What? This sounds completely out of character.
Allow me to explain.
The regulations are coming, we know this. In fact, we knew it for a long time. There was no way the governments of the world were going to allow cryptocurrency to waltz in and simply take over. This is especially true of the United States which is run by the banking industry. During the 4th quarter alone they spent more than $3 billion on lobbying.
Regulation is sold as "protecting the citizens" when we know it is really about the establishment. Whatever the motive (it is often taxes), the system takes action to defend itself.
Cryptocurrency is no different in this respect. Yet there is something that is really different which ends up making regulation a good thing.
Regulatory Uncertainty
Presently there is a lot of uncertainty around cryptocurrency among the established institutions. Many are not willing to engage in this industry for the simple fact that we are looking at a situation where any misstep can be costly.
With regulation, at least the entities know where things stand. This will allow for players to enter the market who were previously unwilling. It will mean more growth as they feel comfortable moving their clients into the sector. Plus it will likely provide a lot more exposure as companies with larger reach start to talk about cryptocurrency.
Cryptocurrency Is Global
We are seeing, right now, the United States coming at the industry with onerous regulation. This followed the Chinese government's stance on banning cryptocurrency mining within the country.
There still is a drop in the hashrate from before the ban was put in place. However, it did bounce off the low as mining equipment shifted out of China to other areas of the world. Also, in spite of the ban, many large orders for mining rigs were placed.
Hence we are looking at a situation where the result is the same, just that things move around.
When dealing with something that is global, there is no way to stop it. There will always be some country that seeks to exploit the situation for its own gain. We see this with El Salvador. That country's leadership sees this as a way to move up the global scale.
So while the United States is getting onerous with its regulation, others countries like the ones in Central and South America as well as Ukraine are taking the opposite approach. They see this as an opportunity to attract more investment and business as a result.
Therefore, the end result of legislation like the U.S. is passing will simply drive a lot of the crypto business off shore. Like the miners, they will relocate to more friendly countries.
Pushes Decentralization
Decentralized is outside the reach of the governments. Even if something is banned in one country, it simply shifts to the next.
For example, it appears that Proof-of-Stake might take a hit if one of the amendments passes with the bill. This is going to make like a lot more difficult (and likely expensive) for those operating nodes in the United States. Certainly we see a number of witnesses and API nodes on Hive that fit this description.
However, not all nodes are in the U.S. Many are run by people from outside those borders. So if there is a long-term impact on those U.S. based, plenty still exist outside the nation. In fact, there are a couple nodes that are being run in people's homes.
This regulation might cause some shifting around of things. It provides incentive to decentralize to an even greater degree. We can surmise that nodes will not be shut down but, rather, just move around.
Develop Around It
Sometimes government inadvertently works to the benefit of those it overseeing. This is one such instance.
It is now August 2021. Whatever form of this bill passes and becomes law, it will have a start date in the future. From what I read, this could be January 2023.
If that is the case, forget about it. Giving developers a 16 month head start is fatal. Whatever is in that law can be coded around. They will take the regulations laid out to simply use as a template. In other words, enough changes will push it outside the law.
Of course, the government might not see it that way but that is of no concern. The reality is:
We can develop faster than they can regulate.
The Securities and Exchange Commission is still sifting through the ICO craze. That took place in 2017. We are now 4 years beyond that and they are still dealing with that mess.
Since that time, the industry moved into DeFi, NFTs, and soon large scale gaming. What chance does the SEC have of ever catching up? With technology moving ahead at such a rapid pace, the inefficiencies of government trip them up.
Certainly they will seek to make examples out of some. We saw that with the ICOs. However, as projects take the approach of decentralizing, they will quickly move outside the reach of these entities.
Cryptocurrency is filled with a team of developers from all over the world. They have many different points of view. Yet what is common is the ability to bang out a lot of code. Collectively, this moves things very fast.
Regulation will bring more clarity to the situation for those entities that are concerned about that. It will likely do little to stop the adoption rate. Developers will simply create work-arounds for what is set before them.
When it comes to the race between coders and regulators, it is obvious which ones can move faster. To me, that provides the insight to where this is all going.
Of course, this is all part of a large process that will end up making the nation-state model obsolete too. It is going to be a fun decade.
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