Supranational Solutions (pt. 2)
Supranational Solutions: How international governments can cope with the blockchain and cryptocurrency regulation conundrum (pt. 2)
Current approaches to regulation
Despite the advantages to using crypto over traditional fiat currency, most people are still reluctant to adopt it because they must be convinced that the unregulated computer algorithms and networks that stand behind cryptos can keep accounts safe from theft, money laundering, and fraud. In fact, this is the biggest issue facing the adoption rate of cryptos as governments around the world criticize cryptos for being used mostly for drug traffickers and pyramid schemes.[1] Since cryptos are unregulated, law enforcement officials are supposedly unable to properly track the movement of the currency to the source in order to identify and apprehend criminal suspects. Also, governments are finding it quite hard to tax crypto traders for the profits they have made.[2] Some governments hold exchanges responsible for reporting which of their citizens have accounts while others have decided to make their own cryptos and accept crypto payments as taxes. What is clear, however, is that there is no right way to handle cryptocurrency regulations yet, so governments are all trying to tackle it in all different ways.
So far, Bolivia, Ecuador, Zimbabwe, Kyrgyzstan, The Kingdom of Nepal, Indonesia, Pakistan, Bangladesh, Algeria, Vietnam, China, and Lebanon have either fully or mostly banned the use of cryptocurrencies within their borders.[3] Ironically, China is host to dozens of blockchain projects, some of the biggest in the world, who issue their ICOs outside of China due to the strict stance on them domestically. Some nations are taking a wait-and-see approach to regulations, while others, like the ones previously listed, have chosen to ban now then ask questions later.
Undoubtedly more governments will be issuing their own regulations for cryptocurrencies and blockchain technology. The Azerbaijan Internet Forum proscribed regulations in March.[4] In Germany, the vice president of Bundesbank, Claudia Buch, says that regulation of cryptocurrencies must be considered, even though she does not believe they pose a threat to financial stability.[5] Vladimir Putin may have the most urgent views on cryptocurrency regulation. He stated in no unclear terms that “legislative regulation will definitely be required in the future [for cryptocurrency].” He went on to say that Russia “cannot afford the recurrence of the situation with cryptocurrency as what happened with deceived equity construction investors. If our regulations are insufficiently effective, then the state will be responsible for the grave situation the people may face.”[6] Japan has probably had the worst track record with crypto crimes since the country has hosted already 3 major crypto exchange hacks. They recently proposed a five-point agenda to try to put the lid on hacks.[7]
There are major problems with taking multiple simultaneous approaches to crypto regulations. Cryptocurrencies are unchangeable. They are not tangible materials like dollar bills or cocaine, so they cannot be confiscated upon search. One Bitcoin has the same exact fiat value in Taiwan that it does in Mexico, which eliminates the need for exchange rates and worries traditional financial entities. Additionally, new regulations that are meted out, or even just rumored, can have a dramatic impact on the market itself. Traders and investors alike wait with baited breath for news from South Korea and the United States so they can be among the first to react. Others act prematurely and create waves in the markets that often catch most off-guard, making them wind up holding undervalued ‘bags’ of the coins that once were relatively valuable. This suggests that government announcements can be, and sometimes are, issued for effect; some officials even make trades in advance of the announcements they know that they themselves are going to issue. Government officials are generally supposed to avoid making statements for market effect.[8]
Also, since most cryptocurrencies are created by decentralized blockchains, at this point the only way to shut down the trade, ownership, and existence of cryptocurrencies would be to wipe clean millions upon millions of personal computers and servers around the world under various jurisdictions. As a result, we see that the longer they go unregulated, the harder they will be to regulate.
There is obvious international consensus that they need regulation, so what is the best way to go about forming regulations? The many regulatory frameworks adopted or proposed by state governments around the world have had varying degrees of effectiveness, usually quite poor. The poor track record of convictions of crypto-related crimes is in no small part due to the sporadic enforcement of contradictory laws across different jurisdictions. We see that there has not yet been a proposed ‘best way’ to go about regulating cryptocurrencies. This may be due to the fact that nations haven’t yet acknowledged the true nature of cryptocurrencies since there has never been a phenomenon quite like this before.
It has been illustrated at some length so far that cryptocurrency and blockchain technology are, by their very nature, supranational entities. There is no getting around this fact. The nation-specific approach to making policies is not beneficial in the blockchain technology scope because cryptocurrencies have no restriction by national boundary or fiscal regulation. Consequently, it is a fool’s errand to attempt to regulate them for a single nation. Some states have been irresponsible in their supposed attempts at regulating cryptos and blockchain technology, while others refuse to face the reality that this technology will not disappear even if they close their ears and eyes to it.
What will be proposed in the rest of this series is that the future regulatory framework for permission-less blockchain use must be developed by a brand new supranational organization designed to have jurisdiction over crypto crimes worldwide and address major problems facing the development and implementation of blockchain technology. Such problems would include security and trust in the technology, protecting the global financial system which currently feels threatened, and helping to usher in a new era of innovation. A supranational organization designed to oversee blockchain technology regulations would add a great deal of stability to the market and to individual national stances on the technology.
To be continued as part of a series.
[1] Arjun Kharpal, Bitcoin could lead kids into illegal activities like drug dealing, South Korean prime minister warns, (CNBC.com, 2017)
[2] Molly Jane Zuckerman, US Tax Filing Service Says 0.04% Of Users Reported Crypto to IRS AS Deadline Nears, (Cointelegraph, 2018)
[3] Massimo Di Guida, Countries where the cryptocurrencies are banned: busted for Bitcoin, (Bitnews Today, 2018)
[4] Huseyn Valiyev, BRIEF: Azerbaijan’s gov’t to study cryptocurrency, (Chicago, Tribune Content Agency LLC, 2018)
[5] Asia News Monitor, Germany: Bundesbank’s Buch Adds to Call for Cryptocurrency Regulation, (Bangkok, Thai News Service Group, 2018)
[6] Asia News Monitor, Russia: Putin says legislative regulation of cryptocurrency market may be needed, (Bangkok, Thai News Service Group, 2018)
[7] Osato Nomayo-Avan, Japan introduces five-point agenda for cryptocurrency exchange regulations, (bitcoin.com, 2018)
[8] Kevin Helms, South Korea’s Largest Crypto Exchange Upbit Under Investigation for Fraud, (bitcoin.com, 2018)
