Commendation Award Integrity of cconomy: cryptocurrency regulation
By Minjei Sky Park
Minjei Sky Park
The rise of cryptocurrency in the past decade is more than simply a technological feat; it is a real-world incarnation of an experimental monetary system. As with any unprecedented innovation, the technology's bounds have yet to be measured. Hence, it seems imperative that a governing body implements some regulatory measures to maintain the integrity of the nation and its economy.
A key concept to establish before moving forward is the nature of regulation noted in the essay. When discussing whether Korea should regulate cryptocurrencies, it would be remiss to assume that a complete ban or a 1984-esque?oversight will be in order. Rather, it would be beneficial to all involved parties to primarily establish a “regulatory sandbox,” in which the intricacies of cryptocurrencies can be explored, and later implement a framework to combat price manipulation.
But why should Korea even bother to attempt regulating cryptocurrencies? After all, Andreas M. Antonopoulos, one of the world's foremost bitcoin and open blockchain experts, claims that regulation is impossible.
First and foremost, the volatile nature of cryptocurrency's value does not bode well for the nation's economy. Unlike the trading charts of other currencies or goods, that of cryptocurrency resembles waves in a violent sea storm.
In other words, the value changes spontaneously and drastically. The instability of cryptocurrency naturally lends itself to the issue of over-speculation. In research findings published in Forbes magazine, LendEDU, a student loan refinancer, found that a majority of cryptocurrency buyers are utilizing credit to finance their investments, hoping to pay back the debt with prospective returns― the same behavior that arguably triggered the 2008 financial crisis.?
Fearful of the growing speculative bubble, the Korean government implemented some basic regulatory measures like requiring real names during the transaction of cryptocurrency and banning ICOs. Although these are good first steps, the value of cryptocurrency must?be stabilized to prevent the speculative bubble from bursting.
A potential methodology is to mimic the European Union by placing macroprudential policies at the forefront of the financial agenda, promoting stability of the financial system as a whole. In the 2016 FinMaP policy letter, Roman Horvath notes that financial crises are heavily detrimental to a nation, specifically “in terms of economic activity and overall welfare of citizens”, revealing that it is in the state's interest to control cryptocurrency in order to maintain general public security.
Secondly, it is the indisputable duty of a just government to prevent and police illicit activities. With the rise of popularity and availability in cryptocurrency, a more thorough regulation of this previously untouched asset may be in order. Research conducted by Sean Foley and Jonathan R. Karlsen revealed that in its unregulated state, “over one-half of cryptocurrency transactions and one-quarter of cryptocurrency users are associated with illegal activity.”
In numerical terms, over $72 billion worth of illegal activity has been conducted per year. It would be ill-advised for a national government to condone the use of this technology, as to do so in its unregulated state would be the equivalent of condoning criminal activities. The regulatory sandboxes mentioned in the introduction can be a platform where developers and customers can experiment with new forms of relationships and transactions and where governments can learn. These test beds can try methods of self-regulation and smart contracts that make fraud and illicit trade harder, with government regulation filling in where a trusted third party is needed.
When debating the regulation of cryptocurrency, the notion of cryptocurrency's status as a form of currency often arises. However, it is important to stress that the mandate of government regulation stands regardless of whether cryptocurrency is considered to be a type of currency. The discussion is simplified once that classification is made, yet there are other clear reasons, like the previously mentioned problem of a speculative bubble, that call for government regulation.
For the sake of simplicity and brevity, the question of currency status has been purposefully removed from this argument in an attempt to illustrate other facets of cryptocurrency that call for regulative measures. It would be remiss to simply wave aside the necessity of government oversight by stating that regulation contradicts the essence of cryptocurrency. While that may be true, the priority of the government is to protect the people, and the speculative bubble along with the unethical activities that accompany cryptocurrency are a direct threat.
The primary intention of a government should not be to hinder the?technological process, especially one that may pave the path to an innovative future. However, it is merely logical to implement some form of regulatory measures, like financial safeguards or a sandbox platform, in order to preserve the nation's economy and fulfill the directives of an ethical government.