Bracing for Regulation
@pjcomposer made an insightful observation . He pointed out that Goldman Sachs purchased a cryptocurrency exchange platform called Poloniex. Goldman Sachs has a long history of working with regulators to create regulations that appear to favor large central banks over the people at large.
As a member of the people at large I've starting thinking about how the crypto community should prepare for the onslaught of regulation.
The first observation is that people who want to keep crypto unregulated need to concentrate on creating things that benefit people at large. Such products will make regulations unpopular.
Conversely, products that just benefit a core group of insiders will feed the call for regulation.
My second observation is that developers should take this period before the onslaught of regulation to develop a diversity of products.
The more diverse the space, the harder the space is to regulate.
The big banks are working with regulators to create "regulated" electronic currencies which favor the big banks over the people. As we play with steemit, we need to be seeking ways to defend the market from the regulators.
The best way to defend against regulation will to simply make systems that are unregulatable.
Anonymous. Decentralized. Widespread (and I mean that they are accepted almost everywhere).
Until crypto is accepted by almost everyone, governments will be able to identify accounts.
Right now, governments are getting quite good at tracking digital assets across blockchains and identifying the people behind the transactions.
What makes it possible is the regulation of the exchanges. The exchanges themselves reveal the most data about asset owners. "They" can audit the exchange that you've bought or sold to/from, and then track the asset from there.
It would be very easy for a government to identify my Steem account because I have purchased BTC at Coinbase, transferred the BTC to Bittrex, bought Steem, and then transferred the Steem here.
I have also done similar transactions in reverse.
If everyone accepted crypto, then the need for exchanges would start to die out.
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This reveals a great insight into human nature: most people are concretists, not idealists. They believe in what they can see, hear, taste and touch. They have difficulties with abstract things, like philosophical principles. So I agree with your solution. If blockchain is to fully come into its own, it must make itself invaluable to the every day lives of regular people in a way that is direct and obvious. The good news is that that is starting to happen. The bad news is that it still requires some skill to overcome the barriers to entry. It's easy to buy some Bitcoin; you just have to start a Coinbase account. Using it in your every day life is a little more difficult. Getting on platforms like this, e.g., is extremely beneficial: you get paid to do what you were doing on Facebook for free! But it's beyond most peoples' skill; puting BTC on exchange to buy Steem and then securing and using your keys is not such a simple thing for most people. There has to be a simpler way of doing things like this.
That being said, I agree with @snubbermike to an extent. While the government can always pass laws and write regulations, enforcing those laws and regulations is another matter entirely. If all the governments of the world were to outlaw all blockchains today, many blockchains would vanish, but many others would not. Anyone can mine, so at the end of the day, you don't have to directly buy it. Anyone can print a paper wallet, and there's nothing to stop someone from trading paper wallets for cash or other goods and commodities. No matter what the government does, cryptos are here to stay.
That being said, minimal regulations and wider adoption would be very good things.
People are also horrible at defining terms.
The blockchain uses logical constraints on a a ledger to create something of perceived value. The logical constraints regulate the blockchain.
The attraction of "the blockchain" is that it is something outside of the control of a political or corporate authority. It is a self regulating logical structure.
The structure can still be regulated by big banks that wrap derivatives around the structure. It can also be regulated by governments that control access to the structure.
There is nothing that prevents other groups from creating new blockchains.
Our schools have instilled in children that idea that regulation is good.
Schools train people to blindly seek "regulation" when the stupid term is poorly defined.
Which form of regulation do we want?
The logical constraints internal to the blockchain regulate its behavior. Big banks can "regulate" the blockchain with derivatives. Of course governments want to regulate through tax laws and laws that control access.
I would not be surprised to see the efforts of banks and government collapsing the blockchain.
I think the exciting technology is the exchanges as one can wrap an exchange around any equity. Unfortunately, for me, my head starts spinning around whenever I hear the word "regulate" largely because the word has a plethora of definitions which lead to paradoxical and destructive thinking.
The block chain does not need government regulation at all. However, complete deregulation is not going to happen. It is possible to restrict regulation by government to prosecution of fraud and theft. Clearly, they will also try to tax it, as well, although that can probably only be effectuated when you sell crypto for fiat. Even then, it shouldn't be hard to avoid paying taxes on it.
The government can also tax and regulate derivatives and futures. But these are somewhat different from the thing itself. To sell derivatives, exchanges would have to comply with SEC rules, which means that they would have visibility on that aspect of the market. But you should be able to avoid those regulations by not buying derivatives.
Yes, big money can use derivatives to alter the market value. At the end of the day, though, more money in crypto is good. As more money is transferred into the crypto sphere, wider adoption will follow, and more innovation will take place
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You are completely correct that government must concentrate on prosecuting theft and fraud.
The SEC can only regulate derivatives in the US. So all you have to do is to put an exchange in a place that it difficult to regulate. The Black Pigeon Speaks video below talks about how there is a "city state" called "The Square Mile" in central London which allows loosely regulated financial activities.
The Isle of Jersey is a semi regulated island country. Many international corporations have relocated to this semi-autonomous island state. The Cayman Islands and other places are happy to host exchanges that are difficult for the US to regulate.
Derivatives, like stocks, are almost impossible to tax. This is why the state only collects capital gains tax on reported gains. A skilled accountant can use complex financial tools to hide hide assets to avoid taxes. A huge number of billionaires report almost no taxes.
I have to point out: Derivatives were created as a mechanism "to regulate" securities. When one regulates derivatives, they are regulating a regulator, which can lead to paradoxes and instability.
BTW, the reason that the tax-the-rich argument fails is that the rich and powerful have the ability to hide their wealth in ways that the middle and lower classes do not.
As you pointed out, Goldman Sachs bought an exchange called Poloniex. Even if I got popular on SteemIt, I will never have power to stand against GS. The best thing that people like me on the outside can do is to build exchanges.
The video points out that large international banks can seek out locations that they can control.
There are other city-states like this. Notably, the District of Columbia and the Vatican. These city-states are where actual global governance takes place.
I hadn't quite connected Blockchain ETFs and tax shelters, although it does seem obvious now that you mention it. This might imply that big money wants to control crypto through derivates. Here's the thing, though. I think that cryptos are resilient to derivates. The true value of cryptos is the networks and the governance. With ASIC mining, it is possible to massively centralize certain cryptos, but most cryptos now are adopting ASIC resistant algorithms, which means that the network will be able to sustain a certain level of decentralization. Monero and Ethereum Classic (among many others) have adopted this.
If the network is centralized and big money is able to tank the value through derivatives, then it can severely damage the network by making it unprofitable to sustain it. But to the extent that it is decentralized, there will be enough HODLers that it won't matter what they do in the short term, because the actual real world value will still be there. Ironically, this may mean that Bitcoin and Ethereum are actually far more vulnerable than Ethereum Classic in the long run.