As digital currencies increase their popularity, countries all over the world are looking at ways of legislating some level of control over their use. Does this really represent a threat to the ongoing development, adoption and use of digital currencies, or can legislation ever be a good thing?
Looking at the kind of legislation various governments are seeking to implement is vital to the understanding of how this will affect the cryptocurrency industry, not all legislation is created equal, and it is not always necessarily a negative thing.
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As digital currencies grow in popularity the more pressure comes from governments across the world to instigate regulation, we have seen various attempts such as the BitLicense passed by the New York Financial Regulators in 2015, to the current process being undertaken in Japan to define digital currencies and their place in the financial world. However, opinion is divided on the worth of these measures, with many seeing this as an attempt to control digital currency itself from government, although some form of regulation is welcomed by others after situations such as Mt Gox.
Does this kind of maneuvering by authorities represent a danger to the concept of digital currency itself? This depends on the kind of legislation, and perhaps the first thing we have to accept is that not all legislation is inherently bad. The Bitlicense itself certainly is flawed, in essence it requires cryptocurrency businesses to obtain permission of the authorities to make any changes to, or add, services, products and so on within the state. Not only is this simply impractical for startups, but even for smaller established businesses it presents an administrative overhead that is simply not practical. This is an example of poorly implemented, heavy handed legislation that can do harm.
The Japanese are taking a different approach, and seem to be heading towards defining digital currencies as a form of asset, and more specifically likened to property assets rather than currency. If passed, this means that exchanges operating in Japan would need to separate client and company assets, satisfy local anti-money laundering and customer identification legislation, and have all finances regularly audited. While this does add a level of bureaucracy that has not been present before for the industry, it is also a framework that benefits, offering protection for both exchange and users. In an ideal world, such measures would be avoided, but in the reality of Mt Gox and others, it is perhaps a good compromise.
Only time will tell just how the legislation battle taking place as countries around the world seek to take some control of digital currency pans out, it is important to assess each in its own right though, legislation in itself does not have to be a bad thing.