{"id":2448,"date":"2018-11-09T19:21:31","date_gmt":"2018-11-09T19:21:31","guid":{"rendered":"https:\/\/live-journal-of-law-and-public-policy.pantheonsite.io\/?p=2448"},"modified":"2018-11-09T19:21:31","modified_gmt":"2018-11-09T19:21:31","slug":"is-regulation-cryptocurrencies-kryptonite","status":"publish","type":"post","link":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/2018\/11\/09\/is-regulation-cryptocurrencies-kryptonite\/","title":{"rendered":"Is Regulation Cryptocurrencies\u2019 Kryptonite?"},"content":{"rendered":"Luke Pecunia walked up to the terminal to \u201ccash out\u201d after grabbing several souvenirs that could remind him of this exciting trip to Tokyo, Japan with his wife Vie. Pecunia always considered himself an early adopter of technology, as he turned his Apple Watch to a near field communication<\/a> console with the transaction amount. Another quirk about Mr. Pecunia is that he is not much of a math wizard\u2014which means that exchange rates can \u201cdrive him up a wall.\u201d However, he didn\u2019t have to worry about any exchange rate for his native Dollar<\/a> to Yen<\/a>. Instead, Pecunia\u2019s wallet (really his electronic bank account sitting on the cloud) was filled with Ethereum<\/a>, one of the many traded cryptocurrencies in circulation. Pecunia completed his transaction, ordered an Uber<\/a>, and was on his way back to his Airbnb<\/a>.\n\nWhat may now be considered a standard trip and simple shopping experience was once unfathomable. Cryptocurrencies, despite their growing popularity, still seem to mystify individuals. Even more concerning to others is the idea that a currency can be virtually unregulated by any governing body. On the other hand, cryptos\u2019 constituents believe that currencies such as Bitcoin, Ethereum, and Ripple should remain unregulated to effectuate market efficiency and because those currencies don\u2019t originate under any traditional governing body. Before we can get into these arguments, first we must understand one simple question\u2014what is a cryptocurrency?\n\nBitcoin may hold some of the most brand recognition among cryptocurrencies, but the crypto star was not the first to be developed. The first digital currency\u2014eCash\u2014was developed by cryptographer David Chaum. Chaum implemented this through Digicash<\/a>, the only merchant of the currency, but would flop because merchants and consumers alike did not adopt the currency. Shortly after, Nick Szano created bit gold<\/a>, another currency which focused less on the privacy aspects of currency. The currency floundered as well and was soon defunct followed by a period of digital currency silence. In 2009, the currency market would forever change<\/a> as bitcoin.org<\/a> was registered online. Its founder, Staoshi Nakamoto<\/a>, may be more mysterious than the currency itself, as the name is a pseudonym and Nakamoto\u2019s true identity still remains unknown.\n\nThe way Bitcoin is created, distributed, and processed can be perceived as a complicated process depending on who you ask. The details are not important, but what is important is the characteristics<\/a> that Bitcoin is completely decentralized on an open network of public computers and where transactions are logged using blockchain<\/a> technology to ensure verification. What this means is that transactions can be done in the utmost private (like cash) and transactions or the exchange itself is completely devoid of regulation from an oversight body.\n\nBitcoin, and other currencies, are growing in their popularity. Almost twenty-two million users<\/a> hold bitcoin wallets and approximately thirteen million users are members of Coinbase, an exchange to trade cryptocurrencies such as Bitcoin. As time progresses, the number of bitcoin-adopting merchants and users increases. Not only are people increasing their use of the currency for speculation and investment<\/a>, but users are also using the currency to make everyday purchases<\/a> without the need for physical money.\n\nThis growth of demand for the use of cryptocurrencies has spurred a reaction of advocates calling for regulation of the different currencies. The reason<\/a> behind regulation is because of the exponential rate that cryptos are increasing in volume and size in market capitalization. Regulation comes in two distinct forms. One way to regulate currencies like bitcoin is to enact<\/a> a blockchain-enforced unchangeable code. This way, the regulation is still decentralized and doesn\u2019t fall under the ambit of any specific power. The logical questions are who will impose such regulation\u2014and why?\n\nIn certain places within the world, regulation has varied greatly. In China, the government has imposed<\/a> some regulation and in other cases has actually halted trading, shut down initial coin offering (\u201cICO\u201d) exchanges and created a task force to end certain crypto activities. The government alleges that such exchanges and mining consume large amounts of electricity and run risks to the economy because of the inability to manage the influx of new currency and (as a byproduct) exchange rates.\n\nIn the United States, cryptocurrencies are not regulated<\/a> to the degree as other countries. Instead, the Securities and Exchange Commission (\u201cSEC\u201d) has issued warnings about the potential for fraud and misconduct by issues of ICOs. The reason why is that the SEC and U.S. legislators do not recognize bitcoin or ether as traditional securities using the Howey<\/a> test. Despite Bitcoin remaining in a state of limbo within the domestic United States, a Bitcoin exchange traded fund (\u201cETF\u201d) is expected<\/a> to be approved by the SEC despite several past attempts to get the ETF on the market. In some regards the use of ICOs can resemble<\/a> IPOs in which the SEC should regulate the money in a similar fashion. In other cases<\/a> the ICOs resemble future or forward contracts in which they were not be subjected to the same stringent filing requirements and oversight. The distinction between security and commodity is a fine line\u2013\u2013a line likely to be litigated in the projected future.\n\nOther countries have taken a more progressive regulatory policy towards the relatively newfound technology. Specifically, French officials have suggested<\/a> that the currency should remain relatively unregulated in its growth stage to promote adoption. They also advocate for rigorous adoption<\/a> of the currency to stimulate growth. The thought is that the use of cryptocurrencies within the marketplace will make countries who accept the currency more desirable. Such policies can be well determined by France\u2019s reduction<\/a> of the tax rate upon the currency from forty-five percent down to nineteen percent.\n\nPundits fear that regulation of cryptocurrencies could stifle growth of an exciting new way for payments and economic growth. Concerned legislators<\/a> on the other hand worry about the potential for crypto users to take advantage of the highly secure and private transaction blockchain technology to perform illegal transactions\u2013\u2013possibly expanding markets into illegal substances or banned firearms (all of which would slip under the radar of the government). In other words, the benefits of secure transactions and anti-counterfeiting capabilities also makes transactions for criminals easier. However, the Federal Bureau of Investigation<\/a> (FBI) has been using coders and academics to assist them with cracking blockchain encryptions and catching criminals performing illegal transactions. This has brought a new dynamic to the crypto atmosphere.\n\nAnother benefit and drawback of currencies like Bitcoin is the extreme volatility. Not only do sudden reports<\/a> of overnight billionaires attract investors during bullish markets, but the same is true for shooing investors when the market is bearish. This volatility<\/a> seems to be lessening over time but regulation could flatten crypto price curves more. Regulators must be cautious though because changes in the supervisory framework of cryptocurrency could reduce market-making activities.\n\nConversely the ambiguous nature and high volatility of cryptocurrencies won\u2019t necessarily last into perpetuity. Universities<\/a> are establishing ever-growing research programs into the technology of blockchain and digital currency. Sitting at the top<\/a> is Cornell University, which has established a dedicated program called Cornell Blockchain<\/a>\u2014part of a larger enterprise called the Initiative for Cryptocurrencies and Contracts. Programs<\/a> like these are working with other research universities to develop blockchain technology and create stable environments to use blockchain in a variety of settings\u2013\u2013most notably digital currency. Coinbase, a predominant player in the cryptocurrency exchange market, records<\/a> that top universities are offering additional courses in cryptos and blockchain with Stanford and Cornell leading the bunch. Universities providing<\/a> a prolifera of courses isn\u2019t just value-added to developing the technology itself, but also expanding the horizon of future adopters who believe that digital dollars are the future.\n\nCryptocurrencies undoubtedly hold a lot of speculation in terms of value and regulation alike. Not only does the new form of currency give promise of expanding growth but the high volatility and criminal concerns lead politicians to seek possible legislative matters to combat these ills and fully effectuate the benefits that digital currency provides. Therefore, regulation may demonstrate to be a complement to the propagation of the technology rather than its kryptonite.\n\n \n\nSuggested citation: Isaac Syed, Is Regulation Cryptocurrencies\u2019 Kryptonite?<\/em>, <\/span>Cornell J.L. & Pub. Pol\u2019y, The Issue Spotter<\/span>, (Nov. 9, 2018), https:\/\/live-journal-of-law-and-public-policy.pantheonsite.io\/is-regulation-cryptocurrencies-kryptonite\/.<\/span>","protected":false},"excerpt":{"rendered":"

Cryptocurrencies undoubtedly hold a lot of speculation in terms of value and regulation alike. Not only does the new form of currency give promise of expanding growth but the high volatility and criminal concerns lead politicians to seek possible legislative matters to combat these ills and fully effectuate the benefits that digital currency provides. Therefore, regulation may demonstrate to be a complement to the propagation of the technology rather than its kryptonite.<\/p>\n","protected":false},"author":1,"featured_media":2449,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[14,15,16,17,18,19,27,28],"tags":[211,218,329,428,584,1360],"class_list":["post-2448","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-archives","category-authors","category-blog-news","category-certified-review","category-feature","category-feature-img","category-recent-stories","category-student-blogs","tag-bitcoin","tag-blockchain","tag-coinbase","tag-cryptocurrency","tag-ethereum","tag-sec"],"acf":[],"_links":{"self":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/2448","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/comments?post=2448"}],"version-history":[{"count":0,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/2448\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/media\/2449"}],"wp:attachment":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/media?parent=2448"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/categories?post=2448"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/tags?post=2448"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}