Despite its huge adoption rates in the last few years, there is still a lot of scepticism surrounding cryptocurrencies: the knowledge gap is extremely large resulting in many believing cryptocurrencies do nothing but enable money laundering and other types of crime. However, with the right regulations in place, more may feel more confident in approaching the digital wild west that is the crypto market and attempt to understand it.
Tristan Roozendaal is a blockchain entrepreneur and the chief executive officer of Centralex Holdings LTD. He is an innovator and entrepreneur with several years in business leadership. He is experienced in all aspects of business formation, operation, finance, and management. His strong communication and analysis skills have enabled him to identify opportunities, pros, cons, and inherent risks in developmental projects.
Speaking to The Fintech Times, Roozendaal explains how cryptocurrency regulation will not be easy to establish, but if regulators are able to, the consequences will be worthwhile:
Since its inception, cryptocurrencies have been a challenge for regulators. Existing regulatory frameworks were created in a paper-based world with country borders, both of which crypto was designed to eliminate. And as the crypto ecosystem is still young, it’s hard to fully understand its nature and the risks that come with it, which makes building a regulatory framework difficult. Combine too many unknowns and too few regulations with pressure from embedded financial institutions which are under threat from crypto, and it’s no surprise that governments often take a heavy-handed approach.
Countries like China have opted for a full ban, and others like South Africa have prohibited cross border transfers, so every exchange that wants to operate in this jurisdiction needs to be registered as a South African company to allow regulators to monitor all transactions.
Regulation to protect investors is an essential piece of the puzzle for crypto to reach the mainstream. However, this approach seems to be more about protecting the current financial system than the end investors. Not only does this stifle innovation, but it also misses the fact that while crypto regulation is a challenge, the blockchain technology which underpins it could be an incredibly powerful tool for regulators.
Crypto is here to stay, and if regulators don’t take the time to understand the technology, it will leave end investors in an even more unprotected position. The fact that some think crypto is a tool for money laundering shows just how large the knowledge gap is. A fundamental element of blockchain is transparency – if regulators chose to try to understand it rather than fearing it, they would see that is could actually be a powerful compliance tool.
Gone are the days where you could use crypto to get away with things you shouldn’t be doing, such as money laundering and buying and selling illegal items. As the crypto industry has grown and become more mainstream and regulations have started to form, the focus has shifted to prioritise transparency and investor protection. This means that compliance tools nowadays are very advanced – and because of the nature of crypto it is more transparent than the traditional markets – single transactions can be easily traced back to the bank account they came from.
We’re already starting to see these more advanced tools come to fruition. Take Ethereum – the second largest crypto – for example. In 2016, a hacker managed to drain 3.6 million Ether from its crowdfunding mechanism, which is still the largest theft to date and would be worth around $9billion. The identity of the hacker has always remained a huge mystery for those in the space. However, last week a powerful forensics tool by Chainalysis successfully traced the stolen funds to the point at which they were cashed out – allegedly unmasking the hacker after six years of mystery.
Cryptocurrencies and their underlying technology have come a long way since Bitcoin was first created in 2010. If regulators prioritise understanding rather than fear, they will not only ensure consumers are protected from any potential crypto scams, but also could uncover a tool which could create a more transparent, easier to monitor regulatory environment beyond crypto.