Why Crypto Fraud Should be on Top of Every Self-Regulation Agenda
Globally, the cryptocurrency industry has been gaining traction. In recent years, the technology that underlies digital currencies has been used to develop solutions across sectors. In marketing, platforms such as Noiz Chain and Qupon are facilitating interactive advertising and marketing of virtual coupons. URAllowance is enabling family interactions using smart contracts while ONe Network is improving security in social media in the social space.
For the last two years, regulation has been a major challenge in the cryptocurrency industry. This has been triggered by the growth of the industry that saw its market capitalization hit the $800 billion by the end of 2017.
At the beginning of this year, the cryptocurrency market experienced a crash whose impact the market is yet to recover to date. One of the factors that triggered the crash is regulatory uncertainty in the cryptocurrency space with impending crackdowns anticipated in countries such as China. With time, countries, as Malta Island and Abu Dhabi in the UAE, have taken steps to develop regulatory frameworks to guide the industry, but most countries have yet to do so.
To increase confidence in the cryptocurrency industry, self regulation is beginning to take shape. Earlier this year, industry players came together and formed a self regulatory organization called CryptoUK. The US is following this path too as several cryptocurrency exchanges, namely Bittrex, Gemini, bitFlyer USA and Bitstamp, have formed the Virtual Commodity Association (VCA). At the same time Blockchain Exchange Commission is pursuing a similar SRO to propel regulation.
While self regulatory organizations will play a key role in overseeing the growing cryptocurrency market in the US, questions arise regarding the issues that such organizations should focus on addressing. German Tanov, the co-founder/commercial chief at IOU holds that self regulatory organizations, such as VCA, need to advocate for the interest of cryptocurrency players.
He says, "VCA must lobby the interests of the blockchain community and developers in the world political arena. This opinion is due to the fact that at this point in time the political system is so arranged. And also the creation of a unified methodology for raising funds for small and medium-sized businesses through the initial coin offerings (ICOs)."
The lack of a comprehensive legal framework to guide cryptocurrency market operations has seen fraudsters flood the cryptocurrency space. Innocent investors have lost millions of dollars in fake projects with more cash being lost through hacking incidents that target cryptocurrency exchanges. According to Raghav Reggie Jerath, CEO of Gath3r, cryptocurrency fraud should be among the key issues pursued by SROs.
He says, "The first issue should be to address the issue of fraudsters/pump and dump. There needs to be some level of regulation to prevent actual bad actors from fleecing folks for their hard-earned money. The current Reg CF/Reg D/Reg A, and IPO regulations make it too hard for a new company to crowdfund to a level that would benefit a new tech startup. This increases reliance on individual investors which goes against the decentralized nature of blockchain computing. New regulations need to be implemented that recognize the ease of token creation/distribution, allow for more individuals to invest how/when they want, and to protect them from bona fide bad actors."
At the same time, Jerath feels that more energy needs to be put in defining tokenization. He adds that, "SROs should also establish proper definitions of tokens and tokenization. Probably including a scale or spectrum of what tokens are and can do. This would hopefully give investors, regulators, and industry specialists an objective method of determining what their token is."
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.