Cryptoeconomics Government – Cryptocurrency Regulations
How to regulate?
Now that we have covered the top 3 types of cryptocurrency coins of 2017, which are Bitcoin, Ethereum, and Litecoin. How should governments approach regulating the whole blockchain framework? We start by breaking down what governments and regulators can and cannot do.
Recall that in an earlier post we mentioned that it is tough to regulate what regulators will never be privy to. But since a blockchain operates on an open ledger, government officials can simply tap into Blockchain explorers which helps to aggregate all transactions within the blockchain framework.
Let’s use the popular cryptocurrency Ethereum to explain how a blockchain explorer works. Let’s utilize Etherscan. Etherscan is one of the many blockchain explorers specific to Ethereum. They help cryptoeconomists and users identify the different type of transactions that took place. A blockchain is named as such due to its continually extending chain of transactions that are added to the records of the framework. Thus, “blockchain.”
Although governments and those studying Ethereum cryptoeconomics can observe all transactions, they will not be able to identify the owner of the hash or wallet unless the owners moves to identify him or herself by initiating transactions with a known person on the Ethereum network. Thus, it would be nearly impossible to regulate the Ethereum network to achieve these goals.
It would help officials to recognize that wallet addresses are comprised of multiple letters and numbers look like this: “0xA0ff0158C48cEB7aa07D5aA108F122765C8A3D8A”.
What can be done/not done
Officials will NOT be able to use the blockchain explorer to:
1) Find out names of those who are richest – due to the nature of blockchain as explained above
2) Stop or halt transactions – again due to the nature of the blockchain. Even if government officials know the wallet address of a terrorist, they cannot stop the wallet from sending or receiving any tokens, although some blockchains allow the reversal/alteration of “time”, the Ethereum network essentially did that after it was revealed that many individuals lost their “Ethers” due to a bug in the main code of Ethereum. With a majority consensus, the Ethereum foundation conducted a hard fork creating two variants of Ethereum. One with the original time-line, and the other with an altered time-line for which the bug in the code was fixed and the hacker was not able to enact of the flaw of the Ethereum network. The original timeline Ethereum is known as Ethereum Classic today, and is managed separately from Ethereum.
Officials CAN use the blockchain explorer to:
->> Measure productivity, transaction, statistics: Usage statistics will all be available to everyone. Anyone and everyone can record all transactions that take place within the blockchain [in our case the Ethereum network]. The potential stands that government officials should not be able to obtain real-time & dynamic updates of production/consumption metrics. Thereby increasing the accuracy of statistics based reports that help to inform key policy makers of the health of the economy.
“A single good government is a blessing to the whole earth.”
– Thomas Jefferson
How should regulations be first implemented?
Firstly, governments should adopt a cautious approach as they are trying to understanding how cryptocurrencies can affect their domestic economy and their trading relationships with their friends.
1) Governments should start “Governance Cryptocurrency Associations” and sanction developments in the blockchain sector.
2) Governments can adopt neutral stance by signalling as a few countries. Countries can opt for a defensive-neutral stance by claiming that cryptocurrencies are not “currencies” or can choose to recognize cryptocurrencies as assets.
3) It is recommended that governments do not adopt a hostile stance against cryptocurrencies in general. As it is always advisable to have the tools to regulate rather than simply advocate an all out ban.
Cryptoeconomics Asia has two concurrent topics at the moment. Firstly, the micro cryptoeconomics series which is targetted for general readers who wish to understand current developments in the blockchain framework. Secondly, the government/governance series which are geared towards civil administrators and holders of public office.
Read about Crypto Microeconomics Series below.
Links to the Full Crypto Microeconomics Series
Crypto Microeconomics (Intro)
Crypto Microeconomics – Basic Definitions in Cryptoeconomics Part 1 & Part 2
Crypto Microeconomics – Role of Economics (Irrationality)
Crypto Microeconomics – Extended role of economics
Crypto Microeconomics – Introduction to Cryptoeconomic Microfoundations
Crypto Microeconomics – Basic Models and Agents
Crypto Microeconomics – IO Perspective
Crypto Microeconomics – The Real Economy