Crypto assets regulation: when you only have a hammer, everything looks like a nail
2017 caught the blockchain industry by surprise. Those of us who’ve been a part of it in the early days, could not have imagined how fast this small, family like industry would, so quickly, become the talking point around every dinner table in a matter of twelve months. This surge, also caught our regulators by surprise.
Such a sudden rise and expansion is incredible, it also means the industry has to mature and grow up at a much faster pace. The ‘growing up’ part has some ripening pains in the form of scams, phishing, tax evasions and so on. Some say more than 80% of ICOs are the very definition of a scam, of the reminder 20% many are simply looking to make a quick buck. Those numbers might be too high but are probably somewhat accurate, pointing to a serious issue.
How do we make sure that new people coming into market are not simply “cryptographically” mugged at their very first blockchain experience? A real solution is probably complicated, and most definitely iterative (changes and improves over time) but what seems to be the prevalent approach by the regulators(in the west) is to stick with known legal frameworks, which means, in other words, trying to define crypto assets as securities (or at least strongly suggesting that they are).
It’s enough to look at the number of IPOs, the state of many stock exchanges around the world, the cost of an IPO and how few people can actually participate in one to come to the conclusion that defining crypto assets as securities and ICOs as a public offering of securities to be a huge mistake. Both for the future of crypto assets and the prospect of a better version of financial freedom blockchain can offer.
Protecting against scams and criminals is not the sole domain of securities. If I produce paper cups and market them as the best cups in the world but sell them with a big hole at the bottom, I will get sued and pay dearly for misleading the public. PAPER CUPS are not securities but the law still protects consumers from scams.
Before the internet and platforms like YouTube were introduced, you had to have a license to broadcast/ write and distribute content. The logic was, that the industry needed intervention and regulation or else you will have porn, violence and other inappropriate content scattered all over the web. Following that logic we should have had an internet where anyone creating a site or buying a domain would need to contact his local regulator, and anyone uploading a video to YouTube would need need to go through censorship, approve the content and get a license and permissions to broadcast it.
The point is, wanting to make the crypto space more secure is everyone’s goal. The way to do it, technically, doesn’t necessarily have to pass through the various securities commissions around the world. Defining ICOs as securities has some tremendous consequences.
Crypto could be an historical tipping point between the west and east. If the west takes an aggressive approach to crypto assets and ICOs its pretty obvious China will take a much more liberal approach. The past 30–40 years VC money and technology, by large, came from the US (and west). This is not necessarly whats happening now in crypto. For the west to remain competitve, regulation must support not kill this industry.
On a side note, a securities commission (the hammer) that is asked to regulate a new industry will probably see it as a security (the nails). So don’t expect to hear something else as long as we don’t approach it from a different angle.