Blockchain technology is one of the most trending topics since
Blockchain technology is one of the most trending topics since 2010 when first digital currency Bitcoin came into being. The White paper for Bitcoin put light on several advantages of a decentralized network, and how mediators can be removed from the picture.
However, most of the talk has shifted from blockchain implementation to blockchain regulations. Prominent players of the game believe that putting strict government regulations would drive away the new and upcoming projects from joining the league.
In 2015, New York became one of the very first cities to draft and implement regulatory reforms on the cryptocurrencies. The financial department made it compulsory for existing and upcoming digital currency vendors to obtain a ‘Bitlicense’ to operate in the States.
When the regulations were finally put into effect, a significant number of crypto-startups left new york. The prominent players in the crypto world who left the States in 2015 included Kraken, Shapeshift, Bitfinex, and Poloniex. The New York Superintendent of Financial Services Ben Lawsky has said at the time of regulations,
“We want to promote and support companies that use new, emerging technologies to build better financial companies, Regulators are not always going to get the balance precisely right…. But we need to begin somewhere.”
Three years after the Regulations were put into place, the native firms are yet to rejoin the States, but that does not mean everyone is leaving. For example R3 the financial industry distributed ledger consortium has its headquarters in new york. Other significant players in the crypto world that have not been affected by government regulations include Digital Asset Holdings, Symbiont, and Axoni. Pillars of Wall Street such as Goldman Sachs, JPMorgan, and the parent company of the New York Stock Exchange are getting into the action
Bitlicense even though not perfect has surely not killed the crypto market in New York. The Financial regulatory body showed hurriedness while implementing the blockchain regulations, but things have changed over time. The Regulatory bodies have put in new plans to ease up the restrictions put through Bitlicense
Financial Regulatory Body Faces Their Dilemma
The financial regulators face a dilemma of their own if they put unnecessarily tight regulations like Bitlicense, they fear to lose the new technology and pushing it to the brink. On the contrary, if they take too long to implement rules, the technology might grow out of hands and putting restrictions is not just complex but even costly. So, regulators need to strike a fine balance in not killing a new and upcoming tech or leaving the new tech untouched for so long that it grows out of hand.
If regulators see clear evidence of the harm they have been setup to avoid, they spring into action. Smart regulators must encourage innovation without letting it misuse the rules to inflict damage on others.
The classic case to understand the importance of regulation come from Microsoft in the 1990s when it threatened to stall the web based services, since it had the monopoly power. US government intervened into the matter and restrain it. If the US government would have not put their foot down in time, the internet would have been a totally different place today. Imagine ‘internet explorer’ as your default browser.
Final Thoughts
We all have been told the Bitcoin and blockchain fairytale story where the government and the centralised authorities are the villain. No doubt the basic idea of distributed ledger system without a centralized authority sounds all fun, but without necessary regulations on the big players controlling the crypto, the market would give them a monopoly, which would be quite hard to restrict once it grows out of hand.
One must not see the regulations and regulatory bodies in a bad light, rather they must understand that the two sides must work hand-in-hand to get most of the benefits.