The Efficacy of Cryptocurrency Regulations
Even though the technology and infrastructure that support cryptocurrency have come a long way in the last few years, there is a still a long way to go. For example, the first thing anyone uninitiated to cryptocurrencies will say when you mention them is “aren’t those only used by criminals?”
This is part of why we have seen such a rush to apply the same regulations to crypto that are currently applied to other forms investments. Governments are watching billions of dollars pour into the space, and are placing a huge emphasis on monitoring these funds.
KYC and AML
The two main types of regulation affecting cryptocurrency markets at this time are Know Your Customer (KYC) and Anti Money Laundering (AML). KYC is the requirement that customers provide certain identifying information before using a service. The main purpose of these regulations are to prevent unqualified people from using services they shouldn’t.
Next, you have AML regulations which are to prevent the generation of income via illegal transactions. On the surface, this is to prevent basic crime and laundering, but has a massive implications towards limiting the ability for terrorists to finance dangerous activities.
The Privacy, Innovation and Equality Costs
But these regulations don’t come without their costs to society. First off, you have the privacy costs. In the course of these regulations, a massive amount of information ends up stored in one centralized place. This creates a “honey pot” of all this data, which often leads to it being hacked and the compromise of identification information.
Next, these regulations hamper innovation. If an application or company was being developed in the financial sector, but didn’t have a way of working in complete compliance with these stringent regulations, it would never have a chance.
And finally, for anyone who is unable to provide certain information due to their current economic situation, these regulations keep them locked out of the system. The unbanked have been left behind in many instances, and this is all because of their inability to get a loan or secure housing with their limited information. The regulations definitely aren’t helping there.
Funnily enough, all of these costs go directly against the principles behind Bitcoin. And none of this takes into account the massive monetary cost of operating these regulations. Yes the additional costs create jobs, but is it worth it?
No Proof of Efficacy
Much like the TSA, these regulations show no signs of creating a net positive to the world. The TSA (Transportation Security Administration) received special funding following 9/11, but it is still in question whether the costs have been entirely worth the benefits. There are still numerous cases where would-be terrorists have been able to smuggle weapons or bombs through security, and the TSA’s main function seems to be causing trouble for law-abiding citizens.
The same can be said about KYC and AML. No studies have ever been done to support the amount of funds required to keep this system functioning.
The lack of proof or studies is somewhat alarming when one considers the billions of dollars that is funnelled into this program. Banks, exchanges, and other financial institutions are all forced to prop it up, but there has been no analysis of whether it is actually improving things.
The crypto community would love to be able to self-regulate themselves, but that’s also not going to happen. There needs to be a middle point-of-view that can lead the country forward.
Utilitarian Point of View
This may all be seen as too utilitarian a point of view, since yes, we should be doing everything we can to prevent terrorism. But at the same time, the question must be asked: is there a better way to do this? If we are already trying to tear down the system and create a new way of running the economy, can we find a better way of regulating ourselves at the same time? The crazy thing is that blockchain might actually have the key to solving many of these problems.
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