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Strong Crypto Regulations Are Needed for the Industry to Thrive

6 mins
Updated by Kyle Baird
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In Brief

  • Cryptocurrency is still mostly a speculative investment, with few real-world applications.
  • The crypto industry needs to be adopted for real-world use cases, such as cross-border payments, to provide a stable source of demand and reduce volatility.
  • Stellar (XLM) could serve as a model for cryptocurrency integration with financial systems, with the potential to make cross-border payments faster and cheaper.
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Despite its potential to revolutionize finance and commerce, cryptocurrency has yet to gain widespread adoption. A major reason for this is the lack of strong regulation in the industry. Without it, the sector is plagued by constant volatility, uncertainty, and a lack of real-world use cases.

It is imperative to put regulations in place to provide stability and security for investors and users for cryptocurrency to reach its full potential.

The Importance of Crypto Regulation

Cryptocurrency operates in a largely unregulated space, which has led to several problems. For example, there have been instances of exchanges being hacked, leading to the loss of millions of dollars worth of cryptocurrency. There have also been cases of fraudulent Initial Coin Offerings (ICOs) that have taken advantage of investors. These issues not only harm the people directly involved, but they also damage the industry’s reputation as a whole and make it difficult for it to gain mainstream adoption. 

And the recent FTX meltdown and Kraken lawsuit add to the seemingly never-ending litany of bad press. Ironically, the FTX scandal had nothing to do with cryptocurrency per se but was rather just a case of old-fashioned fraud.

Moreover, the lack of regulation means that there is no standardization in the industry. Different cryptocurrencies have different protocols, making it difficult for users to switch from one to another. This lack of standardization also makes it hard for merchants to accept multiple cryptocurrencies, as they would need to implement different payment systems for each.

Another issue with the current lack of regulation is the volatility of cryptocurrencies. Their prices can fluctuate wildly, making it difficult for merchants to accept them as payment. This is because they would need to convert the cryptocurrency they receive into a fiat currency, which would be subject to the volatility of the cryptocurrency. This unpredictability makes it near impossible for merchants to plan their finances, as they cannot know how much their revenue will be worth at any given time.

The Role of the SEC

The US Securities and Exchange Commission (SEC) is one of the regulators that has taken a keen interest in the cryptocurrency industry. The SEC has been actively cracking down on fraudulent ICOs and has taken action against several exchanges that have been found to be operating illegally. This enforcement has sent the industry a strong message that it must adhere to certain standards to operate.

The SEC’s enforcement of regulations has been a positive step towards bringing stability to the industry, yet their approach has been scattershot. The SEC’s actions ostensibly give investors and users more confidence in the industry, as they know safeguards are in place to protect them. This, in turn, will make it more likely for cryptocurrency to gain wider adoption. Still, uncertainty abounds.

A Need for a Consistent Approach to Crypto Regulations

For cryptocurrency to truly thrive, there needs to be a consistent approach to regulation across the industry. Different countries have different approaches to crypto regulation, which can create confusion and make it difficult for the industry to operate on a global scale. This also makes it difficult for users and investors, as they have to navigate different regulations in different countries.

For cryptocurrency to reach its full potential, regulations must be standardized across the industry. This would ensure that everyone is working to the same standards, making it easier for the industry to operate globally. It would also make it easier for users and investors, as they would have a clearer understanding of what is and is not allowed.

Real-World Use Cases

Another important factor in the success of cryptocurrency is the development of real-world use cases. Currently, cryptocurrency is largely a speculative investment with few real-world applications. Speculation and hype largely drive the value of cryptocurrency rather than actual use.

For cryptocurrency to truly thrive, it must be adopted for real-world use cases.

This would provide a stable source of demand for the currency and make it less subject to the volatility that currently plagues the industry. For example, if cryptocurrency were widely adopted as a means of payment, merchants would be more likely to accept it as a form of payment. This, in turn, would increase demand for the currency, making it less subject to the volatility that currently makes it difficult for merchants to accept it.

One example of a real-world use case for cryptocurrency is in cross-border payments. Currently, cross-border payments can be slow and costly due to the need to convert from one currency to another. Cryptocurrency has the potential to provide a faster and cheaper alternative to traditional cross-border payments, making it a valuable tool for businesses and individuals.

Stellar as a Model for Cryptocurrency Integration with Financial Systems

Stellar is a cryptocurrency that has the potential to serve as a model for how cryptocurrency could work within the existing financial system to move money faster and much cheaper on a global scale. As a decentralized platform, Stellar allows for the transfer of any currency, including fiat currencies and other cryptocurrencies, in a fast and cost-effective manner.

One of the key features of Stellar is its use of the Lumens (XLM) cryptocurrency as a bridge between different currencies. This allows for the seamless transfer of funds from one currency to another, eliminating the need for time-consuming and costly currency conversions. This makes it easier for individuals and businesses to move money across borders, as they can simply transfer funds from their local currency into Lumens and then into the desired currency.

Financial Inclusion

Cryptocurrency has the potential to make cross-border payments faster and cheaper. It also has the potential to serve as a financial inclusion tool.

Because it allows for the creation of decentralized financial systems, it can serve communities currently underserved by traditional financial institutions. Individuals in developing countries may have limited access to traditional banking services.

Integrating Stellar (or Ripple) with existing financial systems could provide several benefits. However, they can still use cryptocurrency to transfer funds and access financial services. This would lead to a more efficient financial system and benefit financial institutions and their customers.

Stellar eliminates the need for costly currency conversions by using a decentralized platform and a bridge currency. The integration of cryptocurrency with existing financial systems has the potential to bring numerous benefits. It can increase financial efficiency, providing inclusion for underserved communities. This allows for the seamless transfer of funds between different currencies. Yet, there are significant roadblocks. Namely, central governments and the global banking industry.

The Conflict Between Cryptocurrency and the Traditional Banking Industry

The global banking industry and central governments have a vested interest in maintaining the current financial system. And as a result, they may oppose the goals of the cryptocurrency industry. Cryptocurrency’s decentralized and borderless nature has the potential to disrupt traditional financial systems. It can provide a faster and cheaper alternative for moving money. This disruption could lead to a decline in the power and influence of traditional financial institutions and central governments. They would no longer have the same control over the flow of funds.

Central governments have a particular interest in maintaining the status quo. They rely on the current financial system to collect taxes and regulate the economy. However, cryptocurrency’s decentralized and borderless nature makes it more difficult for governments to monitor and regulate the flow of funds. This could lead to a decline in tax revenue and a lack of ability to control the economy, which could, in turn, lead to a decline in tax revenue and a lack of ability to control the economy.

A Vested Interest

The banking industry also has an interest in maintaining its position. It wants to continue serving as the primary intermediary in the movement of money. Cryptocurrency can potentially disrupt the banking industry by eliminating the need for banks to serve as intermediaries in financial transactions. This would reduce the banks’ profits and lead to a decline in their power and influence.

Agencies heavily regulate the traditional banking system. Many laws and regulations are in place to protect consumers and prevent financial crime. Some view cryptocurrency, as a relatively new and unregulated industry, as a potential haven for criminal activity. It is difficult to monitor and regulate. This perception can lead to resistance from the banking industry. And central governments who are concerned about the potential harm that cryptocurrency could cause.

Final Thoughts

The cryptocurrency industry has yet to gain widespread adoption, partly due to a lack of regulation. The lack of regulation has resulted in problems such as exchange hacks, fraudulent ICOs, and unpredictability in pricing. The US Securities and Exchange Commission (SEC) has taken a step in the right direction by cracking down. But there needs to be a consistent approach to regulation across the industry. Regulation by enforcement isn’t sustainable.

Furthermore, developing real-world use cases for cryptocurrency is crucial for its success. Stellar serves as a good example of a cryptocurrency with the potential to integrate with the existing financial system. It can provide faster and cheaper cross-border payments. Regulation is necessary to ensure stability and security for investors and users in the industry.

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