Crypto is volatile because its price is a bet on its future adoption. Future acceptance depends on several uncertain factors, one of the most important of which is the potential impact of regulation. So what exactly are the regulatory risks for cryptocurrencies, and how much have they increased following bear market failures like Terra/Luna? Learn crypto breaks it down into a clear set of topics.
- The environmental arguments for crypto regulation
- Regulate the nature of cryptocurrencies
- Joe Biden’s attempt to regulate digital assets
- Regulation of exchanges, non-hosted wallets, and stablecoins
Crypto and Environment
Climate change is one of human civilization’s biggest and most urgent challenges. As a result, 200 countries came together at the COP26 climate conference in November 2021, trying to create a framework to limit temperature increases to no more than 1.5 degrees and net zero CO2 emissions by the middle of the century.
Failure to meet this commitment is expect to result in more extreme weather and sea level rise. With disastrous consequences for the environment, food production, and low-lying communities.
Although no specific agreement was reach at COP26, efforts continue, and there is no doubt that the issue of global warming is more relevant than ever at the political, commercial, and individual levels.
In this context, any industry consider a significant emitter of carbon emissions would be under the scrutiny of regulators, primarily if energy use is aimed at securing a decentralize currency that challenges the power of central banks.
Limit the Problem to Proof of Work
To understand the risk of cryptocurrency regulation, we first need to understand better what it is about cryptocurrencies that are perceive to be so bad for the environment because, in truth, it’s just one aspect specific to cryptocurrencies that are causing the problem. – Proof of mining activity.
A prominent feature of cryptocurrencies is the absence of any controlling authority. Instead, they exist as independent distributed computer networks that rely on accurate balances of digital assets. Such as coins, through consensus mechanisms encapsulated in software run by participating nodes. B. new forms of money, some.
Proof of work (PoW) is the agreement mechanism use by the largest cryptocurrencies by market capitalization: Bitcoin and Ethereum (although the latter is expect to change later this year).
How High is the Regulatory Threat of Proof of Work?
The magnitude of carbon emissions from Bitcoin and Ethereum has been compare to that of mid-tier countries because it grabs the headlines. Still, while the reality is much more nuanced. It has inevitably led to calls for regulation or outright bans on proof-of-work mining.
An EU vote in March 2022 to ban PoW mining as part of the broader Crypto Asset Markets (MiCA) process was narrowly defeat, but it may just be one fight within an ongoing war. The EU may classify PoW as unsustainable in the future, making Bitcoin derivatives less likely to be investable from an ESG perspective.
Regulation of the Nature of Cryptography
One of the biggest existential threats to cryptocurrency is currently being fought in US courts. With two separate cases focusing on what cryptocurrency is.
In March 2021, the Safeties and Exchange Commission sued LBRY, a decentralized media platform. For allegedly offering and selling unregistered security in the form of its LBC token.
The SEC’s decision to go after LBRY is strange given that it is a tiny fish in the crypto pond. Ranking 835th on Coinmarketcap at the time of writing, but the outcome could have a significant impact on thousands of projects.
Cryptocurrency, sometimes called cryptocurrency or crypto. Is any form of currency that exists digitally or virtually and uses cryptography to secure contacts. Cryptocurrencies do not have a central allotting or regulatory authority; instead of using a decentralized system to record transactions and issue new units.