By David Drake
Cryptocurrencies and blockchain have become the talk in tech circles in recent years. This has raised concerns with respect to cryptocurrency regulation for industry players and governments alike. This is because blockchain, the technology that underlies cryptocurrencies, has particularly captured the attention of developers and paved way for innovations that seek to solve challenges across sectors.
In the marketing industry, platforms such as IOU, Qupon and Noiz Chain are providing online customer satisfaction, marketing of digital coupons and interactive marketing solutions. In the social space, ONe Network facilitates social media security while URAllowance utilizes smart contracts to facilitate family interactions.
The finance sector has not been left behind. Key innovations in this space include Gath3r that enhances digital monetization and BlockVest that enables investors to manage their virtual asset portfolios. At the same time, BQT facilitates hedge fund and cryptocurrency trading while LiveTradr enables portfolio optimization.
A major concern in the industry has been how to regulate the utilization and transfer of cryptocurrencies in a way that guarantees consumer protection. Even so, most governments have not been deliberate enough to facilitate adequate regulation of the cryptocurrency industry. As such, companies in the cryptocurrency space have decided to form self regulatory organizations – SROs and put in place rules to guide the industry while advancing ethical practices. In a way, SROs are also looking to influence regulation of the the new industry that major governments are yet to create appropriate laws.
In some way, self-regulation is also a way to avoid having the government regulate the new technology. Those who are working in the industry are subject matter experts who understand industry best practices and can roll out standards for digital currency trading and use that will make sense. This will provide less pressure on governments to get into the business of regulating a new technology that not many in government understand.
In the US, major cryptocurrency exchanges have formed the Virtual Commodity Association (VCA) to address some of the gaps in the cryptocurrency exchange space. Already, VCA has four cryptocurrency exchanges, Bittrex, Bitstamp, bitFlyer USA and Gemini Trust Company signed up. In its initial meeting, the VCA discussed the formation of a self-regulatory Organization (SRO) to oversee the cryptocurrency trading market.
Other similar efforts in the US to propel regulation in the cryptocurrency industry are being pursued by the Blockchain Exchange Commission (BCE). As the cryptocurrency industry continues to grow and mature, unique challenges have prompted the government regulators to keep an eye on the market with the aim of regulating it.
Most players are apprehensive about this approach because in their view, external regulation defeats the decentralised nature of cryptocurrencies and blockchain technology. The formation of the VCA and BCE is one way in which market players can come tackle some of the challenges in the industry. Additionally, future strategies to increase cryptocurrency penetration in the mainstream sectors will find space in discussions.
To set industry standards and regulations, the BCE and VCA’s priority should be to address specific issues that are critical to the success of the cryptocurrency industry. According to Raghav Reggie Jerath, CEO of Gath3r, the first issue SROs need to deal with is the definition of tokens and tokenization.
He says, “The first issue should be to give proper definitions of tokens and tokenization. Probably including a scale or spectrum of what tokens are and can do. This would hopefully give investors, regulators, and industry specialists an objective method of determining what their token is.”
At the same time, SROs must find ways of addressing fraud in the industry. “SROs should discuss the fraudsters/pump and dump problem. There needs to be some level of regulation to prevent actual bad actors from fleecing folks for their hard-earned money. The current Reg CF/Reg D/Reg A, and IPO regulations make it too hard for a new company to crowdfund to a level that would benefit a new tech startup,” Jerath adds.
According to him, the presence of bad actors in the cryptocurrency space defeats the decentralised nature of blockchain.
“This increases reliance on individual investors which goes against the decentralized nature of blockchain computing. New regulations need to be implemented that recognize the ease of token creation/distribution, allow for more individuals to invest how/when they want, and to protect them from bona fide bad actors,” he notes.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.