Despite the many benefits that virtual currencies and blockchain technology have, concerns have been raised with some calling for crypto regulation. The calls for bitcoin regulation have only grown louder as the overall market capitalization of cryptocurrencies flirts with the $1 trillion mark.
Due to the decentralized nature of digital coins some enthusiasts say this would just hamper their growth. What they fail to see is that a clear and coordinated regulatory environment for virtual currencies would have some advantages for this technology. This includes increasing the amounts of institutional capital that flow into cryptocurrency markets. Consequently this would have the effect of strengthening corporate governance in virtual currency firms.
It is thus clear that what crypto regulators need to do in coming up with the rules and laws that will govern the sector is to balance systemic stability and investor protection which taking care not to hinder innovation. Currently, the regulatory environment for cryptos is haphazard and uncoordinated and is characterized by wide divergence in how digital coins are regulated across various jurisdictions. While China, for instance, is stricter, Japan has an approach that is more open. With regards to initial coin offerings on the other hand Vietnam and China have slapped a ban on them while the United States and the United Kingdom are ambivalent. Japan?s stance towards initial coin offerings can be considered friendly.
Part of the reason why different jurisdictions have adopted different attitudes towards virtual currencies is as a result of the varying definitions of the digital coins. Initial coin offerings, for instance, vary widely in terms of structure and context and this tends to change with time. They are sometimes viewed as forex contracts, derivatives, deposits, loans, property, security, commodity and currency depending on context and structure.
Lack of harmonization
Besides the varying definitions, lack of harmonization across the various jurisdictions is also a problem. Some virtual currency firms have argued that the decentralized nature of ICOs means there is no issuer. These firms have also argued that that ICOs cannot be classified as assets and consequently should not be bound by any laws governing securities in any jurisdiction.
As a result of the regulatory gaps across jurisdictions money laundering has become a concern. This is because transferring these digital currencies is easy and tracing them even more difficult. For instance tokens can be issued in a virtual currency law that is friendly such as Japan and end up being owned by unsuspecting individuals in a jurisdiction which has a stricter stance towards them such as the United States. This only serves to make the laundering of money easier.
In order to solve this problem of crypto regulation gaps governments around the world should offer their support to technological investments which allow for the origin of tokens to become a standard. This would serve the purpose of making the illegal transfer of assets harder. A global code of conduct would also serve to prevent token firms from picking favorable jurisdictions since the rules would apply across countries.
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