As blockchain technology continues to weave itself inextricably into the fabric of modern life, institutions are being forced to come to grips with the new realities of finance. As it stands now, following the euphoria of the 2017 boom and the doomsday drear of the long crypto winter, this technology has proven that it has some staying power and forced institutions and regulators to make a place for it at the table.
The early attempts at regulating crypto have been marked by fits and starts exacerbated by a lack of a cohesive view on the technology and its future potential from the various state bodies and financial institutions trying to rein it in.
While there are certain advantages that could come from crypto becoming more institutionalized, the origins of the crypto movement should not be overlooked in the interest of increasing profit and enhancing convenience.
Profit is good and so is convenience, and the more people that find themselves disembarking on crypto shores the better, but one should not forget that central to the concept of decentralized finance is precisely that act of “disembarking,” where, in the face of an emerging shoreline glistening with opportunity, the old ships of traditional finance are the vessels no longer worthy of the individuals they bear.
When I started working at Bytecoin the thing I found most compelling about my work was that it felt like we were breaking away from a power structure that over time had become oppressive. The only growth that was happening in finance was vertical growth, meaning that growth was only happening in those select places where power had been concentrated and this growth only consisted in further acquisitions of power and the further carving up of territory that others were incapable of maintaining.
When the digital reality began to manifest itself and blockchain technology broke out, it was like a revelation. And it is clear now that even at the beginning, when crypto was anathema to “real” finance, and blockchain development was scoffed at in the media, there was a real fear of the power behind this technology and this movement.
Decentralization was and still is a threat to a system that has bought and sold spirit and freedom for convenience. When institutions start talking about getting on board with crypto and introducing blockchain technology into their services and vice versa, it should at the very least be met with a healthy dose of skepticism.
With that being said, there are threats that exist from within the crypto space and they may be even more formidable than their corporate counterparts. Fraud, theft and scamming have at times nearly derailed the growth of the crypto industry altogether. Billions of dollars are lost every year to bad actors that have found a variety of ways to take advantage of the disorder and lax security that have become hallmarks of this industry.
Hemorrhaging billions of dollars is not part of a sustainable model of growth, and it is clear that something has to be done to ensure that fraudulent and malicious activity are eradicated from the crypto space. So how can this be done? One way of clamping down is by introducing more regulatory measures.
Although crypto will probably always have a measure of flexibility outside the capabilities of regular finance, if states can manage to introduce some useful protocols and safeguards then the benefits will outweigh many of the negatives that come with increased surveillance and accounting.
It is still hard to say what exactly crypto regulation, should it ever exist in some kind of global, comprehensive fashion, would look like. But in various countries, there have been some recent concentrated efforts to get the ball rolling.
Part of the problem that regulators have with crypto is that it is hard to place them all under one definition. Are cryptocurrencies securities? Not exactly. Cryptocurrencies generally do not fit easily into categories that were drawn up before them.
Crypto assets can be seen as currencies, commodities, means of exchange, etc. and even when they are similar they vary greatly from one to the next. With such a range in nature and hybrid functionality, it is very difficult for lawmakers and regulatory bodies to step in and sort things out.
Nonetheless, efforts are being made to do just that as can be seen in some of the recent developments out of Italy, a country that has been remarkable late to the crypto party. Earlier this year Italy created a commission consisting of thirty experts from various fields of technology tasked with advising authorities on how to create a national strategy on distributed ledger and blockchain technologies.
Speaking of the commission, Italy’s deputy Prime Minister, Luigi Di Maio, remarked:
“Emerging technologies such as Artificial Intelligence and blockchain are intended to radically change our lives, the society in which we live and the economic and productive fabric of the country.”
Up until the commission, although there were no laws prohibiting Italian citizens from owning, buying or selling cryptocurrency, government officials had only ever really cautioned Italians about the dangers of using cryptocurrency – apart from one provision in a decree from 2017 dealing with money laundering.
But already, following the founding of the commission, there has been some progress this year on the regulatory front with a law getting passed that produced a legal definition for “blockchain” and “smart contract.” Although small, this development has the potential to lead to more comprehensive digital scaffolding in the future, and the commission seems to be exerting a healthy influence on lawmakers in the country.
The state of affairs in Italy is just a singular example, but it is indicative of the bigger picture. Regulatory structures are just starting to ossify in the crypto space and anarchy is giving way – only slightly – to semblances of order. The process is inevitable if crypto is going to continue its growth, but it does come at a cost. As this situation develops further it bears close watching as its ramifications will affect all of us.