There is a pronounced libertarian streak running through the crypto community. As such, the the community feels collectively queasy when the word regulation comes up.
There are good reasons for this. The decentralization of power – not only as it relates to government but also shifting the power to control and profit from transactions away from financial institutions – can have a democratizing effect on the financial system. It provides access to financial services to many business and individuals in the developing world. It can also help to lower transaction costs, benefiting families in developing countries who rely on remittances (yay, El Salvador!), as well as consumers the world over.
However, a recent spate of ransomware attacks, commentary from Doge Coin founder Jackson Palmer, and Fed Chair Jerome Powell’s testimony before the House Committee on Financial Services have made both the need for and the inevitability of some regulation in the crypto space clear.
In my view some regulation of cryptocurrency is desirable. Illicit activities, including money laundering, tax fraud, and extortion thorough ransomware are more than bad press. They are serious problems with real-world consequences for living, breathing people. Imagine a ransomware attack on heating and electric infrastructure in the dead of winter. Imagine drug barons living large on the riches extracted from others’ misery. Imagine unbuilt schools and unfunded services as a result of empty state coffers. I don’t want my interest in crypto to carry water for any of that.
Further, from a financial perspective more regulatory certainty must be seen as a good thing. Shifts in the regulatory landscape are a major driver of price volatility. This volatility may benefit day traders and speculators. However, those who believe crypto is the future ought to be interested in stabilizing prices, a prerequisite to widespread adoption.
Additionally, insofar as volatility is a price discovery mechanism, establishing regulatory standards will reveal the extent to which cryptocurrencies’ value is derived from its utility to bad actors (see my point on illicit activity). I believe crypto has many use cases beyond circumventing law. I want to see the illicit activity rooted out so the positive use cases can flourish.
Granted, malefactors are a small proportion of the crypto space. Estimates put illicit activity at somewhere between 1 and 2 percent of total transactions. That doesn’t mean that they can be ignored. Bad actors present a risk to the future of crypto and are a serious public relations problem in the present. As members of the cryptoshpere it is incumbent upon us to get out ahead of this trend, welcome some oversight, and find a way to keep the good and ditch the bad.