For the first few years of its existence, cryptocurrency experienced max growth under minimal regulation, flourishing as a form of value storage entirely removed from governmental oversight. But public buzz surrounding the recent explosion of Bitcoin, Ethereum, Ripple and other cryptocurrencies has now seized the attention of bureaucrats the world over. With restrictions being discussed in the US, and implemented in China, South Korea, and Japan, digital currency enthusiasts should at least consider how their playing field may change under new law.
In the future, the stakes may be even higher than the net loss of a few billion in virtual value. Excessive or ineffective legislation could jeopardize the realization of blockchain technology itself, a development which many predict could impact society like nothing since the internet. Harsh, blanket bans on initial coin offerings (ICOs) and restrictions on trading have already been set in China and South Korea, and Japan now requires coin exchanges to obtain special licensing.
In the US and other nations, a lack of clarity concerning what is meant by cryptocurrency, and confusion over which–if any–agencies are responsible for regulating it, seems to have slowed progress toward legislation. In America, for instance, cryptocurrencies are considered commodities, which fall under the jurisdiction of Commodity Futures Trading Commission (CFTC). But, as recently stated by CFTC chair J. Christopher Giancarlo, the agency does not have the authority to directly oversee cryptocurrency exchanges. Activities like government registration, transaction reports, or cybersecurity compliance are all beyond the CFTC’s power to mandate, according to Giancarlo.
Attempts at legislating by state have also fallen through, as the meaning of “money transmission” isn’t uniform between states. There is also an argument from blockchain advocates that digital currency encompasses a “public good” that supersedes state borders. As a response to the legal murkiness, the US Securities and Exchange Commission (SEC) has been looking to legislate digital tokens as securities, on the grounds that they are characterized as investment opportunities, and serve as an “efficient medium for commercial exchange.”
While the regulatory gavel has yet to be dropped in most nations, some speculate that the legal uncertainty is already dissuading entrepreneurs from pursuing blockchain. In any case, it’s clear that legislating an entirely new arena of finance is complex, however developments may arrive soon. The SEC recently filed class-action lawsuits against ICOs allegedly in violation of securities laws, and seven states have agreed to work together in officiating exchanges. Perhaps the most impactful developments so far may come at the G20 conference in March, where France and Germany plan to release a blueprint for international cryptocurrency regulations.