Crypto regulation: to ban or not to ban?

[avlasova]

The questions of the day, nay, week are: Where is cryptocurrency regulation headed globally? Will more countries outright ban it? What does effective regulation look like?

Today’s news include a story about Russia’s Central Bank looking to ban crypto trading and mining across the country (which is one of the world’s biggest crypto mining hubs with 300k people mining Bitcoin alone). It has to be noted that holding, buying or selling crypto assets does not fall under the proposed regulation.
Experts have been discussing the practical realities of a complete ban. They conclude that the prosecution of mining hubs would be costly and difficult, though far from impossible. The main way of tracing a mining hub would be detecting a zone of high energy consumption, which could equally turn out to be a heated greenhouse or another enterprise with a similarly consistent pattern of power consumption.
Considering many of the Russian mining hubs are located in hard-to-reach places like Siberia and Dagestan, the investigations could be quite pricey. On the other hand, controlling crypto trading through licensing processes among others is relatively uncomplicated.

Crypto assets are already taxed in Russia as financial assets under 2021 legislation. Some say that if the regulators follow through with a complete ban, the market will simply move “underground”, only exacerbating the security and tax concerns surrounding crypto at the moment, as well as seem illogical following the imposed taxation regime.
Is a total ban realistic in these circumstances? Will other governments be willing to spend considerable amounts of resources on investigating and prosecuting miners? Is there a more effective and adaptable way of regulating cryptocurrencies?
Earlier this week, the UK, Spain, and Italy in a welcome move stated their intention to regulate crypto advertisement on social media.
Looking at how long it takes for regulators to take any definitive action on something as simple as regulating investment advertising, will they be able to catch up with regulating much more complex crypto transactions?

Would be fantastic to hear what others think!

[Ines Pinheiro]

Hi Apolloniya,

This is a great topic!

In my opinion, banning cryptocurrencies is not the right solution. As you identified, this could lead to creating an underground crypto market (maybe on the dark web?). It would be difficult to tax crypto-transactions in such a case, and even worse, it would increase cybersecurity risks. However, we have seen authoritarian states like China take this approach in the past. So I wonder whether Russia’s ban proposal is really driven by environmental concerns and their plans to decarbonise the Russian economy or by the sovereignty concerns that decentralised finance poses to the state.

As you mentioned, Russia will need to spend a lot of money and resources on prosecuting miners. I don’t think this is a priority for most countries right now, given that there are other more fundamental concerns affecting the economy (such as supply chain issues and struggles in the employment market, energy shortages, ect.). Considering this, it appears to me that other countries will be adopting a more lenient approach, especially those with strong liberal ideals.

I genuinely do not think that the G7 countries (for example) would act like El Salvador and make cryptocurrencies a legal tender. That would be outrageous considering the lack of regulation and deep understanding around these assets! But we have seen Spain, Italy and the UK trying to regulate crypto adverts in an attempt to control this space and raise awareness. In my opinion, this is a good starting point, but countries have to create an effective legal framework to make a real difference.

I think this is such a complex area that getting to fully understand what is really going on in the crypto world is taking governments a bit of time. This is also one of the reasons I think banning crypto won’t work. This market is growing so fast that I won’t be surprised if the crypto experts find a way to divert their energy source to be untraceable, or even develop a way of consuming less energy not to bring attention.

Also, suppose that governments decide to ban cryptocurrencies as China did. This could pose a real risk for the likes of Bitcoin because demand for cryptocurrencies that aren’t backed by central banks would decrease. But adopting central banks’ cryptocurrency would contradict the decentralised finance movement. I would think that people that really believe in decentralised finance would continue to support the likes of Bitcoin and Ethereum but underground, mainly because the adoption of NFTs by the likes of Meta and Twitter could give this community a platform to hold and continue to mobilise their cryptocurrencies when trading NFTs (which at the moment rely on the Ethereum network). People can always find their way around it, and providing effective regulations would deter criminal behaviours and allow authorities to keep an eye on this market.

On the other hand, if countries don’t hurry up and create an adequate legal framework soon, we could expect to see more people gambling with cryptocurrencies like it is happening in Turkey at the moment. This can further destabilise economies worldwide, especially in the most vulnerable sectors of society.

• This reply was modified 3 years, 3 months ago by Ines Pinheiro.
• This reply was modified 3 years, 3 months ago by Ines Pinheiro.

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