FORWARD-LOOKING LEGISLATION AND COLLABORATION BY REGULATORS: Panacea To A Robust Cryptocurrencies And Initial Coin Offering (ICO) Market Formation And Distributed Ledger Technology Industry!
With the emergence of new technologies comes the regulatory challenge of how to regulate such industry and markets. The real challenge is in the “what and how” to regulate, knowing there might be little or no standing laws to help regulators to effectively discharge their regulatory roles.
The invention of BITCOIN (BTC) was what gave birth to blockchain technology. A kind of public ledger that records and store data or information in a chain which can be accessed and verified through connected computers (otherwise known as nodes) from any place in the world. This underlying technology which bitcoin is built upon, has now been discovered that it can be used in other industries to drive efficiency and transparency in operations of these industries. The use cases of blockchain is diverse and dynamic, and range across various sectors and industry such as finance, transportation, ticketing, gambling and betting, supply-chain management, fund raising, database management, smart contracts, etc.
The most use case presently is in fund raising by start-ups and companies through the means of initial coin offerings (ICO), to further their developments, growth and expansions. And the advantage this has over the traditional means of fund raising (initial public offering — IPO) is that while an ICO can raise funds from all around various jurisdictions, an IPO is confined to just one jurisdiction, putting the survival and growth of a company in the hands of fewer investors.
Though ICOs has helped revolutionize capital formation/fund raising of companies better than IPOs, the lack or inadequate regulations in this regards has enabled fraudsters and scammers perpetrate their schemes unhindered, thereby causing investors loss of their hard earned funds by unsuspectingly participating in these scam ICOs.
Personally, I am not an advocate of the involvement of government in this industry as the idea behind the industry is decentralization which government might not be comfortable with. However, with recent reports of hacks of exchanges and loss of funds by investors through scam ICOs, one is left with no choice than to have a rethink on already held perspective. Investors’ protection should be paramount in the next phase of development in the space.
I watched the testimonies of the chairmen of SEC and CFTC before the Senate Committee on banking oversight hearing on virtual currencies on 6th February 2018, and I am encouraged that the Senators are as interested in this technology as every one of us in the space. The chairman of the Commodity Futures Trading Commission, Chris Giancarlo at the beginning of his testimony made a few remarks which I think succinctly put in perspective what is now required in seeing to the further development of the underlying technology and the cryptocurrencies market. He said “we owe it to this generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response not dismissive one’’. He further remarked that “yet we must crack-down hard on those who tend to abuse their enthusiasm with fraud and manipulation”. This is the perspective which will not only help the development of the markets and industry, but also protect investors against manipulative and fraudulent tendencies.
However, it is not enough to just have forward looking legislations to wade off scammers. We all understand that the market is both local and international, and with this nature comes the jurisdictional conundrum in prosecution of offenders in one jurisdiction resident or domicile in another. Legislators and regulators alike all across the world must collaborate in legislating in regards to this nascent industry and markets, and regulators as well should collaborate in prosecuting offenders and scammers seeking to scam unsuspecting investors. Seeing it is a new and nascent market and new asset class which most investors would want to profit from, the scammers will not relent. However, with collaborations by relevant stakeholders we would see a robust development of the industry and markets and a more sanitized ecosystems rid of fraud and manipulative tendencies.
Lastly, having a set of universal rule set for the industry would help in achieving our collective goals. We could have a charter on blockchain technology and virtual currencies, just as we already have in anti-money laundering and corruption prosecutions in most regions and amongst different countries around the world. Also education of the populace as regards safe participation in this new economy should not be ruled out. We must be proactive and forward looking in our approach to rid the system of fraudsters and scammers.
What are your thoughts? Drop your comments!
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