Blockchain – the cryptographic bedrock upon which cryptocurrency lies. Cryptocurrency is a virtual medium of value exchange, expedient, anonymous, and unencumbered by the compliance red tape of a centralized official regulator. These are just some of the well-known possibilities of blockchain technology. It is an unregulated piece of technology that allows for irreversible computerised tracking and recording of the origination and transactions of cryptocurrencies. The possibilities have indeed shown themselves to be exciting and virtually endless, but so too are the possibilities for nefarious uses for the technology. The regulatory decentralization and transactor anonymity have made convenient the perpetration of fraud, terrorist and criminal financing and other financial crimes. Thankfully, international and domestic financial regulators have recognised the need to protect their citizens against the dangers of blockchain technology in the financial world.
Herein lies a catch-22. Cryptocurrency and Bitcoin specifically, emerged as a response to the financial crisis of 2008 when consumers lost faith in official financial structures and institutions. A large part of the appeal of cryptocurrency is its anonymity and decentralization. They allow for speed, flexibility and unbridled innovation; users, proceed at your own risk. Imposing regulatory requirements on this technology is likely to defeat the very purpose of the freedom it’s supposed to provide.
So, should cryptocurrencies and blockchain usage be regulated, or should they and their users remain free from legal and regulatory constraints at their own risk? Firstly, this question is not an entirely new dilemma. It is the question that preceded the existence of all law and regulation, and the fact that law and regulation exist at all today is the answer. Regulation is necessary at the expense of freedom. This is the foundational reasoning for the social contract that exists between the government and the governed. Secondly, opponents of crypto and blockchain regulation are likely to pose this question as a false dilemma. Either blockchain users are protected by the chains of regulation, or users remain free and unsafe amidst the dangers of these virtual currencies and the enabling technology. We have seen and accepted generally that law and regulation are able to provide protection without robbing subjects of the freedom to live an autonomous and fulfilled existence. It is merely a matter of degree. Cryptocurrency and blockchain should not be so regulated that they are no longer the products that appealed so greatly to financial consumers in the first place. But at least some regulation is necessary, both to protect users and the many victims of the crimes that are financed by proceeds for exchanges in cryptocurrency. Admittedly, establishing the nature and extent of the regulation that should be imposed on these technologies has proven to be a difficult task. The technological complexity of blockchain calls into question if is capable of any valuable regulation at all, but just because a task is seemingly impossible, does not mean it isn’t worth a concerted effort.