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Witnessing the digital breakthrough

Regulating the unregulated

16 August 2017 00:00, UTC
Regulating the unregulated
By Margaret NAIL
The emergence of blockchain technology has triggered processes that have slipped out of regulation and state control. First, there were cryptocurrencies, brainchild of developers who put under a threat the whole system of money creation. Secondly, ICO market, totally hidden from the view of states, began to attract money which fuel the banking system, and therefore country's entire economy. All these facts made authorities act by urgently studying emerging crypto economics and trying to find ways to put all these processes under control. Bitnewstoday.com figures out whether it is possible to regulate ICO and the cryptocurrency market.

Why all this talk?

At first sight people on the streets may find absurd all these discussion about the regulation of ICO. On one side, there is a talented developer who has generated a brilliant idea that can make the world around better. However, he has nothing but ideas and "brains", and banks do not finance such projects. On the opposite side, there is an ordinary person who has money and who dreams to multiply them. It's worth noting that banks can't help him as well, since deposit interest rates are in general lower than inflation rate. And what's wrong with the fact that an investor may finance the idea? It is his right.

However, it would work if everyone had a high level of responsibility. But, unfortunately, due to society's imperfection, largely because of the love for "quick profit" the above-mentioned scheme "developer-investor" often fails. Harmless at first glance, this relationship can lead to the loss of the investor's money, not only because the idea turned out to be not so genius, but because some wanna-be developer wants to make a fast buck.

These are the moments when investors think of the state and ask for protection. In their attempts to create a strategy for regulating ICO authorities pursue not only their own selfish goals (to retain power in their hands), but also seek to reduce social tension.

Moving into ochlocracy

Elina Sidorenko, Head of the Working Group on cryptocurrency issues in the Russian State Duma, spoke at the conference "Strategy and Rules of Investing in ICO and Technology of Public Blockchain Projects", which was held in Moscow on August 2. She noted that the key problem of the ICO market is the complete absence of guarantees for its participants. Seeing all this hype around the cryptocurrency, people withdraw their money from bank accounts and invest them in buying tokens. The expert specified that people are withdrawing "white" money having paid the taxes, and transfer these funds to the informal sector. And almost no one thinks about how to turn grey money into white again in the future. Sidorenko believes that neglecting the need to regulate ICO and other processes with cryptocurrency will lead society to ochlocracy.

What experts think

Market participants mostly tend to believe that ICO needs self-regulation, since each step taken by the authorities will be treated as restrictive and prohibitive, that will "kill" the very idea of ​​raising funds for projects by issuing tokens. However, many share the common view that the state will still be able to put regulation on the ICO market.

Many experts agree that the ICO sphere needs to be regulated, but not limited. "In this respect, the USA seems to have come to a proper understanding. This is a new direction with great prospects. At the moment the projects for detecting scammers are created only within the community itself. The state will never miss a chance to control large amounts of money, so it will definitely take some regulatory stance there. It will guarantee the rights of participants and at the same time it will get its profit from turnover. I am sure that at the moment the process of setting the rules is in full swing," believes the representative of FxPro, department for the company's development and innovation.

At the same time, Avetis Vartanov, Head of Training at QBF, said: "At first glance, it might seem that regulating the status of the initial coin offering will have exceptionally positive results and promote transparency of the market. But it is necessary to consider that the largest national fintech companies will likely to start hiding from the regulators, not wishing to show their incomes."

Aleksey Pospekhov, Head of FUTUR CAPITAL believes that over time, the entire cryptocurrency industry will be induced in the legal field through clear recommendations, creation of common frameworks or self-regulatory organizations. However, this will take a lot of time and efforts.

"This work is absolutely a mammoth task, because for the first time in history, a new digital asset class is created. Its properties and the resulting economic and legal relations obviously contradict with current business practices and many small regulatory norms. As for European Union it is estimated that such work can take at least 2 years before all parties of the ICO and cryptocurrency are codified and implemented," Pospekhov believes.

The first steps in regulation

The first country that made attempts to regulate the cryptocurrency environment and the ICO sphere is the United States.

A few weeks ago the SEC issued an investigative report on equating ICO-projects with securities, and accordingly warned about the mandatory registration of these transactions in the near future. Russian authorities have promised to determine cryptocurrency status in the next year.

Experts note that in the near future other countries will follow the example of the United States. Therefore those ICO owners, who have indiscriminately approached the choice of jurisdictions, may be outlawed.

Certainly at this stage of society development, the sphere of ICO needs to be regulated. However, understanding that these processes are new and still unknown, the market should either be self-regulated under the clear control of the regulator, or appropriate legislative initiatives should be discussed with the leading market participants.



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