One of the things that cause any investor the most fear, whether or not within the blockchain environment, is not being clear about the “rules of the game” or having the fear that precisely due to the lack of definition of a legal regulatory framework that guarantees their investment it could be lost.
Precisely the absence of regulatory bodies or the lack of centralization in the governance of blockchain projects is some of the characteristics that keep orthodox investors, more used to dealing with changes of opinion and policies of heads of government and boards of directors of large companies that leave the fate of their money in the hands of smart contracts, algorithms, and consensus protocols.
That is why today I want us to analyze whether effectively introducing regulatory mechanisms within the blockchain environment would mean an improvement in the valuation, by investors, of the cryptocurrency market and therefore an increase in capital raising and the increase in the value of crypto assets.
What are centralized markets and decentralized markets?
Within the blockchain environment, we can identify two large types of markets for the exchange of cryptocurrencies: centralized exchanges (CEX) and decentralized exchanges (DEX).
The CEXs are markets in which their governance resides in a company or a small group of investors, while on the other hand in the DEX the same users are the same who participate in the decision-making processes and their exchange operations they are regulated only through powerful Smart Contracts.
Cryptos and Exchanges Regulations
Generally, the first thing that comes to mind when talking about regulations is the figure of a repressive government imposing norms and laws that impede the development and even if possible the elimination of a certain project. However, it does not necessarily have to be this way the Dictionary of the Royal Spanish Academy defines the term regulation as "Determine the rules or norms that someone or something must conform to".
From the foregoing, we can then infer that the regulations can also refer to establishing legal or legal mechanisms that allow order and transparency in cryptocurrency exchanges and the development of activities within an Exchange, in a certain territory, country, or political-territorial organization. By the way, I am very aware that there are many countries for which blockchain projects represent, according to them, a serious threat to their state power, that is why they want to stop them, but some others have been able to observe the innovative potential that these types of projects offer.
Can exchanges be regulated?
Indeed, exchanges are susceptible to being regulated some countries already have bodies, laws, and mechanisms that seek to regulate this type of activity. However, depending on whether it is a CEX or a DEX, it will be easier or not to be able to establish centralized regulation mechanisms.
As we saw previously, a Centralized Exchange (CEX) depends on a particular company or economic group, which to exist must have, by law, a specific tax address, this forces it to comply with the regulations and standards imposed within the country where it has established its headquarters. Likewise, by having legal representatives, the regulatory body can establish sanctions against it.
However, when we talk about Decentralized Exchanges (DEX), the regulations are a little more difficult to apply, since there is no particular legal entity to be able to oblige or a tax domicile that allows determining the applicable legal jurisdiction.
Would it be positive to regulate the operation of cryptocurrencies?
This question can be better answered if we first determine what is pursued or what is the purpose of establishing a certain regulation, since, on the one hand, we have governments that seek to stop blockchain development, through the application of coercive measures that hit directly the functioning of the network, as in the case of China and its constant attack on the bitcoin mining sector. While, on the other hand, we have countries that, observing the benefits that the blockchain can generate, legislate so that it is developed in a transparent, legal, and secure way.
Regulations that only seek to hinder or slow the progress of blockchain projects or the free use of cryptocurrencies harm investors, since they raise doubts about the scalability or development of this type of project. These uncertainties end up having a very negative impact on the value of cryptocurrencies in the markets, as happened not long ago with the fall in the price of bitcoin due to Chinese government regulations.
But we also have cases of Switzerland, Japan, or more recently that of Salvador, which allows us to observe that there are countries interested in establishing legal mechanisms that favor the development and adoption of the blockchain and the use of cryptocurrencies within the sustainable economic development of themselves, this generates a positive perception of investors and causing the values of cryptocurrencies to increase.
To Caesar what is Caesar's
In particular, I consider that being one of the premises of the blockchain movement that operations are carried out directly between people, without necessarily depending on an entity that conditions them, the solutions regarding the regulations necessary for it to generate trust in Investors must come from decentralized environments.
The creation of projects that allow the constant audit of operation, the prevention, and identification of possible fraud and those responsible, the improvement of the characteristics of Smart contracts, and the creation of decentralized bodies for the protection and safeguarding of operations between users. It is the most appropriate way to implement healthy regulations that allow the increase in the volume of investors who believe, like us, in the security of the blockchain and its potential for the financial development of society.
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I think some regulations is not bad but too much regulation would affect the industry negatively. Cryptocurrencies are supposed to be decentralized after all.
I agree with you @chadrona, you definitely have to find a balance, but in particular I consider that the system should regulate itself and not wait for impositions from the governments of the world, which, as you indicate, could negatively affect the development of crypto projects.
Thanks for starting a discussion about this very important topic... As you said, the idea and the purpose of the blockchain and cryptocurrencies was to skip the middle man, but it is much more than that... Even if there are no regulations (which in my opinion is good), the crypto markets will find their way to be fair... Maybe it will need more time, but it will eventually happen...
And regarding governments in "helping" something to be better... Hmmm... Maybe there are examples of that, but usually, with interfering, we usually get worse results...
Cryptocurrencies are revolutionary different and I think that we should do an opposite thing than always... It's time to change the "orthodox investors" mindset and not crypto... We have to start thinking OUT of the BOX...
I have picked this post on behalf of the @OurPick project and it will be highlighted in the next post!
I share your opinion friend @ ph1102, hence I consider that the system should be self-regulating, decentralized projects should be established (in fact, already under development) to meet that need.
I am one of those who believe that governments have a role to play within the development of societies, but they are the same rulers who attribute more prominence than they should many times "stifling" the development of individuals.
Thank you very much for your valuable opinion and for the mention in the @ourpick project, very grateful for that. !!!
Have a beautiful weekend