It is widely accepted that ICOs are high risk. Given the risks associated with ICOs, it is right for the government to regulate them. However, what is important is that governments introduce the right type of regulation, because of the benefits consumers and the cryptocurrency industry can achieve from this.
A number of countries and regulatory bodies have recently publicly taken a strong stance against ICOs. China and South Korea have recently imposed an outright ban on ICOs, while the United States and Canada have imposed strict rules.
ICOs are a reality of modern day finance and are here to stay. Strict laws and inflexible rules could potentially create more problems, especially for consumers who seek to invest in ICOs but will not have the safety net and protection that regulatory systems provide.
The right type of regulation for ICOs is a proportionate and risk based regulatory model that properly balances the need to support innovation with the need to protect consumers. A good example of the right type of regulation is the approach Gibraltar has introduced for the regulation of Distributed Ledger Technology.
Here are three key reasons why the government is right to regulate ICOs:
As with many financial investments, there is a risk of consumers losing their investments especially where they don’t receive proper advice and information to help them make informed investment decisions.
Regulation can set minimum standards businesses dealing in ICOs must adhere to which are designed to protect consumers.
Sift out fraudulent ICO ventures
ICOs are not currently regulated which makes it easier for unscrupulous businesses to defraud consumers.
Brad Garlinghouse of XRP recently said: “You are seeing examples of fraud,” and so it is “good that you have regulators intervening and stepping in, in countries around the world.” (Source: https://www.cnbc.com/2017/10/12/ripple-ceo-regulators-right-to-ban-fraud-cryptocurrency-sales.html).
The government is right to intervene in order to sift out fraudulent ICO ventures.
Improve confidence in the industry
Regulation improves standards of business practice which ultimately improves public confidence in the industry.