Myth: Crypto is unregulated and only for criminals
In this article, we will delve into the often-circulated claims that the cryptocurrency industry resembles the "Wild West" and functions as a playground for criminals. We will strive to provide you with a deeper understanding of the development of the cryptocurrency industry, which now constitutes an integral part of the future financial landscape.
From the Wild West to Regulated Finance
We live in an era where digital innovation and inevitable changes have made cryptocurrencies and blockchain technology central topics in lively debates and discussions. A widespread claim often heard is that cryptocurrencies are exclusively a tool for criminals. Nevertheless, this claim is only a small part of the far more complex reality. The modern cryptocurrency industry has undergone dramatic development and has become both more regulated and responsible in just a few years.
Is Crypto for Criminals?
Just a decade ago, the early days of the crypto world were marked by a certain degree of criminal activity. Historically, up to 20% of transactions on the Bitcoin network were associated with illegal activities. However, times have changed, especially concerning how the Bitcoin network is used. Recent data indicates that less than 1% of cryptocurrency transactions now involve illegal activity. In comparison, the percentage of criminal transactions in the conventional financial sector is significantly higher and estimated to be between 2% and 5%.
It is worth noting that both companies within the cryptocurrency industry and authorities have become better at analyzing data on the blockchain and tracking transactions. This has made it considerably more difficult for criminals to hide their activities within the cryptocurrency industry.
Regulation of the Cryptocurrency Industry
The claim that the cryptocurrency industry resembles the "Wild West" without rules has increasingly been exaggerated. International organizations like the G20 and the Financial Action Task Force (FATF) have dedicated themselves to establishing standards and guidelines for the cryptocurrency industry. In 2019, the first global standards were implemented with the aim of combating illegal financial activities within the sector.
Furthermore, several countries have introduced their own rules and regulations for the cryptocurrency industry. As mentioned earlier, in 2019, new rules came into effect, requiring services for the exchange and storage of cryptocurrency to register with financial supervisory authorities. This meant that national cryptocurrency exchanges had to comply with strict rules to prevent money laundering and the financing of terrorism. These rules included extensive requirements for customer verification, verification of customer identity, and the collection of information about the purpose of customer relationships and customer transactions. Exchanges were also required to have internal procedures for monitoring and reporting suspicious transactions to national authorities.
Additionally, each country has developed its own regulation to protect investors and establish frameworks for companies in the cryptocurrency industry that wish to comply with the rules.
Tracking Criminals Within the Cryptocurrency Industry
One of the unique advantages of the cryptocurrency industry is its transparency. All transactions are visible on the blockchain, which has enabled the development of sophisticated tools to identify suspicious activity. Companies like Chainalysis track and analyze this data in real-time, which is valuable for both the industry and law enforcement agencies in their efforts to combat crime.
Cross-border collaboration has become easier in the attempt to track criminal networks. Numerous major criminal rings and the activities of terrorist organizations have been halted and traced using blockchain analysis. This would have posed a significant challenge if the same criminals had used the conventional financial system or cash for their transactions.
Future Regulation of Cryptocurrency
The cryptocurrency industry has evolved from being characterized by crime in its early history to being regulated and transparent today. The future of cryptocurrencies will likely see further regulation and oversight, especially with the introduction of the MICA regulation in the EU in 2024 and similar initiatives in other parts of the world.
Some critics argue that increased regulation may stifle innovation and raise costs for innovative players in the industry. Others see it as a necessary development to protect investors and maintain the integrity of the cryptocurrency market. Regardless of the viewpoint, regulation helps prevent unscrupulous actors from damaging the industry's reputation and contributes to preserving the security and stability of the cryptocurrency ecosystem.
In conclusion, it is important to realize that the cryptocurrency industry and the technology behind it continue to evolve rapidly. Regulation will always be a challenge, but with increased regulation and ongoing investor education, cryptocurrencies and blockchain technology can evolve to become an integrated and responsible part of the future financial landscape.
Some key points in the MICA regulation
Transparency:
The regulation aims to provide better insight into and control of companies in the industry. This includes requirements for transparency regarding who is behind the company, transparency about transactions, and shareholders.
Protection of Investors:
The regulation will increase the protection of investors against risks in the cryptocurrency market. Concrete examples include market manipulation and insider trading.
Licensing Requirements:
Companies wishing to offer services in the cryptocurrency market, including trading, exchange, and storage services, must apply for a license and meet new strict requirements to operate such a business. This includes capital requirements and requirements for systems that prevent the abuse of the service for money laundering and terrorism financing.
Stablecoins:
A new and popular type of cryptocurrency is known as stablecoins. Stablecoins are often linked to the value of a traditional currency such as EURO or USD. The regulation will require permission for issuers, capital requirements, transparency, and protection of users of these coins.
Fines and Sanctions:
The regulation contains guidelines for the industry and also specifies how companies can be sanctioned for violating the rules. This can include fines and the loss of licenses. The purpose is to maintain the integrity and trust of the cryptocurrency market.
Criticism directed at the MICA regulation is that it may hinder innovation and increase costs for innovative players. For others, the regulation appears as a positive development in a market characterized by a lack of regulation. Regardless, the regulation is likely to prevent unscrupulous actors from damaging the industry's reputation and increase predictability for serious players.
Digitalization Requires Ongoing Regulation
Regulation of this industry, particularly its many opportunities, has become a major focus for international organizations, as mentioned in this article. Regulation can be supported by the possibilities of real-time data and the transparency that is a fundamental element of blockchain.
However, it is important to realize that the path to complete regulation is challenging and ever-changing. The speed of innovation in the cryptocurrency industry means that regulation will always lag behind, as is the case with all innovation. Consider, for example, AI, which is not yet regulated.
In this constantly changing world, the greatest challenge is to ensure that investors are protected to the best of their ability. This requires not only continuous regulation and monitoring but also a persistent effort to educate investors about the risks and precautions associated with cryptocurrency investments.