Around the world, regulators are weighing the costs and benefits of blockchains. Here is why regulators should resist the urge to ban cryptocurrencies.
Like all technologies, cryptocurrencies can be used for good or ill. We urge regulators to consider five points that mitigate against a categorical regulatory approach like an outright ban.
1. CryptoCrime Happens
Yes, there have been many highly publicized instances of cryptocurrencies being used to facilitate illegal activity. There are a lot of dark box activities, but existing regulations already address these criminal and market-distorting civilian use cases.
2. Crypto Utility = Social Utility
However, cryptocurrencies have also been used to unleash tremendous amounts of new utility and new technological possibility. In fact, according to most experts, the most interesting aspect of today’s cryptocurrency technology is that it is still in its infancy, and many utility and value propositions have not even been developed, let alone beta-tested, and deployed.
For instance, today there are small development teams like OpenLitterMap, CleanApp, WasteSpace.io and others that are developing ways of using cryptocurrency rewards to create markets around previously unmonetizable commodities like litter. Litter seems worthless, but according to Hitachi Data Systems, SmartCity data markets will be worth $7 trillion by 2021. And that does not include existing enterprise-level “Uber of Trash” services like Rubicon Global that can leverage the technology behind cryptocurrencies to capture $ billions-worth of currently un-utilized commodities. Please consider the social empowerment opportunities for individuals who can supplement their income from doing something good for themselves, for society, and for the environment. This is just one sector that has already been touched by the technology behind cryptocurrencies.
There is vast potential in crypto technology, in fields as diverse as healthcare, logistics, law enforcement, and more efficient resource allocation. A ban on cryptocurrencies would effectively end these projects because cryptocurrencies are the lifeblood of the blockchain ecosystem.
3. More Crypto Innovation → More Social Utility
The unprecedented utility and value of different cryptocurrencies also stems from a culture of innovation, experimentation, and plurality of approaches behind different cryptocurrencies (which compete vigorously against one another by constantly offering more security and more functionality).
When we think of cryptocurrency, it is common to think of Bitcoin.
But there are radically different technologies behind different cryptocurrencies, coins, tokens, and contracts.
For example, newly proposed proof-of-stake blockchains uses a completely different technology and process than Bitcoin, one that offers a lot more utility, with far less ecological impact. Both technologies are categorized by outside observers as more-or-less the same thing, “cryptocurrencies.”
Before we move in the direction of regulation, we should allow these radically different technologies to explain themselves to the world and to prove their potential in various markets. Competing on an open market allows DLTs to prove their usefulness, while also exposing need areas that can be quickly patched and redeployed into the market.
Innovation spurs innovation. This is why many states around the world, including China, Russia and many states with strong sovereign interests, have acknowledged the value of the different technologies behind cryptocurrencies, even though they maintain, as you do, healthy skepticism towards the today’s cryptocurrency markets.
4. More Crypto Innovation → More Network Security
Additionally, one of the things that makes many cryptocurrencies so secure as a medium for different forms of secure payments and transactions (the overwhelming volume of which are, of course, legal) is the fact that for most cryptocurrencies there is public ledger of every transaction ever made on that blockchain. Theoretically and practically, this allows anybody to inspect and audit (and, potentially, regulate and tax) particular types of transactions.
Blockchain applications are a huge growth area in the budding field of GovTech and blockchain developers are already working to explain how DLT can make governmental IT systems more efficient, more accountable to responsible oversight bodies, and more secure.
5. Internet Regulation Models > Ban
Considering the unprecedented levels of new utility and value that distributed ledger technology can offer to different stakeholders and to society, an outright ban seems disproportionate to the admittedly serious threats stemming from dark markets and illegal activity.
In our view from the front lines of the crypto development space, the best way to fight fire is to understand fire. A ban would push the illegal activity further underground, suppressing the fire in the short term, but creating the conditions for a much bigger conflagration later.
A regulatory strategy like the one that fueled the growth of the Internet in the late 90s and 2000s seems much more likely to succeed. A middle-ground regulatory response that leverages industry expertise and regulatory oversight is a proven template for success.