We all heard the story: Regulation is coming.
It is evident that politicians and regulators are chomping at the bit to get their claws into cryptocurrency. We have the likes of Elizabeth Warren in the US Senate and Chair Gensler at the SEC. These people are duplicated all over the world.
Everyone presumes that regulation is a foregone conclusion. They are, after all, the government and have unlimited power. For centuries, they ruled the roost with increasing tyranny.
It seems like this is only increasing. However, is it the case when dealing in the digital world?
Cryptocurrency seems to bring with it a series of challenges, none of which regulators are ready to deal with.
Here, human creativity and ingenuity might be the factors that make regulation impossible.
Morphing At Light Speed
We all know what cryptocurrency looks like today. Anyone is who around the industry knows the difference between a fungible and non-fungible token (NFT). There is also Decentralized Finance (DeFi) along with Decentralized Autonomous Organizations (DAOs).
Recently, they entered mainstream crypto consciousness.
Yet, think back a few years. Is this what cryptocurrency looked like? During the last bear market, 4 years ago, were we dealing with assets that looked like this?
The answer is obviously not.
Back then, it was all about the ICO. People were using cryptocurrency to raise (scam) funds. That was about it. Utility was practically non-existent. Of course, the industry was a shell of itself compared to where it stands now.
Does anyone think this is going to stop? Over the next four years, how much will change?
We are watching an industry that is global in nature advancing forward through the efforts of millions of people. Every 6-12 months, we see something "new" rolling out. The idea of 2.0 and 3.0 is common. Many aspect of the industry are advancing to the next stage, often not resembling what went before.
Speed is something that governments and regulators do not excel at. The wheels are slow, especially when compared to hundreds of thousands of developers all hacking away at code.
Old World Thinking
When something is new, we try to apply what we know to it. This is how we frame things. While it is natural, it is often wrong.
Take the original rollout of the Internet. What was it called? The Information Superhighway. This was how people it was presented to people.
Now, is that really what this medium is about? Certainly information became abundant so it isn't as if that analogy was wrong. Nevertheless, it grossly underexaggerates which ultimately took place.
The same is happening with cryptocurrency. Most are applying what they know about money, like the USD or EURO, and trying to apply it to this. Perhaps they go a step further looking at DeFi and cross referencing it with Wall Street.
Obviously, these are starting points just like the Internet with information. However, it is vital to grasp that we will move far beyond it. Cryptocurrency is going to have its own form of social media, mobile, and commercial applications. What that will be is as incomprehensible to us now as these ideas of the Internet were in 1995.
At some point, the old world thinking has to die off. What this means is enough people have to "see the future and create it". Here is where the creativity and ingenuity of people all over the world enters. People have ideas that they can pursue. Where they come from is impossible to pinpoint. We are dealing with a global situation.
Do you think the 500+ members of the United States Congress can keep up with this? Is there any way they can stay on top of it? The situation gets a lot trickier when we are dealing with hundreds of millions, possibly billions, of people involved.
Examples
Let us take a few examples of what can happen.
- An artist brings out a token to raise money. This token is legally sold. Someone gets wind that the latest single is going to be highlighted on one of the music playing applications. This person buys the token.
Is that insider trading?
- An airline sells tokens for discounted drinks on its flights.
Are they guilty of selling an unregistered security?
- Kim Kardashian brings out a line of handbags. Each is one is represented by a token. That token is good for a backstage pass to a Kanye concert (pretend they reconciled).
Were any laws broken?
- Regulation goes in place to make it illegal to sell any digital asset without registering as a security.
What happens when the owner of Pets.com (fill in any website) goes to sell it? At the same time, does GoDaddy need to become licensed to sell securities? How is this distinguished?
These are a few examples off the top of my head. Certainly there are dozens of others that people can come up with.
Again, the key is we are dealing with the knowledge of what we have now. What are we going to be dealing with in 3 or 4 years? How much further advanced will all this be?
In Conclusion
We hear a lot about regulatory framework and things of that nature. The challenge is they are trying to hit a moving target that is going at a rapid pace.
Notice how we went through this entire article without bringing up the idea of decentralization. Instead, we operated within the context of things the governments and regulators can control.
Even still, we see how difficult it is to get their hands around this. Just using specific terminology like digital asset makes it rather difficult. What qualifies and what does not?
Decentralization, even to the slightest degree, opens up a can of worms that makes regulation infinitely more difficult.
Couple that with creativity, speed, and global operations and we can see how the regulators along with politicians are truly impotent against what is taking place.
As soon as they grasp where we are now, the industry will be somewhere different.
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