Should cryptocurrency face greater government regulation?
Cryptocurrencies such as Bitcoin and Ethereum exert a growing impact on the global economy, law, and the environment, legislators and regulators are struggling with how to deal with the new unregulated digital currencies.
Rise of the Issue
Cryptocurrencies emerged amid the 2008 global financial crisis, in response to the mismanagement of major financial institutions. The aim of cryptocurrencies is to resolve issues that are experienced in the traditional banking systems by making cryptocurrency holders solely responsible for handling their investments. Therefore, crypto monies are theoretically outside the government’s regulation. Government’s efforts to set definite regulations on cryptocurrencies have been lagging due to an unresolved question on whether to define virtual currencies as a security, a commodity, or a currency.
The Internal Revenue Service (IRS) made cryptocurrencies a taxable income in 2014. However, the federal government has enacted little to no regulations on cryptocurrency as of 2022, although by law a state-wide crypto regulation is allowed. Experts say more regulations would help protect investors, mitigate environmental concerns related to crypto mining, and deter foreign attempts to hack into the U.S. infrastructures.
Meanwhile, a 2021 survey reported that about 16% of American adults have used cryptocurrencies at least once for either investing or trading. Another 2021 survey reported less than 20% of American adults supported more regulations on cryptocurrency.
The Bitcoin White Paper Is Published
The pseudonymous Satoshi Nakamoto released a white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” describing how to use blockchain technology to document transactions and avoid the “double-spend problem,” the potential for users to spend the same coin repeatedly.
Bitcoins Begin to Circulate
Bitcoins became publicly available, and people started mining cybercoins. The ongoing financial crisis and distrust of banks caused Bitcoin to gain popularity.
The Mt. Gox Scandal
Mt. Gox, the largest Bitcoin exchange, shut down and 850,000 Bitcoins worth hundreds of millions of dollars vanished. The disappearance highlighted Bitcoin’s vulnerability to hacking and theft and set the pattern for future scandals such as the hacking of $3.6 billion in Bitcoin from the South African currency exchange Africrypt.
The Ethereum Platform Launches
A new cryptocurrency called Ether (ETH) emerged to challenge Bitcoin. Its platform, Ethereum, enabled developers to develop applications using the cryptocurrency.
Bitcoin Reaches Record Value
On Oct. 21, 2021, Bitcoin hit a value of $66,974.77, an increase of 9,000,000% in worth since its release.
2021 - 2022
Some Governments Accept Bitcoin as Legal Tender
El Salvador in 2021 began to accept the currency as legal tender, and in 2022 the Central African Republic did the same.
Cryptocurrencies are not subject to any centralized control such as the Federal Reserve, which makes some fearful of them. Others, however, see the decentralized nature as a positive as it makes access to the financial system easier for lower income people and those who live in third-world countries who may lack access to banks.
Some regulatory bodies, such as the SEC, have expressed concern that initial coin offerings (ICOs) – sales of online tokens for fundraising – can be used for Ponzi schemes and other scams, endangering the owner. Others argue that cryptocurrencies in-fact protect crypto owners, allowing them to be directly in charge of their own assets and protected by inflation.
The large computers used for Bitcoin mining require large amounts of energy and are a major contributor to climate change, hence some believe this needs to be further regulated in the fight against climate change. Others argue Bitcoin miners are introducing renewable and sustainable energy resources to lessen their impact environmentally.
Some nations use cryptocurrencies to evade sanctions and hackers have demanded ransoms in Bitcoin, which makes some argue in favor of more regulation in the name of national security. Others argue cryptocurrencies can assist national security by allowing the government to send payments to groups or individuals that operate outside of the central banking infrastructure.
Regulation makes consumers safer.
Regulatory oversight will protect consumers from theft and scams and enable the prosecution of hackers and other criminals. The threat of prosecution will deter criminals and allow the possibility of recovering stolen assets.
Regulation will make cryptocurrency more appealing.
Government regulation will assure buyers that cryptocurrency is safe and reliable, and will promote greater consumer confidence in cryptocurrencies, making people more willing to buy them. It will also bring Bitcoin, Ethereum, and other cryptocurrencies in line with other financial products subject to regulatory oversight.
Regulation will address a looming national security issue.
Regulation will make it more difficult for rogue nations to evade sanctions with Bitcoin. It will also counter the use of cryptocurrencies in ransomware attacks on key facilities and infrastructure.
Regulation protects the broader economy.
As more people hold cryptocurrencies, like Bitcoin, and trade them as securities, the threat of a cryptocurrency crash impacting the nation’s economy grows. Regulation would reduce the possibility of a cryptocurrency bubble or crash turning into a national financial disaster.
Cryptocurrency regulation can help the environment.
Regulation can push Bitcoin miners to use more sustainable sources of energy and to address the issue of e-waste.
Regulation defies the purpose of cryptocurrency.
Cryptocurrencies were intended to be decentralized and free from government interference. Regulation would betray this mission and make these assets less attractive to users.
Regulation will drive cryptocurrency businesses out of the country.
If regulation is too onerous, cryptocurrency firms will relocate to countries that permit them more freedom, costing the U.S. a growing and profitable industry.
The government already sufficiently regulates cryptocurrency.
Government prosecutions of criminals who have employed cryptocurrencies demonstrate that existing laws are sufficient to deal with Bitcoin thefts and scams.
Cryptocurrencies are moving toward sustainability.
Bitcoin miners are seeking more sustainable sources of energy, while other cryptocurrencies such as Ethereum who do not use the mining process are greatly reducing their energy use.
Cryptocurrency freedom helps the developing world.
Bitcoin and other cryptocurrencies’ freedom from financial regulation and institutions has made them ideal assets for people in the global south such as Nigeria and El Salvador, which have declared Bitcoin legal tender.