The team here at MEDIA Protocol are deeply committed to creating a more direct, transparent and secure ecosystem for content creators, publishers, and consumers through the revolutionary application of blockchain technology. In fact, it’s the very revolutionary nature of the technology that really excites us.

We’d like to share our thoughts about blockchain technology and how we see it progressing into the future, hopefully demystifying and clarifying some of the misconceptions that currently exist about blockchain and its applications. We want to help create a common understanding of the technology for everyone’s benefit.

This series of articles aims to explore developments within blockchain technology, the relationship between institutional investors and blockchain, and the move towards regulation within the space. We want to help everyone — the marketeers, the technologists, and the content consumers — understand the potential for this game-changing technology.

Strap in, and welcome to the MEDIA Protocol Future Of Blockchain Series.

Part 9 — The Birth Of Crypto Regulation

The crypto landscape is highly changeable. And whereas some may point to this as a sign of volatility and instability, many in the space see it as part of its evolution — a sign of its willingness and need to adapt. As the global market ebbs and flows, new ideas surface in response to new needs. This constant change is often what draws investors to the cryptosphere, they seek the excitement and innovation that crypto can bring with with.

But in 2018, a new force arose to alter the map — regulation. Never before has there been such a divisive topic in the cryptoworld.

Supporters of regulation believe it will offer legitimacy and stability to the market — allowing established investors and financial institutions a route into crypto, while offering less risk and more security. As a result, many of the developments currently happening within crypto are in response to these increasing demands for its legitimation.

On the flip side, those against regulating the market argue that it could stifle new growth. Proponents of the complete democracy, decentralisation and anonymity of crypto feel the rise of regulation could lead to more bureaucracy within the space, forcing disruptive innovators and newly emerging projects away due to the increase in red tape.

The problem is, if crypto isn’t regulated, it could risk being banned altogether.

For crypto to become mainstream and legitimate, regulation seems key. However, with each country or territory exploring their own ways to regulate blockchain and cryptocurrency there could be severe disparity in how the regulation is handled.

Japan — A Template For Regulation

While a large portion of Asia is still crypto-resistant, Japan are leading the way in building a clear framework for how virtual currency exchanges and ICOs should operate. They’re the first country to have full regulation for crypto, with 16 government-approved and licensed institutions.

Japan have always been crypto-friendly, however they were dealt a massive blow in 2014 with the Mt. Gox hack, which saw the Tokyo-based cryptocurrency exchange become the target of the largest bitcoin hack ever.

In response to this heist, the international body Financial Action Task Force (FATF) issued a hefty 46 page report, Guidance of Risk-Based Approach to Cryptocurrencies, which advised countries to license virtual currency exchanges and subject them to the same rules and regulations as other financial institutions.

Japan took action on this report and revised its Payment Services Act, legally recognising cryptocurrency as a method of payment. The law also stipulates that any virtual currency exchange doing business in Japan, or with Japanese citizens, must register with the country’s Financial Services Agency (FSA). These regulations, currently focused on regulating ICOs, are constantly being monitored, amended and appended to keep in line with the continually changing landscape.

The Japanese outlook on crypto is an important one. Not only is this evidence of regulation providing more safety and security to investors, it’s a positive example of regulation sidestepping the danger of a stifled market. Crypto is thriving in Japan, with more than 3.5 million individuals trading in digital currencies.

China — A Confusing Stance On Crypto

In contrast to Japan, their close neighbours China have been far less receptive to crypto. In 2017 a blanket ban was placed on all cryptocurrency trading and domestic exchange. This means that although it isn’t technically illegal to own cryptocurrency, it is illegal to trade it.

In addition to this, the ‘Great Firewall of China’ is being used to block access to foreign exchanges to prevent Chinese citizens performing any cryptocurrency transactions.

However, in a startling contrast to this, the Chinese government has shown an overwhelmingly positive attitude towards blockchain technology and have even been exploring the possibility of their own blockchain ecosystem.

Perhaps this is where the Chinese crypto problem lies — drawing the distinction between the currencies and the technology that powers them. On the surface it seems they want to be able to exercise a level of control over cryptocurrency and blockchain technology, rather than ban them outright. But until such time as the required regulatory frameworks are established, it appears that the ban will remain in force.

The US — State-to-State Strategy

Similar to China, the US seems to have a slightly confusing take on crypto. Currently, the regulation implemented varies from state to state, so what’s acceptable in one state may not be so in the neighbouring one.

A small number of US states have put legislation in place to legalise crypto for tax purposes, and on the whole the US is in favour of heavy regulation to protect their investors. However, a handful of states, including Nevada and Texas have declared their stance by making blockchain transactions tax-free.

The SEC, the CFTC, the FEDs, and now the IRS all have differing opinions as to whether crypto is a security or a utility, and as such cannot agree on the regulation required. This disparity makes national US regulation and overall compliance difficult to maintain.

Malta — Blockchain Island

Malta are angling to become a blockchain haven, with the government passing a number of new laws and guidelines to help new fintech and crypto businesses trade. On July 4th, three new laws were added allowing companies to easily issue new cryptocurrencies as well as trade existing ones.

Gibraltar — Welcoming and Friendly

Gibraltar has actively embraced distributed ledger technology, welcoming blockchain companies to The Rock by creating the necessary infrastructure and legal frameworks to enable projects to set up and base themselves in the British Overseas Territory. In January 2018 the Gibraltar Government wrote the Distributed Ledger Technology Regulatory Framework into law, meaning that blockchain businesses would need to be authorised by the Gibraltar Financial Services Commission (GFSC) as DLT Providers.

The GFSC believe: “A flexible, adaptive approach is required in the case of novel business activities, products, and business models. We consider that regulatory outcomes remain central but are better achieved through the application of principles rather than rigid rules. This is because for businesses based on rapidly-evolving technology such hard and fast rules can quickly become outdated and unfit for purpose.”

The UK — The Future Is Crypto

While the UK isn’t at the forefront of the crypto revolution, it is receptive, and analysis by the Big Innovation Centre, DAG Global and Deep Knowledge Analytics suggests the UK has the resources and governmental will to become a global hub for crypto technology in the near future.

The UK has recently seen seven of the largest crypto companies join together to create the first UK blockchain industry trade body. CryptoUK has become the first self-regulating cryptocurrency organisation in the country, and is responsible for releasing a code of conduct aiming to promote industry best practice.

Working in conjunction with the UK Government, CryptoUK wants to assist British blockchain startups and platforms to ensure they comply with AML and KYC regulation, with Iqbal Gandham, the Chairman of CryptoUK stating that the organisation can become “the blueprint for what a future regulatory framework will look like.”

A Regulated Future

The world is currently standing on the precipice of a complete crypto revolution — one where regulatory frameworks will offer the safety and security to allow for new blood to enter the sector. And while there are legitimate concerns that the industry could be stifled with red tape, a delicate balance of freedom and regulation could only allow for more innovation, as the cryptosphere attracts new talent and institutional investors drawn by the less risky atmosphere that regulation can offer. The result could see a significant increase in trading volume that may just help crypto go mainstream.

Read All Parts In Our Future Of Blockchain Series

Part 1 — What Is Blockchain?

Part 2 — What Does The Future Hold For Blockchain Technology?

Part 3 — Why Aren’t Tokens Mainstream?

Part 4 — Investing In The Future

Part 5 — Trading Platforms

Part 6 — Custody

Part 7 — The Security Of Regulation

Part 8 — How Does Regulation Change The Game?

Part 9 — The Birth Of Crypto Regulation (This article above)

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