Cage it to grow it?
Boosting the crypto industry with a legal framework cage
In recent years, the rise of cryptocurrencies has disrupted the traditional financial system and sparked intense debates about their anarchistic nature. Many proponents of cryptocurrency view it as a tool for decentralization, freedom, and autonomy, while critics argue that it undermines governments and the stability of financial markets. In this article, we will explore the anarchistic nature of crypto and examine if a cage in the form of a regulatory framework is expected to boost or stifle the growth of this industry.
Anarchism is defined as “a political theory holding all forms of governmental authority to be unnecessary and undesirable and advocating a society based on voluntary cooperation and free association of individuals and groups”[1]. The set-up of cryptocurrencies on the blockchain aligns closely with the ideals of anarchism. The processes are decentralized and blockchain technology relies on a decentralized consensus mechanism, instead of relying on banks or other financial institutions to manage transactions.
While cryptocurrencies have been hailed as a disruptor of traditional financial systems and a tool for decentralization and freedom, the crypto market is currently still in its infancy and largely unregulated. Clear regulations are yet to be implemented, splitting the industry into two camps: the supporters of regulations and those who want to keep things as they are without any centralized monitoring or control. Let’s have a look at both sides of the debate:
Arguments against regulations
· Stifling creativity & innovation: Regulators are faced with a delicate balance between restricting and facilitating growth in the industry. Gone wrong, regulations and bureaucracy will indeed slow down the industry. It is key that regulators strike the right balance to provide a supporting environment for start-ups and innovation in general. In this juvenile and fast-changing industry, we witness a process of continuous adaptation to accompany the gradual growth of the sector. We expect this process of fine-tuning to go on for many more years to come, until the industry is plateauing at a certain maturity level.
· Ending anonymity & freedom: Many crypto enthusiasts see Bitcoin and co as a rebellion against government control, as cryptocurrencies stand in contrast to central bank-issued fiat money. However, being decentralized and being the currency of illegal activity are two completely different ways to interpret the anarchist nature of cryptocurrencies. KLM processes as well as stringent law enforcement are indeed here to end money laundering via cryptocurrencies. It is time to terminate the illegal branch of web3. We need to cut away the rotten part of an otherwise healthy plant, even if this means the end of anonymity on the blockchain. However, where it is acting within the realm of legality, this new regulatory framework is not to interfere with the decentralized blockchain with its ingenious peer-to-peer consensus mechanisms.
Arguments in favor of regulations
· Reducing misuse for illegal activities: Due to their anonymity and lack of oversight, cryptocurrencies used to be and still partially are the currency of choice for fraudulent activity such as fraud, scams, Ponzi schemes as well as large scale money laundering and terrorist financing. The lack of regulation gives free reign to criminals and results in a number of challenges for users, investors, and governments alike. Regulators across the globe struggle to keep up with the speed of criminals finding loopholes: we witness a true marathon between regulators and criminals in DeFi. Preventing the misuse of crypto for illegal activities is probably the most important reason why the industry absolutely needs a cohesive tight network of regulations worldwide.
· Leveling the playing field across the globe: For crypto to facilitate cross-country money movements, it is crucial to have a flawless global network of regulations in place. Criminal offenders must be prevented from using local loopholes to undermine the global efforts of regulating the industry for sustainable growth. Surely, healthy competition between countries and even continents is encouraged as a naturally occurring phenomenon in the development of an industry.
· Fast-forwarding industry growth with additional capital: The crypto market is notoriously volatile. Regulations can help stabilize the market by establishing rules and guidelines for everyone to follow, thus encouraging big players to enter and invest. Not only would this big capital boost and fast-forward growth by funding innovation, but it would also generate much needed trust in the market as a biproduct.
· Establishing crypto as payment method for the masses: The best use case and proof of added value provided by cryptocurrencies is their usage as everyday payment currencies. For mass adoption to happen the industry has to mature and trust must be earned. The wider public is not ready (yet) to trust fully digital independent currencies. One solution to this dilemma are CBDCs, central bank digital currencies, that are issued and controlled by central banks. Nevertheless, Bitcoin has shown in the past that it can also work without government involvement. Backing by big players can provide the needed trust and encourage the wider public to give it a go.
In preparation for this article, we have reached out to the crypto community for their opinion:
The above results of our April 2023 Twitter poll confirmed that the majority of crypto enthusiasts indeed sees regulations as a chance for the crypto industry to mature and establish itself on the path to mass adoption. Gone are the days when crypto was this niche money only few knew about — time to go mainstream!
As a conclusion, we believe putting the crypto market into a regulatory framework cage will indeed benefit the industry as a whole and foster long-term growth and stability The cage acts as a supportive structure that serves as a guide for all players, thus encouraging streamlined growth. Gardening offers a great comparison to further illustrate this intangible growth process. A plant cage is “an enclosure used to support a plant”[2]. This supportive structure promotes the growth of the plant by giving it a structure to hold on to and providing strength to branches carrying fruit. It gives the plant support without actively interfering with its development. That’s how we see regulations in the crypto industry — a helping hand for directive and support.
