The cryptocurrency legal environment varies from country to country. For those countries which have cryptocurrency regulations in place, the regulations touch on different facets of cryptocurrencies including their definition as assets or currency, taxation laws, and financial conduct regulations for those companies undertaking crypto related business. The continuous adoption of cryptocurrencies by the general populace will push more countries to see the need for regulations and perhaps open more doors for cryptocurrency investments and research.
Cryptocurrency Legality: The importance of Law and Regulation
Regulating cryptocurrencies is important and comes with several benefits. Below are the major highlights of the benefits of cryptocurrency laws and regulations.
1. Provide Incentive for Further Research and Development
The potential of cryptocurrencies to disrupt the way people make their transactions is yet to be fully experienced. However, the tremendous success which cryptocurrencies have had over the years should act as a strong indicator that proper regulations are key in fueling further innovations around the cryptocurrency technology.
The blockchain technology, from which cryptocurrency creation and transactions are based, will stall if there are no laws and regulations favoring its growth. A friendly cryptocurrency regulations landscape will encourage entities willing to conduct further research on blockchain technology to do so with little inhibition. The government policies could also push the development of cryptocurrencies further by providing financial aid to those entities and persons engaged in research and development.
2. Protect the Investors’ Funds
Due to the unregulated nature of cryptocurrencies, some investors have lost their investments in cryptocurrency-related projects. There are multiple cases of online scams involving cryptocurrencies where the company in question collects investors’ funds and disappears into thin air. But this would have been different had such a company been regulated and have been operating under transparent legal framework.
There are also other online companies which hold sensitive cryptocurrency-related data. Regulations will dictate the security and financial standards to be followed by these companies. Such regulatory criteria will tighten the operation environment, reduce hacking attempts, and curb financial malpractices.
3. Reduce Online Fraud and Curb the Spread of Unscrupulous Companies
The internet is full of all sorts of individuals and personalities. While it is true that most of the online-based cryptocurrency businesses are legit, it’s important to enact laws which will make the entry of unscrupulous businesses into the cryptocurrency space difficult. Such regulations will also help identify rogue cryptocurrency companies and limit or completely stop their operations.
While it’s difficult to fully control the activities of all individuals and companies using the internet, it’s possible to make significant improvements in tracing and detecting unscrupulous companies. This could be done through IP blacklisting, deactivating domains, and bringing to book any culprit associated with such rogue companies. Such a well-regulated cryptocurrency environment will help increase public confidence in cryptocurrency investment and drive the use of cryptocurrencies further.
4. Provide Legal Guidelines for ICO projects and other Blockchain Startups
Without the proper legal framework, it’s difficult to conduct initial coin offering (ICO) projects and raise the necessary funds. This becomes increasingly challenging when the investors who wish to invest in such a venture raise regulatory concerns of the ICO project. Regulations will increase the transparency level, ensure that the technology behind the ICO project is secure, and safeguard the investors’ funds.
Apart from ICO projects, there are other startups whose business models are built around the cryptocurrency technology. These include online wallet providers, Cryptocurrency ATM providers, and other multiple companies whose services incorporate the use of cryptocurrencies.
Usually, most of these startups do not have sufficient funds to properly ground them in cryptocurrency business. They are, therefore, looking for funding from blockchain investors and cryptocurrency enthusiasts. By having laws and regulations on cryptocurrencies, the process of raising the needed funds becomes more predictable, promising, and most likely to succeed.
5. Taxation and Government Revenue
Cryptocurrency and blockchain policy analysts predict that the cryptocurrency sector is bound to grow and expand despite the frequent setbacks such as volatility and ban in some countries. This means that any jurisdiction which turns a blind eye on cryptocurrencies and does not put the necessary regulations in place will lose considerably in terms of government revenue.
Governments across the globe are grappling with increasing budgets and lower revenue margins which don’t match the national budget. Though the revenue from cryptocurrencies may not fully fill those budget gaps, such revenue has the potential to narrow down the budget gap further.
Cryptocurrency laws and regulations are important in any jurisdiction. Countries which enact favorable laws and regulations on cryptocurrencies create an enabling environment for the thriving of cryptocurrencies and opens up more opportunities for its citizenry. Such laws will help the government increase its revenue, protect its citizenry from rogue cryptocurrency companies, and increase the uptake of cryptocurrencies in the respective jurisdictions.