Cryptocurrency, the revolutionary digital asset, has taken the world by storm. But with this innovation comes a regulatory challenge. The US currently relies on a patchwork of agencies, each with its own focus, to oversee this rapidly evolving landscape, and the limitations of the system have been shown more than once. It’s more than just confusion over whether cryptocurrencies are a commodity or a security, it’s a matter of recognizing how tokens are different from anything US regulatory bodies have dealt with before.
Whether it’s the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) attempting to regulate cryptocurrency, both are accustomed to dealing with static items, argues Alexandra Damsker on CoinDesk.
Cryptocurrency tokens, however, are very different from being static items, and because of that, neither the SEC or the CFTC are equipped to regulate them.
Consider everything a token represents, depending on the blockchain it’s a part of:
- Utility: Tokens can grant access to a specific service or functionality within a blockchain project. For instance, a token might be required to play a blockchain-based game or use a decentralized storage network.
- Security: Security tokens represent ownership in a real-world asset that’s been tokenized on a blockchain. This could be a share of a company, a piece of real estate, or even a rare artwork.
- Governance: Some tokens provide voting rights within a decentralized project. Owning these tokens allows you to participate in decision-making processes for the project’s future direction.
- Assets: Tokens can also represent digital assets themselves. Non-fungible tokens (NFTs) are a prime example, where each token represents a unique digital item like a collectible image or in-game item.
- Partial values: Items broken into parts generally become securities (hello SEC); however, tokens broken into parts can be commodities (enter the CFTC). Tokens can also become whole again at any time, reinforcing their dynamic nature.
- Transaction fees and transactional actions: Tokens can represent a transaction, or they can represent transactional fees. In both cases, no regulation should be required.
In summary, cryptocurrency tokens are unlike traditional regulated items in every sense. The current system might leave gaps and loopholes due to the evolving nature of crypto, opening the US market to potential calamity if such vulnerabilities are discovered.
A new regulator, on the other hand, could emphasize consumer protection and build trust in the market by establishing clear guidelines for cryptocurrency exchanges, wallets, and other service providers. On top of that, a dedicated US regulator could work more effectively with international counterparts to address issues like money laundering, tax evasion, and cross-border transactions. Altogether, it would help to create more buy-in on the part of consumers and institutions alike. The rest of the world seems to be moving a lot quicker on cryptocurrency adoption and regulation, which means the US could be left in the dust if we don’t act soon. Not only would thoughtful regulation protect consumers, but could also be a huge boost for the cryptocurrency market providing some degree of security and stability that institutional investors are looking for.
