The calls for the regulation for cryptocurrency are beginning to hit their apogee, making it all but certain the likes of the SEC and other government agencies will soon usher in what they see as order to a chaotic industry. One element driving this call for regulation is the instability we’re seen across a number of trading platforms, such as the collapse of FTX, over the last several months. Another justification for clamping down is the view that it is necessary to prevent them from being used to aid the commission of illegal activities. Regardless of the reasoning, the reality is that when it comes to cryptocurrency, regulation is futile.
It is of course unarguable that cryptocurrency, with the privacy it can bring to electronic financial transactions, has been used to aid a host of malicious activities, particularly money laundering but also terrorist financing, drug trafficking, and other despicable deeds. This should hardly be surprising given that cryptocurrencies were created with the explicit goal of achieving decentralized financial systems, free from government interference and control.
Nevertheless, that cryptocurrency can be useful in what are objectively terrible activities is no reason to implement a burdensome regulatory scheme on the industry and ignores the fact that illegal activity makes up a minuscule part of its use. Relatedly, those pushing for strong regulations on cryptocurrency in order to combat crime also tend to ignore how most illegal activities are regularly conducted using the most traditional financial instrument — cash. It’s simply not accurate to call out cryptocurrency as particularly nefarious when $100 bills remain the preferred choice for those conducting criminal activity.
The logic behind demanding transparency for every cryptocurrency transaction to combat crime could be equally applied to all cash transfers, as it inherently stems from the authoritarian belief that anonymity in financial matters ought never be allowed. As would-be-regulators begin to hatch plans to control cryptocurrency, they would do well to remember that the primary reason it exists in the first place is to provide privacy in electronic commerce in a way no other financial instrument can match.
Should new rules emerge that require users to give up that privacy, the result will not be one of compliance but defiance. The crypto world will just innovate their way around the rules and rely on currencies and exchanges that are beyond the reach of the US government, something they’ve already begun to do as the calls for regulation grow in volume.
One recent example of this innovation in action is Monero, a privacy-focused cryptocurrency that uses advanced technologies to obscure transaction details and protect the identities of its users. Monero and other emerging cryptos like it demonstrate that the decentralized nature of crypto can be easily maintained, or even accentuated, in the face of government regulations. Cryptocurrency can simply evolve faster than regulations can contain it, meaning their actions to shine a light on it will ultimately only serve to drive the industry further into the dark.
So too will regulation utterly fail to bring stability to the cryptocurrency market. This is due to the fact that, as noted above, cryptocurrency is philosophically based on the libertarian principle of decentralization. Should government ignore that and assert an authoritarian structure to exert control over it, cryptocurrency would lose what is arguably its defining feature that makes it most attractive to many of its users. Far from taming the market, instituting privacy-killing regulation over the cryptocurrency industry would be far more likely to result in its biggest crash yet.
Moreover, despite the cryptocurrency industry experiencing multiple crashes over the years, not once has it bleed into the wider economy. The instability of that market poses no real threat to anyone beyond those who willingly enter it knowing full well of its volatility, again undermining any claim that there is a pressing need to clamp down on it. Even the sensational failure of the FTX cryptocurrency exchange is no reason to justify new regulation in that existing criminal laws, particularly those dealing with fraud, are perfectly capable of bringing these criminals to justice.
Rather than fighting new developments by deploying what will inevitably be counterproductive regulation, government officials should first take active steps to better understand blockchain technology and the culture of those who support it.
Nicholas Creel is an assistant professor of business law at Georgia College and State University. Gavin Incrocci is an undergraduate student at Georgia College and State University who is studying cryptocurrency and cyber-law under Professor Creel.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.