Lack of structured regulations to guide the cryptocurrency industry has been a major hindrance towards the adoption and mainstreaming of the cryptocurrencies. Due to the lack of such regulations, the cryptocurrency ecosystem has had its fair share of losses via scam activities. Such activities have also brought disrepute to legit businesses in the cryptocurrency space.
The result of these challenge has been high volatility, increased risk for investors and blanket condemnation of cryptocurrency activities by governments in different parts of the globe.
On the other hand, legitimate industry players have had to deal with the insurmountable task of converging different stakeholders to develop self regulatory frameworks that are agreeable across board.
Even with these challenges, the cryptocurrency industry has recorded significant progress. Many creative projects have been launched on blockchain, the technology on which cryptocurrencies are built. In the marketing space, such projects include interactive marketing project, NoizChain, digital coupon marketplace, Qupon and online customer satisfaction platform, IOU.
In the social space, URAllowance is using smart contracts to improve family interactions while ONe Network is enhancing social media security. The financial sector has seen the largest number of innovations. They include HFC Coin, the mortgage lending and investing platform, BQT that is facilitating cryptocurrency trading on a peer to peer platform and LiveTradr that is enhancing portfolio optimization.
At the same time, significant progress has been made towards attaining workable self regulation frameworks in countries such as Japan, the UK and South Korea. In these regions, industry players have already formed self-regulatory organizations.
The wave of self-regulation is slowly catching up in the US. A few months ago, four cryptocurrency exchanges - Gemini, BitFlyer USA, Bittrex and Bitstamp - came together and formed the Virtual Commodity Association (VCA). The association convene to set modalities for staffing and composition of the self regulation organization (SRO). In the same meeting, membership guidelines were formulated and industry best practices were shared and discussed.
On the same note, the Blockchain Exchange Commission (BEC) is pursuing a similar SRO to propel regulation. According to some players in the industry, these developments are long overdue for the US cryptocurrency industry.
Raghav Reggie Jerath, CEO of Gath3r says, “The setting up and operationalization of an SRO needs to be done quickly. The US is rapidly losing ground in the crypto space to countries that are embracing the new technology.”
Once established, the SRO needs to prioritize issues relating to blockchain organizations according to Jerath. In his view, the VCA and BEC should ensure that companies govern their operations on the blockchain systems. Such a move would help harmonize crypto operations and enable easy identification of market participants.
"Some jurisdictions (Delaware/Wyoming) have passed laws stating that blockchain tokens can be used to represent a company and its shares. The VCA and BEC need to be pushing to allow this at a greater level, so that organizations can mirror the technology that they support. Most companies should have their governance run on a blockchain system," he adds.
The other critical issue that SROs need to focus on is formulation of guidelines on market rules and best practices. Having such guidelines in place would promote fairness, risk management, transparency and liquidity in the market. By tackling this SROs will form alliances with government regulatory agencies considering that this has been a major problem for most regulators.
All in all, formation of self-regulation organizations is a key step in eliminating the need for governments to develop strict regulations that may not be ideal for the industry's long term purpose.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.