Chapter 19 - Crypto regulation

Abstract

This chapter discusses regulation around an unusual but popular type of crowdfunding: cryptocurrencies. Specifically, we examine initial coin offerings (ICOs), and how this application of crowdfunding mechanism has the promise for economic innovation. The distributed ledger technology, also known as blockchain, is gaining traction globally. Riding on the magnanimous promises of the blockchain secure validation mechanism and decentralized mass collaboration, cryptocurrencies are the newest asset class being introduced to investors worldwide and are being used by companies to raise capital to further their development of the advancement of blockchain technology via ICOs. The substantial inflow of unregulated capital into a transactional and transnational industry has aroused interest from not just investors but also national securities and monetary regulatory agencies. In this chapter, we explore the potential for blockchain to exacerbate the already decentralized economy. We review the Securities and Exchange Commission’s initial statements on ICOs to illustrate the potential problems with applying a dated legal framework to an ever-evolving ecosystem. Recognizing the inability of enforcement within existing regulatory frameworks, we argue for the regulation of the crypto asset class and internal collaboration between government agencies and developers in the establishment of an ecosystem that integrates investor protection and investment.