Why Banning Bitcoin and Other Cryptocurrencies is Not the Solution

PixieMe/Shutterstock

Many government bodies, regulators, investors and banks see Bitcoin, or even the whole cryptocurrency market, as a speculative bubble. Some say it is a fraud, while others speculate that it will continue to rise in 2018. Earlier, I wrote an article why I believe that Bitcoin will fail. Not because it is a fraud, but because it is flawed. Despite my belief that Bitcoin will eventually fail, blockchain and some, not all, cryptocurrencies will likely reach mass adoption and bring significant change to how we run organisations and societies. Since the innovation of blockchain and cryptocurrencies is too important, I do not believe that considering banning cryptocurrencies is a solution as is now being considered by multiple countries.

Cryptocurrencies are a completely new way of doing business, raising money, transferring money, making transactions etc. Bitcoin is only nine years old, and as such, we are still learning how the underlying technology, blockchain, works; how we should deal with it; how we can implement it within our products and services, etc., resulting in a plethora of new cryptocurrencies.

Cryptocurrencies and opportunism

As such, in the coming years, flawed products and ICO-scams will likely disappear, just as we saw happening with the internet bubble in the 1990s. Just like then, it will take some time before we get rid of the bad apples and we may never get rid of them completely. This is nothing new either. As long as the internet exists, we have hackers and criminals trying to steal money and data from innocent citizens. However, having some countries outright banning cryptocurrencies and ICOs, preventing citizens from using crypto exchanges or requiring citizens to convert virtual accounts into real-name ones will not stop this. Those states that are considering banning Bitcoin and other cryptocurrencies might do so out of fear of losing control over their citizens. After all, the decentralised nature of cryptocurrencies allows for performing transactions outside the government’s view. However, I believe that banning is not the solution. Well thought out global regulation and education, though, is.

Global regulation and education

“Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation because the regulatory power of nation-states is obviously limited.”

The problem with global regulations is that they take time and a lot of countries have different motivations to ban or regulate cryptocurrencies. Nevertheless, there are two areas regulators can focus on in attempting global regulations: crypto exchanges and ICOs.

Regulations can force crypto exchanges to comply with KYC-AML regulations to prevent cryptocurrency being traded by people who are not allowed to do so (although due to the inherent decentralised nature of it, they can never prevent users from making transactions outside exchanges). Regulations can enforce exchanges to take the right security measures, but completely preventing hacks or digital robberies is, unfortunately, impossible.

In addition, regulators should focus on the ICO, as a more streamlined process around ICOs definitely can prevent scams and Ponzi schemes. Similar to the IPO regulations we have, ICOs should also comply with certain regulations to protect investors and keep founders accountable. However, regulations should not prevent ICOs completely, as it is truly an innovation with tremendous potential. Therefore, similar to the GDPR compliance developed by the EU, a global standard should be developed for ICOs. These regulations could include requirements such as:

  • Disclose financial, accounting, tax, and other business information before an ICO;
  • Implement escrow functionality with smart contracts to ensure funds only get released upon reaching certain milestones. If those milestones are not met, funds will be returned automatically;
  • Have a board of advisors that are involved with the company, instead of having stock photos as advisors;
  • Have a prospectus that informs potential investors of the risks involved with the ICO.

Apart from regulations, another area that governments and regulators should focus on is educating citizens about the risks involved when dealing with cryptocurrencies and help consumers understand how they should deal with cryptocurrencies. Russia has already announced a program to educate its citizens on cryptocurrencies and the dangers associated with investing in them. More countries should follow to help citizens understand what this new phenomenon is and what risks are involved with it.

Final thoughts

A more educated and regulated market, without limiting innovation, will only make this space better, something that will benefit all.

If I managed to retain your attention to this point, leave a comment describing how this story made a difference for you or subscribe to my weekly newsletter to receive more of this content:

Dr Mark van Rijmenam is the founder of Datafloq, he is a globally recognised speaker on big data, blockchain and AI, strategist and author of 3 management books: Think Bigger, Blockchain and The Organisation of Tomorrow. You can read a free preview of my latest book here. Connect with me on LinkedIn or say hi on Twitter mentioning this story.

If you would like to talk to me about any advisory work or speaking engagements then you can contact me at https://vanrijmenam.nl

I think about technology & the impact on business & society. Author of 3 mgt books. Founder of Datafloq.com & fighting fake news, bots and trolls with Mavin.org