Top 3 reasons why governments demand regulation of cryptocurrency

Whenever we hear about another government drafting a regulation for cryptocurrencies, we can’t help but smirk a little bit at the hypocrisy of politicians and their approach to these digital assets.

The reason why so many people laugh at the sight of new crypto regulation is due to the direct contradiction of such a law with an already established understanding of cryptocurrencies in the political world.

For example, dozens of governments have not recognized cryptocurrencies as money, but treat it as such. Most try to classify it under securities but they can’t find definitive connections between the already established understanding of security and a crypto coin. Therefore, they simply push it into the class of hobbyist assets or something completely harmless, and then regulate that sector to oblivion.

This mostly causes collateral damage to industries that were already classified under this specific sector, which is why the negativity towards cryptos tends to grow institutionally as well as on a retail level.

But why regulate cryptocurrencies? What are these digital coins which are ultimately nothing but a line of code have so dangerous about them that governments want to keep under control? Well, let’s find that out through this article.

Siphoning tax dollars into the economy

The first reason that causes cryptocurrency regulation is the potential tax that governments can put on the asset. Understanding it is quite easy. You can’t tax something which is not recognized as something of value, and in order to recognize it as something of value, you need to include it somewhere in the law, thus we get cryptocurrency regulations.

Almost every draft you can take a look at mentions cryptocurrencies as some kind of asset class, which would then determine the level of taxation. The most common tax is, of course, the capital gain tax, which is calculated through the profit of exchanging these assets. The most common industry we can find this tax is a foreign exchange, which draws quite a lot of parallels on whether or not cryptos are money.

A sub-reason of taxes is to somehow minimize the cases of tax evasion from the population. You see, there are specific cryptocurrencies around the world that are designed to completely hide the identity of their owner, before, during and after the process of purchasing them.

This was a very popular method for Australia real money pokie games as they would encourage their customers to deposit fiat currencies, exchange them for local tokens, spend a set amount of them on the platform and then they would be allowed to withdraw these funds as cryptocurrencies.

Even if the deposit on these platforms would be recognized by a government authority, they would classify the lack of withdrawals as money lost while playing, thus not follow up on the taxation of the individual.

However, through regulation, governments would pretty much force citizens to use traceable cryptocurrencies on such platforms, or prohibit these platforms from allowing crypto withdrawals.

Nobody can truly say they’ve worked like a charm, as the end goal was pretty much the same. The amount of taxes being added to the treasury each month did not increase nor decrease. Why? Because the fact that people avoided taxes on cryptocurrencies does not mean that they avoided taxes overall. The cryptos they’d get would still circulate in the local economy, thus still be funneled into the national treasury.

Security and control

The second argument that most governments put forward when installing a crypto regulation that it’s dangerous for the safety of the nation.

Most of the argument revolves around the financing of terrorist groups that would plan on inflicting some damage to the country. However, it has been confirmed multiple times that cryptocurrencies are not being funneled towards criminals and that most of the crimes as well as terror attacks are still being funded through fiat money. Why? Because it’s very easy to smuggle them outside of the country as they’re mostly physical items and can’t truly be controlled by the government 100% of the time.

However, in terms of security and control, most people tend to agree that it’s worth having a regulation for. But that’s the only part about the legislation that they agree with. Everything else that requires the payment of taxes and identification is out of boundaries.

But the fact is that security requires some kind of sacrifice. And in this case, that sacrifice is supposed to be privacy, which some people are not ready to give up.

Study and analysis

The next reason is the study and analysis of this new industry. We need to recognize the fact that cryptocurrencies were introduced in the modern financial market very quickly. So quickly in fact that even the developers themselves had not studied the technology completely.

Therefore, the only plausible decision from governments was to either ban these new digital assets that people were buying up, or to regulate them to an extent where they buy some time to study them.

Unfortunately, the first time cryptocurrencies became available in the market, most governments decided to go ahead with a permanent ban, thus hindering the development of the assets. But this development was a hindrance to the value rather than the technical side, but then it caused collateral damage in a sense where developers could not fund their new projects anymore.

So, in retrospect, the banning or strict regulation of cryptocurrencies as a means to study them hindered those very same studies as actual local applications could not have been taken into account, thus losing priceless data.

Should there even be regulation?

Cryptocurrencies should be regulated and every crypto fan who is truly aware of how they work will agree to this.

The ultimate goal of Bitcoin and pretty much every altcoin is to either replace fiat money or become a worthwhile alternative.

In order to do so, it needs to be kept in check so that it loses some of its volatility. Otherwise, it’s simply too risky for large-scale transactions and usage as millions if not billions could be lost in just a few hours from a small price movement.