Redefining “stringent” for an inclusive and collaborative crypto regulatory system

Regulation is a necessary step towards better business. Companies are incentivised to behave more ethically and innovate when faced with binding legislation. We have seen this across a number of areas, from gender pay gap disclosures to carbon emission reporting. Today, stringent regulation has become a common practice in helping businesses achieve valuable goals.

Kevin Murcko

CEO and founder of Coinmetro This is a bitter pill to swallow for the crypto industry, which is founded on the idea that self-determination and decentralisation provides unique opportunities that traditional finance restricts access to. But even tight regulation should not be seen as limiting, it should be welcomed as a tool to usher in new possibilities and improve efficiency.

The need to rethink crypto regulation The way crypto regulatory rules are created and enforced must be reconsidered. Much of the opposition from the crypto sector is born from the idea that mainstream finance is imposing its processes and priorities on our budding entrepreneurial space. Crypto drives a whole new way of thinking about currency, so its regulatory framework should similarly think outside the box and be independent of legacy methodology. The crypto financial market is fundamentally different from the traditional system in the nuanced blockchain-enabled technology it relies on. In the new financial market, stringent should come to mean automated. With automation, we will be able to police and block illicit transactions and better protect users who are still learning about cryptocurrencies.

The regulatory system has traditionally been built on trust, with third-party validating agreements. Blockchain continues this legacy but has taken away the need for a human actor. So, transactions can be fact-checked and validated without human bias influencing outcomes. In this sense, a “stringent” process will involve less regulators to create a better functioning regulatory system.

The crypto industry wants to distil the positive attributes of regulation. Any legitimate player would echo this sentiment and want to protect its customers. We want to make sure there are no illicit transactions and to stop fraud and theft. A blockchain-enabled system in which you can rely on the data would provide faster, more cohesive responses to threats.

However, the sector also wants to remain free of traditional finance’s pitfalls, for instance those with bigger bank accounts being seen as a better investor. To date, this has limited the ability for most of the population to take advantage of the opportunities that exist in the financial world.

The crypto financial market is fundamentally different from the traditional system in the nuanced blockchain-enabled technology it relies on.

The need for greater collaboration To create regulation that works for the industry, crypto players need to be on the inside working with regulators. Staying on the outside and criticising regulation is only going to create more rules that don’t work. Digital asset exchanges and their users know more about the dangers and opportunities of crypto than regulators’ highest paid risk analyst. They should feel empowered and know that their participation is valuable in the development of regulation.

Respectful and collaborative regulation is the way to truly revamp finance to the benefit of customers, enabling exchanges to carry out their caretaking duties to the highest standard, without limiting opportunities for their customers or stifling innovation in the industry. If we evade it, we are not involved in it, which means the end result won’t be one that anyone likes - except for the traditional financial players who could eventually, in their minds, take over this market and take what they like and destroy what they don’t.

The future of crypto regulation Stringent needs to become grounded in data and automation. This will improve efficiency and block bad actors from the system. In turn, this will create unbiased trust and allow closer collaboration between traditional and decentralised finance.

While this reality is not immediately around the corner, we must now kickstart this journey to reach a regulatory promised land sooner rather than later.