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Here is part 2 of my 5-part series. If you missed part 1, you can check out below:
Part 1 - Category: it is about how to categorize cryptocurrency away from other digital currencies
Part 2 - Regulations: it is about why the government wants the regulation but they cannot do so
Part 3 - Environment: it is about how environmental impact on the cryptocurrencies and possible its valuation for the future
Part 4 - Technology: it is about how technology can change the way shitcoin performs and how crypto may evolve to become
Part 5 - Detokenization: it is about speculation that if Bitcoin actually extinct and what may happen
I may change parts depending on my research but here is for you guys to enjoy reading.
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The US Treasury department wants to build a global crypto sharing database. The problem is who will control the database? A centralized system will never work on a global scale. The past centuries have proven this idea is not going to work at all.
Trust will deteriorate over time because there is only one single entity to guardian the trust but no one entity can check its trust. It is a self-proving fallacy of circular reasoning.
Trust system only works in a certain period because it is efficient to overcome disagreements. However, resentments from disadvantaged parties will accumulate a force to continue distrusting the system in long term.
To make people trust, you force them to believe you. The way government does is to introduce regulations. It may protect citizens but it is a way to prevent change. Whether the change is good or bad.
Why do we need regulation?
If there is not threaten to the existing system, there is no need for regulation.
Regulating cryptocurrencies are extremely difficult
The definition of cryptocurrencies can be anything between commodities, precious metals, stocks, properties to currencies.
Regulation is a backward process and backward thinking
To regulate something, you need to categorize them first and work a way to define the utility of such things.
Cryptocurrencies are regulation immutable
People use cryptocurrencies mainly because they can utilize them as anything that assets exist from human history.
You can treat them as commodities, precious metals, stocks, properties, or currencies if you would like to.
Unclear definition of cryptocurrencies result in unclear regulations
To determine what cryptocurrencies are, may take a very long time. Therefore, regulations that come up in a short time will result in unclear directions from the government and many are opening to the discussion.
Insights we learn from Ripple
The long fight between the U.S. Securities and Exchange Commission (SEC) and Ripple is an example of how difficult the government tries to regulate cryptocurrencies because the first question is always what is the definition of cryptocurrencies.
Regulations of crypto products
Regulate cryptocurrencies may not be possible but their products are linked with fiat currencies are the way to regulate.
Crypto Exchange
The regulations can ban bank transactions into crypto exchanges like Binance.
Crypto ICO
ICO acts similar to stock IPO will be targeted as security the SEC will regulate them.
Defi
Similar to Defi that close resemble of hybrid between lending and stock exchange platform will be regulated by the SEC
Crypto derivatives
Any leverage products that trade between cryptos and fiat currencies are under the watch of the Commodity Futures Trading Commission (CFTC).
And there are many more to come when there are more crypto products.
Regulating Shitcoin?
If shitcoin is a potential cryptocurrency rather than virtual currency, then regulation is unlikely to implement.
However, if shitcoin is a virtual currency, scammers likely use it as a tool to pump and dump. Regulations are likely after those scammers.
Tax treatment
One hypothesis is that cryptocurrencies may be taxed even they are not to convert.
The idea is that CBDC can link into cryptocurrencies and automatically tax after each transaction.
That is one of the future.
Other future scenarios
Optimism - crypto extinction theory
With the speed of the government handles issues, regulations may become mature even cryptocurrencies are replaced with other types of currencies in the future.
Pessimism - prohibition theory
The government may prohibit using of cryptos and order to refuse of accepting as a payment alternative.
The centralism - co-exist theory
I think this one is more likely, a co-exist between cryptos, fiat currencies, and CBDCs to compete in the market in the future.
In conclusion
When comes to crypto regulations, it is always confusing because there is no single agreement of definition on what is a cryptocurrency. However, regulations are likely to target crypto products.
So what do you guys think about this issue?
Photo by Marek Piwnicki on Unsplash
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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose cryptocurrencies are mentioned in this article. This information is only for educational
