Cryptocurrencies and Their Regulation Features Essay
.jpg)
The introduction of cryptocurrencies into the global financial system has led to the growth of a new financial sector known as FinTech. It is largely characterized by technological innovation, which is redefining the nature and structure of the traditional field of finance. The development of cryptocurrencies emerged from this trend. This is determined by unique characteristics, such as the decentralization of financial functions, the anonymity of the actors involved, and the privacy of financial transactions. Based on the implications of these characteristics for the financial sector, regulation has been proposed as a tool to rationalize FinTech. This proposal explains why several governments (local and international) study cryptocurrencies with particular emphasis on finding the appropriate type of legal framework. take. This push is partly based on the fact that cryptocurrencies offer an alternative to conventional banking. Plus, they significantly change the way sellers and buyers make payments.
This document is the product of a desk research of secondary research materials that investigates the advantages and disadvantages of regulation in FinTech. The secondary research materials studied are mainly in the form of scientific articles and legal documents.
Cryptocurrency and FinTech are new areas of financial innovation. They are distinguished by their unique characteristics, which set them apart from traditional financial instruments. The lack of shared authority is one of the key design features of cryptocurrencies, which differentiates them from fiat currencies. Bitcoin is the most popular cryptocurrency. It was invented after the global financial crisis of 2007/2008, which was partly caused by the unethical activities and business practices of banks. Therefore, by their own design, Bitcoin and other cryptocurrencies do not support a centralized financial model, as they eliminate the need for issuance and foreign currency settlement. At the same time, they minimize the lurking moral hazard associated with such a financial system. However, it should be understood that cryptocurrencies cannot directly replace the role of central banks because the functions of these financial institutions are very broad and include credit expansion, price stability, and controlling the flow of money in an economy.
Cryptocurrency is considered unable to fulfill the above functions. Although cryptocurrency enthusiasts disapprove of a centralized financial monetary system, proponents of regulation still say that price volatility and deflation are inherent risks associated with their use. In particular, they call attention to the possibility that cryptocurrencies are vulnerable to external shocks due to the lack of a centralized system. They also point out that such a decentralized system is vulnerable to hacker attacks and faulty coding, which can undermine the credibility of the entire system. In the same analysis, they say that changes in transaction size will affect the value of Bitcoin if there is no central authority to control the entire system. . However, their concerns still apply to the mainstream financial system as regulation has not removed them.
The legitimacy of cryptocurrencies as legal tender has been marked by different legal interpretations of them. Put another way, countries assume varying degrees of legitimacy for cryptocurrencies. Such variations lead to differences in the legitimacy of cryptocurrencies across borders. This is one of the reasons why regulation is unnecessary. In other words, cryptocurrencies are not tied to any country or legal framework because by gaining access to an internet connection and a cryptocurrency wallet, one can conduct financial transactions virtually. Additionally, a single agency that has regulatory power does not oversee blockchain technology, which underpins cryptocurrency transactions. This finding means that while it may be prudent to introduce laws in countries that can regulate cryptocurrency, it may be difficult to enforce the laws. same laws. in other countries that have lax regulations. Therefore, given this challenge, it can be difficult to enforce existing regulations regarding Bitcoin. At the same time, different countries have unique approaches to prosecute cybercrime. Even when cooperation is sought, it can be difficult to obtain international cooperation when prosecuting cybercrime. For example, some countries in Asia, such as China and North Korea, have a strict and "sensible" approach to cyber-related crime due to national security concerns.
The regulatory approach used in the financial system is intended to protect consumers above all other actors involved in the same system. Although the theoretical definition of a consumer (in the context of a financial system) is subjective, there is little discussion that users of the model need maximum protection against risks that may arise from applying financial models. This vision informs bold suggestions from digital currency critics who say regulation will not only protect investors' interests, but also promote acceptance of digital currencies as legal tender.
The fundamental principle that is applied in financial regulation is the identification of the actors and holding them accountable for their actions. Cryptocurrencies pose a challenge in this regard because some of the transactions that take place on the platform are anonymous. Therefore, there are no clear actors involved in such trade. In this way, it can be difficult to identify the perpetrator when the law is broken. In light of this statement, law enforcement officials often find it increasingly difficult to trace illegal income earned through cryptocurrency. This opinion emphasizes the prosecution challenges authorities may face when regulating the cryptocurrencies. Consequently, the development of meaningful legal controls must be supported by a concerted global effort, which is often difficult to achieve. At the same time, the actions of one country in creating regulatory controls can easily be negated by the inaction of other countries using proxy systems that allow users to carry out international transactions.