By Michael B. Cohen
Vice President of Global Operations
MyChargeBack
Despite the risky financial environment created by cryptocurrencies, fluctuation in bitcoin price, and the reality of crypto fraud, it seems fairly certain that digital currency and the blockchain are here to stay.
As governments and consumers around the world call for more oversight and protection against fake crypto exchanges and fraudulent brokers on the blockchain, the Financial Conduct Authority, the main regulator in the United Kingdom organized the CryptoSprint conference to discuss problems and solutions and envision what a crypto regulatory regime could look like.
Current regulatory practices for cryptocurrency don’t go much beyond anti-money laundering provisions. The aim of the conference was to go beyond these present crypto rules and address challenges of regulation, the mechanisms and technology available and how best to provide oversight for cryptoasset holders.
The conference focused on three central problems: Issuance and Disclosure, Regulatory Hooks, and Cryptoasset Custody.
Issuance and Disclosure
One of the main pitfalls for the cryptocurrency industry is that many crypto users are unaware of the risks involved, particularly in crypto trading, and the nature of the technology.
Participants in the conference discussed ways to encourage or require full disclosure of risks, terms and conditions, and other information consumers need to make informed financial decisions.
Others recommended that crypto assets should be categorized according to risks, volatility, or technology used. There was no solid agreement on whether these disclosures should be the responsibility of the exchange or the issuer.
Regulatory Hooks
Since there is no requirement currently on the blockchain that users disclose their location, the problem of national regulation becomes a pressing one. This is further complicated by decentralized crypto exchanges that don’t have a central authority.
One proposed solution was to create decentralized autonomous organizations (DAOs) that could be regulated by the FCA if they met requirements. Participants discussed the possibility of cross-border regulatory requirements and how these could be applied. The aim would be to make these regulations significantly exacting but sufficiently flexible to adapt to different locations and advances in technology.
Crypto Custody
The pseudonymous nature of the blockchain makes it difficult to determine who really owns cryptocurrency. An additional problem is finding ways to help cryptocurrency holders to safeguard their keys and prevent them from falling into the hands of hackers
Problems and Solutions in the Crypto Sector
The conference raised issues and proposed regulatory solutions. Some suggested that regulators should avoid “reinventing the wheel” and instead adjust existing financial regulatory mechanisms to suit the crypto industry.
Others recommended using blockchain technology to aid the regulatory process. An additional proposal included self-regulation as a preliminary step before the implementation of government policy solutions. This may include an agreement among crypto exchanges and platforms on best practices to enhance security and transparency.
Participants in the CryptoSprint conference also discussed other pressing issues such as the environmental impact of the crypto sector, redress in crypto fraud cases, market conduct, and operational resiliency.
The CryptoSprint conference marked another step forward on the road toward cryptocurrency regulation. Although the conference seemed to have raised more questions than answers, it’s clear that the push toward creating rules for the crypto industry is becoming more forceful as crypto users show that, despite volatility and fraud risks, they aren’t leaving the blockchain behind any time soon.
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