Don’t Sweat it, Crypto Still ‘Small’ for Regulation
The withdrawal of the much-awaited Bitcoin ETF proposal may have come as a surprise but discussions about cryptocurrency regulations still took the centre stage at the WEF 2019 in Davos. The US government shutdown was cited for the withdrawal but members of a Building a Sustainable Crypto-Architecture panel at the Forum in Switzerland share that cryptocurrency is still too small to be regulated.
Kenneth Rogoff, Professor of Economics at Harvard University gives reasons why the possibility of cryptocurrencies replacing fiat money is zero and governments can’t tolerate large scale transactions that are anonymous. He says:
“Right now, the regulation has not come. It has not begun. The US has tiptoed into it. Everyone is just starting to think about it. I’ve spoken to regulators and they very candidly say, ‘Well, there really isn’t that much value going on in the transactions. A lot of it is speculation. It is a very interesting innovation, let’s let it roll and see what happens.’ But they are not necessarily planning to let it continue to roll after it does well. They are planning to sort of see where the innovation go.”
He adds that cryptocurrency would eventually be regulated more than it is today but doesn’t know to what extent. He also notes that cryptocurrencies are not totally worthless as they can find home in some countries like Russia, Iran and North Korea which are among the 12 reeling under US financial sanctions.
Jeremy Allaire of global crypto finance company, Circle, agrees that cryptocurrency is still small but points out that its landscape’s diversity needs to be understood for its numerous projects that have different technical and economic philosophies and should not be always and only be identified with Bitcoin. He suggests that the various projects could be considered as a natural evolution of the basic protocols and infrastructure of the internet with their open network enabling instant access to global knowledge, free communication based on decentralized protocols that have no corporate or government control.
He said: “This is a broader architecture evolution. Platforms like Ethereum and probably ten or 15 others that are trying to compete with Ethereum are really trying to build a new global open immutable record-keeping system, transaction processing system in computing engine that you can run applications on that are really useful when you have lot of parties that don’t trust each other. We see this as much more transformative even more than the web.”
Central control vs decentralized consensus
The argument heightened to centre on whether there will be a central control of the financial space or a decentralized consensus with Elizabeth Rossiello of BitPesa in Senegal noting the need for sovereign currencies like in Africa though the best method and technology of delivery are not clear yet. Zhu Ning of Tsinghua University supports with the view that more focus should be on how the wealth distribution is going to play out in the future when there is a generational shift.
Rogoff maintains that cryptocurrencies are not bulletproof. “They are not something that cannot be overrun by a state that wants to cause damage – there are papers on this – especially if they get big and the incentives are big. It’s not just about making money. Bitcoin, for example, is somewhat resistant but not perfectly resistant to that. If someone just wants to make mischief and they are willing to spend $100 billion to bring down the international financial system, there seems to be ways to do that. Then who do you call? Oh! We’ve decentralized it, what do we do? I think there is certain high scale responsibilities that the state is just not going to relinquish. After a disaster, the public won’t want it either.”
Industry insider views
In separate statements, blockchain industry insiders added their views on why crypto markets need regulation at this point irrespective of size. Nydia Zhang of Social Alpha Foundation says regulation is necessary at this early stage to lay the foundation for “a robust digital economy”. She adds that considering the interwovenness of crypto markets and the blockchain technology, regulation would help guide “not only the market construction, but helps to order the infrastructure as well.”
Governments, regulatory bodies, and traditional industry actors have to fully embrace and support the cryptocurrency industry through regulation to encourage innovation and the growth of legitimate business in the sector, INVAO’s co-founder, Frank Wagner, adds based on his view that Blockchain and cryptocurrencies have “enormous potential to transform the financial world.”
Nick Cowan, Managing Director of the Gibraltar Stock Exchange Group Limited, notes that significant strides were made on the regulatory front last year hence the need to adopt the right regulatory approach. “Regulation, informed by the needs of industry,” he states, “is the key to unlocking the boundless potential of blockchain technology, as a mechanism to improve business operations and the daily lives of citizens.”