It might seem strange to talk about government regulation on digital currencies now, considering that’s the very obstacle that the initial developers were avoiding. But, it seems that regulation might just be necessary in some cases.
Cryptocurrencies are digital coins meant for peer-to-peer transactions and payments. The first major digital coin is Bitcoin that revolutionized financial industry. Has it achieved this purpose as of the moment? The answer is a resounding NO.
Bitcoin aimed at doing away with fiat currency and financial institutions such as banks due to their regulations, restrictions and high fees. Most institutions that serve as intermediaries in financial transactions follow set rules and bureaucracies that most people find as a hindrance to their financial activities. However, they serve an important role since they play a significant part at keeping fraud at bay.
Bitcoin aimed at using the famed blockchain technology to allow financial transaction to occur instantly online. All the transactions would be recorded in a public ledger and confirmed by peers in a network to avoid illegal transactions. The transacting parties would remain anonymous only recording the details of their transactions using the variety of cryptocurrency wallets. This process would allow parties to exchange money online without the need of meeting physically or knowing each other. Considering that these transactions would be instant and with minimal fees, this seemed like a noble idea. Finally, people could now own real wealth and keep government in check from controlling them.
Things though have taken a different turn. Bitcoin ended up being traded online as a commodity instead of being used as a currency. This trading has diverted people from the main idea of having a digital currency that would enable online transactions.
Following this development, other coins have come up trying to take the place of bitcoin but they are all going in the same direction. Their value as commodities has been extremely volatile with prices changing rapidly in a matter of hours. These prices seem to change with people’s beliefs and world governments’ actions.
For instance, when the United States of America allowed the Chicago Board Options Exchange to trade Bitcoin futures, it created a lot of hype and confidence and hope in investors that pushed the Bitcoin and altcoin prices to an all time high. Bitcoin hit an all time high of $19,000. It could have gone higher if a few other countries would have followed suit. This was after China had declared the use of digital coins to raise capital illegal.
Bitcoin was recently significantly affected losing more than 50% of its value after it was banned in China and India. The coin sunk to below $6000, only to shoot up two days later to almost $9000 after the US Security and Exchange Commission requested the Congress to consider extending federal oversight of the coin.
Initial Coin Offerings are also seeing some complications while global governments struggle to decide what legislation approach to apply to the new form of fundraising. As the leading ICO marketing company IBC Group points out: ‘While the ICO position is still in a confused state, the general trend is towards recognition and the need to collaborate by local governments.’
This shows that regulation or the notion of it is good for business as it seems to create investors confidence thus pushing the price up. But, it remains to be seen if this will be the trend since, as noted earlier, it goes against the initial idea of the Bitcoin developers.