One reason for the popularity of cryptocurrencies is the perception of freedom. Consumers can buy, sell and trade cryptocurrencies without dealing with bank fees, bureaucracy or regulation. However, the highly unfettered nature of cryptocurrency markets may be hurting digital coins as much as it is fueling the trend.
The FBI has issued a severe alert about cryptocurrencies. It has identified crypto scams as a leading type of cybercrime. In addition, Bitcoin and other cryptocurrencies are increasingly used in ransomware attacks, such as the infamous Colonial Pipeline incident.
The reason cryptocurrencies are so appealing to cybercriminals and hackers is all transactions on the blockchain are anonymous. If the person involved in the transaction can’t be identified, money laundering is easier.
New Regulations for Cryptocurrency?
The explosion in crypto scams and ransomware attacks using cryptocurrencies has led the public and government organizations to request some form of regulation to rein in cryptocurrency. For example, ending the anonymity on the blockchain has been proposed to the SEC to solve money laundering, rug pull schemes, and crypto-related extortion.
However, cryptocurrency fans are concerned that such regulation will decrease appeal and, therefore, the value of cryptocurrencies. However, cryptocurrency-friendly high-profile investor Mark Cuban argues that regulation may help, rather than hurt, the cryptocurrency market in the long run because it will increase consumer confidence. Of course, not all types of cryptocurrencies will thrive on news of SEC rules, but it should be good for bitcoin and others.
What Wil the End of Blockchain Anonymity Mean for Digital Coins?
The news of cryptocurrencies’ regulation broke in September of 2021. As CNBC reported, Gary Gensler, chairman of the Securities and Exchange Commission, told the Senate Banking Committee that he was working overtime to draft cryptocurrency rules.
Dallas Mavericks owner and CNBC Shark Tank investor Mark Cuban told cryptocurrency investors that this news was not bad. Cuban holds a cryptocurrency portfolio of 60% bitcoin, 30% ethereum and 10% altcoins.
Cuban tweeted that requiring proof of identity on the blockchain is a positive for cryptocurrency and not a negative and will do nothing to curb innovation and growth. Cuban continued that these regulations will “open the door for more people to confidently use crypto,” which ultimately will be good for cryptocurrencies and attract more traders.
The SEC is most likely working on a Proof of Authorship for Smart Contracts. This could lead the Fed to track down suspected crypto scams, but it could also lead to people being unfairly sued. When this point was discussed with Cuban, he replied that it is a “price that will be paid” and denied it would severely threaten cryptocurrencies.
Regulations Good for Bitcoin, Not so Good for Stablecoin
Cuban’s main takeaway is that proposed SEC requirements to end anonymity on the blockchain will not hurt the cryptocurrency market in general for the long term. When looking at specific cryptocurrencies, there is reason to predict that SEC rules may be better for some types of cryptocurrency than others.
The more stable of the cryptocurrencies, such as bitcoin and ethereum, may perform well under these regulations. They are the go-to names for people who are new to cryptocurrency investing. Once consumers hear that trading digital currencies are safer, they are likely to buy these recognizable coins.
Although stablecoin has the word “stable” in it, it is perceived as anything but. As a result, Stablecoin may get hit hard by regulations because of the vague wording in its statements and lack of coherent definitions. Cuban tweeted some problems stablecoin already faces, which will increase under SEC scrutiny: “What is a peg? What is an algorithmic stablecoin? Is it stable? Do buyers understand what the risks are? It needs standards.”
Regulations May Help Cryptocurrencies in the Long Run
As long as cybercriminals can use the blockchain with impunity and anonymity, investors will stay away. Although cryptocurrencies are popular now despite the risk, making the blockchain safer will unleash new investors in cryptocurrency that might have been waiting in the wings up until now. Bitcoin and ethereum should benefit from these new rules, and more volatile cryptocurrencies may fall in value.
