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Cryptocurrency: The Hard Truth of Regulating a Revolutionary, Decentralized Market

By   /  January 5, 2018  /  No Comments

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By: Halie Peacher, January 5, 2018

Cryptocurrency is a market system that runs off of a limited entry network that is altered when specific conditions are fulfilled within blockchain. Consider it like writing a check and sending the check in the mail. The money is within your bank account and does not transfer until someone else accepts the check. The differences between crypto and a check are that crypto cannot be canceled and the money that you send is not an IOU, so there is no post-dating. Moreover, crypto functions through a consensus of accounts and balances that a decentralized group of people watch over. One can use crypto to pay a bill or to invest in mere ideas, which is enough for the owner of the idea to gain millions. In 2017, the market cap of all cryptocurrencies has grown over 800 percent. Investing in crypto is paralleled to investing in the internet in the mid-nineties. The key differences; however, are the benefits of a semi-decentralized market and no taxation.

Regulation could be possible through taxation, transfer restrictions, and creation of each individual countries own cryptocurrency. Obtaining regulation through the aforementioned measures requires that crypto is viewed as a currency, which it currently is not. To tax crypto, governments must look at each individual Initial Coin Offering (ICO) and then evaluate each part of the Howey Test. If the ICO is deemed a security, participants could evade other securities laws by trading in secondary markets. Presently, investors choose cryptocurrency because it is not affiliated with any government entity. By declaring an ICO a security, people would be choosing between investing with the U.S. subject to requirements or avoiding the U.S. and investing in an unregulated market. Finally, individual countries could create their own cryptocurrency which could possibly decrease trade within the current crypto market and detract value by instituting trade requirements. Recently, Estonia announced its want to create “estcoin,” which would be a state-backed ICO. Other countries, such as Russia and Australia, have also voiced a want for their own state-backed ICO.

The regulatory measures are not easily implemented because of the definition process. Laws will have to be instituted that first evaluate what a cryptocurrency is and what constitutes a trade. Further, there will always be the loophole to regulation where an investor can potentially avoid a state-based trade restriction or tax by trading on a different platform. Finally, the people that chose to invest and that will choose to invest in crypto did so because they wanted to veer away from their current government’s trade market. Why would those same people choose to invest in the cryptocurrency of the government that they are already avoiding?

The national security interests are easily identifiable because of the decentralized aspect as well as the lack of taxation. First, crypto could become a form of payment for goods and services if enough people invest and support it. This would mean that true currencies such as the U.S. dollar or Euro could lose their value. Second, with a lack of regulation comes a lack of balance. If people continue to invest in crypto and the current system loses its value, then there could be widespread panic due to huge losses in capital. This would mirror the continuous investment in the housing market and the market crash in 2009, which led to a panic across the U.S. Finally, governments around the globe are unsure of how to tax and regulate cryptocurrency, which is leading to a loss in taxable revenue and an inability to protect the people that are investing.


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