The launch of Bitcoin open-source software in 2009 set blockchain and cryptocurrencies on an emerging path to be an integral part of the financial ecosystem. However, to fully incorporate into the mainstream financial system, blockchain and crypto may need to collaborate and adhere to guidance issued by some of the government regulators and traditional financial processes it was possibly keen to disrupt. Absent adopting some traditional regulatory oversight, blockchain, and crypto processes and channels will likely succeed at establishing alternative value propositions but remain less accepted than traditional fiat systems that currently peg value.
Cryptocurrency is known for and coveted by many of its users for its anonymity and decentralized system of blockchain transactions. Recent U.S. government steps to provide guidance and develop regulations governing cryptocurrency and blockchain are being seen as a threat to crypto’s anonymity, but possibly welcome by others seeking even more mainstream adoption.
The Electronic Freedom Foundation (EFF), a nonprofit digital rights group appears at odds with the U.S. government’s regulation mindset to expand its’ financial surveillance reach into crypto. EFF views governmental expansion as an overreach and a path to undermine the privacy rights of crypto users. Recently FinCen proposed a regulation to collect identity data of users who transact using self-hosted cryptocurrency wallets or foreign exchange. If this proposal takes root it will strengthen the anti-money laundering oversight of the government by peeling back some of the anonymity currently enjoyed with certain types of cryptocurrency transactions.
The regulations are considered an attempt to expand the horizon of financial surveillance from the traditional banking system to cryptocurrency. Many in the crypto world view these regulations as an assault on the civil liberties and financial privacy of individuals to transact privately. But the U.S. government argues that the financial regulations over crypto are to combat the “threats to United States national interest”.
As proposals and discussions swirl around Fintech innovation, some feel it is time that the multitude of uses involving blockchain receives more governmental oversight while a host of others would not welcome this approach.
Blockchain or Distributed Ledger Technology (DLT) has the potential to transform the world with proven use cases existing over numerous industries. Bitcoin and other cryptocurrencies’ use of DLT was launched with the primary idea to stand up new decentralized financial alternatives to existing fiat currencies that could bypass banks and most governmental oversight.
But the absence of governmental oversight, guidance, and regulatory rules in the Blockchain system that includes cryptocurrencies, has left some reticent to endorse the financial innovation.
There is little question that by establishing a supervisory framework around blockchain and also cryptocurrency there will likely be more mainstream adoption. That being said, will the regulations stifle innovation and chill the market? A more robustly regulated blockchain may improve upon the safety and security of transactions by tamping down illicit activity, but what if regulation is not uniform around the globe? If there is a lack of regulatory uniformity adopted in some fashion, activity will likely flow to less regulated environments.
Businesses have long been concerned about the risks associated with unregulated decentralized blockchain transactions. The concern centers around running afoul of anti-money laundering, reputational risk, and potential value losses associated with security.
The challenge surrounding regulation related to emerging innovative financial technology is to get it right, so as not to unnecessarily impede innovation, but rather to foster it within reason so the technology may live up to its potential. But regulation will never be perfect and a utopian state of harmony between the promise of technology, regulatory oversight, and privacy concerns will not result in a state of satisfying all parties.
However, individuals like Zurab Ashvil, the founder and CEO of L3COS, who is credited with the concept of the world’s first supervised blockchain-based operating system, and an advocate for some form of uniform regulation stated, d.
“Without a single universal platform for governments, businesses and individuals worldwide, there is no practical solution for addressing the underlying blockchain problems that we are facing today”.
Stay tuned, as the anonymity sought by cryptocurrency users continues to clash with governments and entrenched traditional players in the payment system ecosystem.
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