By Sota Watanabe, CEO and Founder, Astar Network
While some in the crypto community see regulation as a way to stifle the future of blockchain, regulation and legislation may actually be the saving grace for future crypto adoption. The issue with any form of regulation is consensus. Currently there is a patchwork of rules, laws, and legislation across the world as countries try to catch up with the rapid adoption of cryptocurrencies and blockchain technology.
Regulation has the potential to protect investors and adopters in the long term, preventing scams and instances of fraud while providing clear guidance to companies and individuals on how they can operate within the crypto ecosystem. This guidance and protection also has the added bonus of providing confidence to those larger institutes and enterprises hoping to enter the sector.
This can impact both monetary investment and those of resources too. Larger businesses are less likely to make risky plays in sectors that don’t have a defined system of checks and balances to protect themselves and their stakeholders. Long term business sustainability relies on confidence and confidence can be created through regulatory consensus.
Modelling on success
Japan has emerged as an early role model for crypto regulatory success. In the past few months, Japan:
- Became one of the first major economies to regulate stablecoins
- Consulted on the screening process around tokens and marketplaces, and
- Began looking into revising its’ laws on the seizing of illegally acquired crypto assets to fight cybercrime
What makes these moves so important for the market is the prospect of clearly defined regulations for a fragmented legislative landscape. As emerging markets and smaller countries look to adopt crypto and incorporate it more heavily into their economy it will be essential to have a regulatory role model like Japan to follow.
Why regulate now?
There are a few reasons to regulate the blockchain market from giving institutes the green light to invest through to moving from a purely speculative asset to one that holds intrinsic value.
Financial institutes are famously slow moving when it comes to technical innovations, in small part due to the heavily restrictive nature of cross-border working which hinders investment efforts. As blockchain tries to establish itself, uniform regulation makes this task of cross-border investment much easier to understand and therefore a much more lucrative option for larger businesses. Financial institutes need to be able to understand the landscape they’re about to invest in and be able to easily do that no matter the country. In the case of Japan, the regulation of stablecoin is a great example of how the market can be opened up to wider investment and approached more confidently from a legislative and business perspective.
If other countries were to follow a similar path to Japan and use their regulation as a basis for their own legislation, financial institutes and investment groups suddenly have whole markets opened to them in one motion. Not only is this a massive boost of confidence for groups who won’t part with their cash easily but the opportunities for each country involved goes up astronomically.
The other important step in crypto asset regulation is understanding what is purely speculative and what is a usable asset. Crypto projects, upon being classified in line with well defined regulations, will be able to be better understood as the parameters in which they can operate are more finely defined.
Currently most blockchain projects are theoretical; this is especially true for cryptocurrencies which have very loose ties to real world value and act as a speculative token rather than an asset. Just as the example above lays out, major institutes and big businesses are hesitant to invest – either monetarily or with resources – into projects which don’t have clear use cases.
As well as categorising crypto assets, regulation also puts valuation against these digital goods. Tokens having a high price or NFTs skyrocketing after small market moves aren’t actually a good thing if blockchain wants to be considered a serious ecosystem for businesses to operate in. Take, for example, the huge climb of Bitcoin’s price in late 2017 which eventually led to a price retrace where investors faced catastrophic losses due to over-valuation.
Regulation may seem like it goes against the core tenets of decentralisation, but a more stable market brings with it bigger investing pools open the crypto door to the common person, and allows growth to be organic and based purely on the merits of the asset being discussed.
