Regulated cryptofreedom: should we control cryptocurrency exchanges?
The world is currently discussing the variants of cryptocurrency exchanges’ existence in the modern economy and possible models of their regulation. Some countries are already taking the first steps on this field, and, interestingly, in opposite directions. Japan, for example, has introduced cryptocurrency exchange licensing and developed corresponding requirements. Chinese government chose the prohibitive way, perceiving them as a threat to economy. Bitnewstoday.com has decided to ask experts for their opinion on the need for cryptocurrency exchanges’ control and how exactly to control them.
Anarcho-economists believe that cryptocurrency exchanges must, a priori, not be regulated at all, because these institutions make the exchange of cryptocurrency possible, and cryptocurrencies were made specifically to cut the middleman, including any regulator. First of all, cryptocurrency exchange providers are “middlemen” themselves, as they offer clients to change cryptocoins for other cryptocoins or fiat money on the platform they own.
Secondly, there have been funds losses from such exchanges. For instance, during the summer 2016, the Bitfinex cryptocurrency exchange was hacked. Perpetrators have managed to withdraw 119,756 coins, and at that time, this equaled a sum of 65 million U.S. dollars. Such precedents harm the whole cryptocurrency sphere.
Thirdly, fiat money earned within the traditional, or real economy, is being converted in cryptocurrency, and this transforms a part of funds away from government control. On one hand, this is good, as the authorities control quite a list of aspects of citizens’ private life, but on the other hand, current market economy is built on a principle that taxes are required to support the overall infrastructure, the poor etc. And furthermore, nobody knows what would happen to the economy of countries and of the world if most funds ‘flow’ to the cryptosphere – uncontrolled by anyone.
Theses stated above show that cryptocurrency exchange businesses require maybe not total control, but the establishment of general rules of the game. Possibly, this whole industry can be self-controlled and self-regulated.
“Like any other business, cryptocurrency exchanges unquestionably should have a set of regulatory practices, simply put, in KYC and security. Considering the experience of Switzerland, self-regulation is most economically efficient, as nobody can develop better legislation than businesses and their clients. Excessive regulation, just like in any other industry, simply hinders the development speed of innovations, which is the key parameter in this sphere,” Alexei Pospekhov, head of GR & PR in ICONIC.VC, points out.
Self-regulation concept is supported by chief executive of the Nakamoto Capital cryptocurrency fund Stanislav Teo. He even offers to involve users in this process. The expert believes that an optimized structure should be created - a platform that would track suspicious exchanges and allow the user to avoid them.
But self-regulation purely without any regulators, as Stanislav Teo thinks, is possible only on those exchanges where a cryptocurrency is traded for another cryptocurrency, no fiat money involved. “If we talk about how fiat money appears on these exchanges, about traditional SWIFT transactions, it all can’t be undertaken without regulators, as there is an important law on counter-money-laundering.
And from this point of view, exchanges must adhere to certain criteria. For instance, there may appear a law that would require them to collect certain data about a person undergoing verification. And Russia should take all steps to clarify these moments and ensure the capability of many cryptocurrency exchanges to receive money on Russian soil,’ the expert comments.
Alexei Noskov, the director of public relations and head of the “Mining” project undertaken by the Xelent data center, suggests the approach to cryptocurrency exchange platforms’ regulation based on broker business framework and stock market legislation. However, when it comes to traders, the expert predicts that no regulation (excluding rules set by self-regulating organizations) would concern them, as any trader with basic literacy can perform trade operations on any platform of the world.
Konstantin Korishenko, head of Department of Stock Markets and Financial Engineering in Banking and Finance Faculty of the Russian Presidential Academy of National Economy and Public Administration (RANEPA), taking a scientific approach to this issue, believes that cryptocurrency exchanges can be self-regulated after the state regulator, who performs licensing and controls the rules of the game, is appointed.
The reasonableness of licensing approach was pointed out by Nikita Kulikov as well, who is the founder of ANO “PravoRobotov” (can be loosely translated as “Rights of Robots”) and the parliamentary digital economy workgroups leader in Russian State Duma. The expert has noted: "Logically, cryptocurrency exchanges could be better regarded as bank actors and their operations should be licensed as bank operations, but in this case scenario, we must consider the transboundary aspect of such operations and thus, develop unified standards for cryptocurrency exchanges on the global, international level, so that the planet no longer had gray zones in which, after domain registration, one could avoid licensing requirements."
Despite all hopes of anarcho-capitalists or anarcho-economists, at this stage, the regulation of cryptocurrency exchanges is necessary, and the need is growing as the turnover and user base of these exchanges grow. Today, cryptocurrency exchanges should unite to form internal business standards together and to find fraudsters on their own. If the community establishes the rules of the game comfortable to every party, the dialogue with future regulator(s) is going to be more constructive and the legislation — less painful.
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