the world of cryptocurrency apart is the level of innovation in the sector, so with too much regulation, this could be impacted. The growth of the industry could be reduced.