Many governments are facing problems in providing a suitable environment for all innovations of cryptocurrencies. They are trying to ensure that companies in the same environment performing the same functions should be regulated similarly. Every effort has to be made in a way that protects and keeps the consumer interest in the first place. Heavy-handed laws and regulations risk restricting innovation & dispel potential businesses that are based on digital currency.
If we think from the investor’s point of view, cryptocurrency regulations are very crucial. Too little regulation may expose cryptocurrencies to criminality, and the result of such criminality affects the customers and the economy. By establishing the perfect rules for cryptocurrencies, the world’s governments can convert the crypto exchange market into a safer place for investors.
Below we have mentioned five reasons why cryptocurrencies have to be self-regulated:
Prevent from Manipulations and Investors Protection
Market manipulations and their price volatilities are common issues of cryptocurrencies. Cryptocurrency-based crime has risen hugely over the past two years. Spam/ Scammers took about $14 billion value of cryptocurrency last year compared to 2020 when $7.8 billion was taken by scammers. Based on a report from blockchain data company Chainalysis, there are 17,000 plus altcoins, which are very speculative and volatile. They showed a prominent risk of cryptocurrency scams and frauds.
The most advanced cryptocurrency platforms understand that several new and emerging risks exist in the world of cryptocurrency. However, it is also good news that there are many ways to protect cryptocurrency. New digital asset banks like Protego Trust Bank, for example, is federally regulated, meaning it provides the appropriate regulatory framework and oversight to enable clients to engage with digital assets.
Novice investors should watch out for some usual red flags of scams and frauds. They are associated with the classic money, and credit card, such as apparent misspelling of words in emails and social media posts, fake promises to help you make rich, or even big-scale social media cryptocurrency schemes such as rug pulls.
To keep safe your digital wallets from hackers, you should practice and adopt good digital security manners, for example, using a hot/cold wallet for more safety or holding your cryptocurrency in a robust security exchange. It’s also imperative to keep track of the wallet’s key/password and don’t tell anyone. Because losing or stealing your key means losing your cryptocurrency altogether.
Helps in the Selection of Cryptocurrencies
Thousands of crypto exist worldwide. Although, many investors are only aware of a few of them, such as Ether, Dogecoin, Ripple, and Bitcoin. Many investors know little about the thousands of other virtual financial assets.
So, for the customers’ security, the issuance of particular laws from any regulatory authority should be the priority. Later the crypto market has to be fully aware of all the regulations needed for the excellent performance of the digital assets exchange and their potential risks.
Understanding the Risks Attached to Technology
We all know that technological advancement is at a very high pace. These regular enhancements carry significant risks; for example, changes may obsolete the existing technology of a user, such as a blockchain, which will become outdated in the future.
The adoption of rapid change in technology, professional financial advisory skills, and information infrastructure is necessary for cryptocurrency management. In this way, traders can understand the technological risk of cryptocurrencies and would be able to make informed decisions.
Risks of Online Fraud and Cyber Reliability
If a trader invests in cryptocurrency, he must face another risk: online fraud. Hackers are a crucial threat prevailing worldwide, and cyber-security issues have become very common. A single cyber-attack may result in a massive loss for investors who have kept their savings in the form of cryptocurrencies. By proper laws and regulations, forex authorities can implement protective measures to protect cryptocurrency and other investors’ financial assets. Also, investors can inform their concerns, or in case of loss, they can reclaim their investments.
A client due diligence procedure is similar to a bank, which can assist in keeping track of traders’ original identities and verify their residency when they start buying or selling cryptocurrency exchanges. Any non-compliance with such rules and regulations should be later dealt with with severe sanctions. These regulations and their non-compliance prohibited the client and brokers from doing any negligence on their part.
Two vital anti-money laundering aspects are customer due diligence & reporting of suspicious activity.