Commendation Award Government should let markets regulate digital currencies

By Sean Bahk

Blockchain, bitcoins, and ripple.

A few years ago, such terms were unbeknownst to the Korean public. Now, they have become a household name. Regulations are being imposed on both a national and international level with G20 countries. The South Korean government has been dealing with this issue primarily through the Financial Services Commission (FSC), even revising its regulations this July to embrace such phenomenon.

This movement, however, raises the question, “Is regulation necessary for cryptocurrencies?” The answer? No. The market will adjust accordingly, regulation only brings forth more serious problems, the decision to partake in such transaction is completely voluntary, and if anything, cryptocurrencies have been a source of healthy academic and economic stimulation.

The market economy, or an economy that arises from the decentralized decisions of many firms and households, will render governmental regulations unnecessary. The free market argument, supported by renowned economists such as Adam Smith and Friedrich Hayek, states that the absence of non-market pressures will ultimately lead to the optimum allocation of resources. This has been true with any major cryptocurrency, its scarcity affecting its price and availability worldwide. Interactions take place in a highly codified network to prevent any illegal activity. If the government were to intervene in a well-functioning and established decentralized market, it would only cause more confusion.

When discussing governmental regulations, one has to realize that financial regulations in Korea were predominately established in the 20th century, with modifications made with time. How can one logically apply 20th century regulations to a 21st century event? Loopholes will be rampant and naturally, there will be those who will use these loopholes to their advantage. Even if strict regulations are made, there is just not enough information on cryptocurrencies to successfully cover each and every facet of the situation.

Even after decades of their implementation, well-established financial regulations have hiccups; imagine how detrimental the situation would be for a nascent phenomenon. On a bigger scale, once a widely-circulated product of value, in this case cryptocurrencies, is strictly regulated, black markets will surely emerge, making it even harder for the government to control due to decreased visibility. Less ― preferably no ― regulations will therefore help the cryptocurrency market run smoothly.

Another reason why cryptocurrencies should not be regulated is because any type of financial investment is by nature voluntary, and thus any negative consequences could have been avoided in the first place. Those who decide to directly invest have an implicit responsibility to study and accept the associated risks. The government does not necessarily have to protect someone from the consequences of his or her voluntary actions.

Even if the government were imposing regulations to prevent macro incidents such as money laundering, it should not intervene. Cryptocurrencies are already being regulated by a decentralized entity that uses complex cryptography to prevent mishaps. This is not the Korean government's job, but rather that of the engineers who control the network nodes of the digital currency. Regulation is pointless as investing in cryptocurrency is a voluntary decision in which each individual is held responsible, and more experienced cryptographers are readily available to manage the situation.

The last argument pertains to stimulation. Investing in bitcoin has been creating healthy competition. Potential investors, or any Korean citizen in this case, have been demonstrating considerably more interest in digital currency, exchange rates, and economics as a whole to make better investment decisions.

As a result, thousands of adults have been studying in their free time, and are now more cognizant of their personal financial situation, the Korean economy, and the variety of investment options available. Also, Korea is the fourth largest market for bitcoin as of August 2018, meaning large sums of money are entering Korean borders, which will attract foreign investment and increase GDP.

Those who have won money from cryptocurrencies will have greater disposable income, further stimulating the national economy. Companies too will make bolder investment decisions like seen with Bithumb, who took part in a $352 million M&A using mainly the profits it earned with cryptocurrency. Regulating the cryptocurrency market will only depress active learning about the economy and digital currency, as well as discourage consumption and investment, which will negatively affect the Korean economy.

Regulating cryptocurrencies may seem like the government's obligation. However, regulation would only bring forth more impending problems such as the emergence of a black market. Investing in digital currencies is an individual's choice and the cryptocurrency market mechanisms are already controlled by a larger entity; this is realm that the government does not have to and should not touch. Lastly, if anything, the lack of regulation encourages learning about the economy and finance, and increases spending by both individuals and companies. Cryptocurrencies by no means should be regulated. Let the market do its magic.