Regulation Can Solidify Cryptocurrency’s Bright Future

When the White House issued an executive order from President Joe Biden on March 9 asking government agencies to study digital assets and cryptocurrencies, it received applause from the industry. Cryptocurrency values ​​soared when the announcement was made, but I still think investors are underestimating the impact of regulation on digital assets.

Billions of dollars are flowing into Web3 developments, non-fungible token (NFT) projects, games to earn, and more. Regulation could actually help unlock this industry even further.

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Cryptocurrency is all about building

For most of the past decade, the cryptocurrency market was all about trading tokens. The values ​​of Bitcoin ( BTC -0.77% ), Ethereum (ETH -0.27% )and even a meme piece Dogecoin shot higher and that attracted more attention and traders. But cryptocurrency trading is a lot like currency trading. There aren’t many fundamental utilities behind cryptocurrency itself, but rather it’s what developers do on the blockchain that makes cryptocurrencies exciting.

When people talk about the usefulness of cryptocurrencies, it’s not the crypto itself they’re talking about, it’s the underlying blockchain they’re talking about. For example, NFTs on the Ethereum blockchain can be built with smart contracts that contain information such as where royalties should be sent if that NFT is sold, but they are not Ethereum cryptocurrency.

Cryptocurrency literally becomes the currency that powers the blockchain. On Ethereum, it even allows building blockchains on top of the Ethereum blockchain with other attributes, like Polygonwhich is known as layer 2 blockchain because it lives on layer 1 Ethereum.

I say all of this because I think the potential disruption to cryptocurrencies and blockchains will come from what people are building on top of the blockchain. NFTs and decentralized finance are one piece of the puzzle, but we could have new digital identities, wallets, homes, and whatever builders can think of. Cryptocurrency is all about building.

Build with a set of common rules

Like building a house, developers need a set of rules to build with. It’s not rules like where they can build, but rather what is and isn’t allowed between digital assets, owners, and any value they create.

For example, some cryptocurrency projects are sued today because they are called a security or a new currency, which is not allowed in the United States without the proper registration. But the rules are gray because most securities regulations were written almost 100 years ago.

This has an impact on investing because venture capitalists and individual investors do not know what is legal and what is not. Can an NFT promise to pay out 50% of a company’s profits as a payment (dividend)? Is the sale of a 3D model for $20 a taxable event? Can transactions take place with anyone in the world?

These questions seem simple, but they can be in a legal gray area when it comes to cryptocurrency today and it is a challenge if you are a builder or an investor creating a project on top of a cryptocurrency like Ethereum or Solana.

Bitcoin Price Chart

Bitcoin Price Data by YCharts

Investors are waiting

The amount of money flowing into crypto and blockchain companies is staggering. Venture capital firm Andreessen Horowitz sought to raise $4.5 billion in crypto funds earlier this year, Alexis Ohanian’s venture capital firm 776 recently closed a $500 million fund and Bain Capital just launched a $560 million crypto fund.

Investors are already pouring money into this industry and if the rules are better defined, this investment could grow and unlock incredible innovations over time.

Setting the rules will open a new phase of innovation

One of the reasons cryptocurrency investors, founders, and developers have called for regulation is because they know the rules of the road. The best players want to use NFTs and tokens as a disruptive force in business, not something nefarious.

This is why regulation, especially in the US and Europe, is generally seen as a good thing for cryptocurrencies and investors. Billions of dollars have already been poured into the industry and the right regulation can provide enough legitimacy to unlock even more value from blockchain.

This article represents the opinion of the author, who may disagree with the “official” endorsement position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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Regulation Can Solidify Cryptocurrency’s Bright Future

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