The crypto currency market regulation can be divided into the legislative and executive regulation.
The first includes the possibility of non-recognition of digital money as a financial instrument by the state due to the fact that the existing legislation just does not have necessary regulatory mechanisms. In such a case, the new draft legislation is supposed to be established which will influence the formation of the crypto industry within the law. An alternative of the legislative regulation foresees the recognition of the crypto currency as an analogue of fiat money or a type of existing currencies. In this case, the existing draft legislation would require additions and amendments.
The executive regulation includes two options:
- to control crypto currencies within the legal framework;
- to integrate digital currencies into different areas of activities and manage them by means of tools that influence these areas.
A significant disadvantage of the executive regulation is that it cannot provide technical supervision: verify the identity of a person carrying out transactions, influence and monitor or restrict such transactions.
Many states note the importance of the issue related to the crypto currency regulation. For this purpose, new solutions are being developed, as well as proven tools to influence this segment of the economy are being used.
The main regulatory tools:
- This usually involves exchange trade, but sometimes, taxes are imposed on both mining and ICOs, and, in principle, any crypto currency transactions.
- It provides a license for any activity related to digital money.
- Comparing mining to the commercial activity. It is introduced to collect taxes and register miners.
- Crypto exchange registration. It ensures legal opening of the crypto currency exchange in the jurisdiction of the state with the fulfillment of the certain requirements: disclosure of user data, prohibition or restriction of transactions for certain users etc.
- KYC verification during the registration on exchanges, online exchangers and e-wallets. This procedure comprises the provision of the personal data by a user (most often, it is his/her passport or its scanned copy, but conditions can vary for different resources).
- ICO legalization. As a rule, organizers have to disclosure their identity in order to collect taxes and manage ICOs.
- Recognition of crypto currencies as an investment asset. It is regulated by the financial structures to attract investments and protect investors.
- Recognition of crypto currencies as a payment method. It implies control of money turnover by financial institutions. Usually, a state receives information on private individuals or legal entities that have digital currencies in their accounts.
In practice, control over crypto currency markets within the state is possible only if the following two conditions are met:
- the government of the country introduces the crypto currency into the usage and its use will become impossible without regulatory structures;
- the draft legislation comprising a set of the crypto currency control methods is formed, which will enter into force simultaneously for all states in the world.
The first of the two alternatives seems more realistic. It is obvious that at this development stage of the crypto industry the countries will act randomly regarding the crypto currency, and methods of crypto currency regulation will be different in each state.
Advantages of Regulation
More often, regulators are quite loyal to users of crypto currencies. For example, abolition of taxes to carry out transactions can prove this fact. In addition, digital money regulation has a number of advantages, which open new prospects for the formation of the crypto currency market.
Increased level of safety may be considered as one of the main advantages of the crypto currency market regulation. At the moment, ICOs are implemented outside the legislative regulation that makes them more risky. ICO regulation will solve the problem.
This refers to exchanges, e-wallets, online exchangers etc. If now users trust their funds to unknown owners of these resources, the information will be available to the public with the help of such regulators, and everyone will realize that unlawful actions will always result in legal responsibility. In addition, regulation of the crypto industry will promote its development by means of state resources, and not only by means of contributions from private investors.
The regulation of crypto currencies will ensure their additional stability and significantly reduce their volatility, which will attract major investors and have a positive impact on the whole crypto industry development.