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21 Feb 2022

Why Governments Should Regulate Bitcoin

Bitcoin debuted in 2009 as a concept of a decentralized monetary system to the world. Bitcoin had no precise applications in its early days and, most people acquired it due to its projected future potential. Today, it has steadily increased to become the most prominent crypto, recognized as a means of payment and a store of value worldwide. 

Thanks to the consistent campaigns by industry leaders and institutional investors, Bitcoin’s value and adoption have grown by mythic proportions. Most companies, businesses, and individuals using Bitcoin are mainly impressed by its decentralized, prompt, and low-cost transactions. That makes it a more reliable currency and asset than fiat currencies. 

However, the Bitcoin revolution has also impacted increasing concerns from governments and regulatory bodies, insisting they should introduce laws to regulate its accessibility and usage. Here’s why some governments propose Bitcoin regulation. 

Prevent Market Manipulation 

Cryptocurrencies, including Bitcoin, have high volatility, characterized by constant price swings. Like other digital currencies, Bitcoin prices have historically fluctuated back and forth. In recent years, this virtual currency has lost value significantly and gained a lot some times. Bitcoin’s prices mainly move upward and downward based on public perceptions, shaped by investor sentiments and the media. 

As such, some governments argue that corporations and companies with extensive Bitcoin holdings could intentionally manipulate the markets to their advantage. That would impact severe risks to investors and disrupt the entire crypto market. The lack of authorized information about Bitcoin and its complexities make it imperative to implement regulations to prevent large-scale investors from manipulating the markets. 

Reduce Cybercrime 

Several governments that have issued implicit and outright bans on crypto mainly allege that cryptocurrencies such as Bitcoin promote illegal online activities. Most critics have raised concerns about Bitcoin’s decentralized network, terming it a hotbed for cybercrimes such as terrorism funding, money laundering, and drug trafficking. They say the distributed blockchain network makes it extremely difficult for law enforcement authorities to track Bitcoin transactions, creating a loophole for cybercriminals. 

Unlike the traditional financial systems, Bitcoin enables its users to send and receive payments anonymously. Besides, Bitcoin transactions do not involve third parties. The public keys are the main elements of identification for Bitcoin users, which do not reveal their real-world identities. Those conditions offer enhanced privacy, making it difficult to track users’ identities and transactions on the network. 

Apart from drug trafficking, money laundering, and terrorism funding, Bitcoin’s popularity and higher value proposition have also impacted increased hacking cases.  

However, Bitcoin has no direct ties to any online criminal activity. Its blockchain technology validates all transactions on an irreversible digital public ledger, accessible to all users. Most countries where virtual currencies like Bitcoin are legal require crypto businesses, such as https://ethereum-trader.app/, to record and report their transactions to the regulators. That means it is still possible to track and apprehend criminals using Bitcoin without implementing regulations. 

Protect Investors and the General Public

The traditional monetary systems like banks usually have strict regulations to protect their customers whenever things go wrong. For example, laws exist to make sure they refund customers if their funds go missing from their bank accounts. However, Bitcoin does not have such regulations. That means a person might not recover the funds if stolen or lost. Thus, some governments insist introducing Bitcoin regulations will provide better protection for investors and the general public whenever problems arise. 

Overall, governments have unique reasons for introducing Bitcoin regulations. However, most of those reasons highlight challenges that the Bitcoin network could address without necessarily regulating Bitcoin. Government regulations would significantly interfere with Bitcoin’s operations.

 

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