Zhuling Chen on cryptocurrency regulation in the East and West
aelf co-founder Zhuling Chen talks about different approaches to meaningful cryptocurrency regulation.
News of cryptocurrency crackdowns in China, South Korea, India and the USA has rocked the cryptocurrency markets many times before. News of tightening regulations has left cryptocurrency speculators scratching their heads and emptying their pockets, but for those in the industry, it can necessitate swifter action and deeper thought.
Zhuling Chen, co-founder of the aelf cloud computing blockchain network, might know this better than most, as the nature of aelf has brushed shoulders with different regulatory flavours around the world.
"Eastern countries, particularly on the Asia continent, take an 'explore first, regulate after' approach to blockchain innovation," he said to finder. "This has resulted in an explosion of blockchain activities in the region, with half of the global cryptocurrency trading volume centered in Asia, specifically South Korea and Japan. Interestingly, on the other hand, different countries in the East are polarized in their regulatory approaches. Japan, for example, takes the most liberal stance towards cryptocurrency. In contrast, China has taken a harsher approach by banning all crypto-trading related activities. South Korea stands somewhere in between."
"Western countries take a 'regulate first, innovate after' approach, as demonstrated by countries such as the United States and United Kingdom. This method stifles innovation to some extent and makes these countries less attractive to new blockchain startups."
This has been on stark display in the United States where a pre-emptive approach to consumer protection, coupled with a tangled web of different state-by-state regulations, has made life untenable for startups and caused expensive headaches for the bigger names.
Like many, Chen feels that borderless cryptocurrency technology would benefit from a standardised international approach. This final goal might be easier said than done, but there are still some ways to get the ball rolling.
"While having a universal approach to legislation across countries is difficult, creating a general framework for regulatory guidelines could help to standardise the approach for governments across the world. In order to do this, we need to clearly define the nature of cryptocurrency, and determine whether they should legally be considered a currency, security, commodity, or something else," he explained. "Then, we need to identify the main regulatory body which will set the precedent for how to control and regulate cryptocurrency. Lastly, we need to update tax, banking, and other financial legislation based on the agreed cryptocurrency nature and the main regulatory body's opinion."
This is a two-way street, Chen says. A healthy regulatory environment isn't just top-down, but also consultation and back-and-forths between the involved parties. Legislators, exchanges and cryptocurrency projects themselves should all be involved in this, as aelf has been.
"To encourage a global approach to cryptocurrency regulation, an open dialogue between projects and governments is needed. Many projects, including aelf, have been communicating their visions for cryptocurrency in media, blogs, and in meetings with government agencies to help facilitate this sort of open dialogue. The recent SEC subpoenas in the United States is one active step for regulators to collect further information about cryptocurrencies, enabling them to better understand what’s needed to encourage further innovation while also protecting consumers."
With many countries now examining the prospect of an interplay between national digital currencies, and public cryptocurrencies, many people, Chen among them, are expecting a future where the "official" and "unofficial" digital currencies exist side by side.
"Blockchain technology has liberalised currency issuance, making the transfer and exchange of currency easier than ever before. Therefore, we will see a world where non-sovereign backed – meaning cryptocurrency, and sovereign backed – meaning the dollar – currencies can co-exist," Chen explained. "Sovereign backed currencies may provide greater stability, but now, people will have the option to create stores of value outside of traditional banks and financial institutions through non-sovereign backed currencies. National currencies, such as the Venezuelan Petro, will also continue to pop up as countries understand and see the immense value that cryptocurrencies can bring to their economies."
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO