KYC, AML, SEC, FED, and above all IRS. The initials everyone loves to hate. Crypto assets are supposed to offer freedom to do whatever you like with your money, regardless of how much or how little you own. Isn't that right? Unfortunately, things are not as simple as black or white.
Once upon a time...
...there was the wild west of crypto. In the early days, transactions in crypto-assets represented only a few thousands of dollars. It was the time when only Bitcoin existed, and the few exchanges were struggling to keep the lights on. Even back then though, there were evidence that without regulation, people would be scammed, and scammers could get away easily. Mt Gox showed that nobody is to be trusted, because every developer or exchange owner, is deciding to work on crypto-projects to make money, not for charity. If there is no apparent employer (who is also expected to run a project for profit), the developer will take money from the users of the project - either ethically, or not.
The thing with users is that they are happy to get things for free, and not so happy when they have to pay for services they receive. Exchanges are more keen to disguise their fees by mispresenting quoted prices, rather than charging commissions directly. It's the most 'innocent' - and most frequent - fraud committed in the crypto world. It's so frequent, that it's considered to be normal.
Regulate or ban?
Crypto is banned in some countries, like China. There, there is only one regulation: crypto is not allowed. Period. In the recent fraud committed by PlusToken wallet developers, users have lost all assets they held, with no compensation. All stolen assets, worth over 4 billion (with a B) dollars, were confiscated by the Chinese government. Why? Because those assets were not supposed to be owned by anyone, in the first place.
For any government, it's easier to ban something, rather than to regulate it. Regulations exist to protect the people from fraudsters, without limiting the constitutional right to freedom of ownership.
'Do your own research' is a bad joke
Placing regulations on any activity, means that those conducting that activity need to follow specific rules that are placed to protect those who are unaware of how to do proper research on whether the activity is fraudulent or not. That is pretty much everyone.
There is a simple rule in fraud: Establish trust, first. If the future victim does not trust the fraudster, no fraud may be committed. In the crypto world, from Mt Gox to PlusToken, all fraudulent projects seemed to be legitimate up to a point. They were working as expected. Until they were not. Take Metamask. It seems to be working fine up until now, and you trust Metamask. But what if the dev team decides to steal your assets on the next METAMASK version? All of a sudden, your crypto is not at all safe in your 'cold storage' account. Do you know how to verify there is no malicious code prior to installing the next Metamask update? For the vast majority of users, the answer is no.
Is there any way to verify there is no malicious code in Uniswap contracts? And don't rush to fall in the trap that they have their contracts certified by an independent organization, because that was for their first version. The second version is not certified by anyone. Yet millions of users are flocking to use an unregulated exchange, risking their assets - and not only assets that are committed to liquidity provision.
That's exactly what regulators do. They place rules for market participants to follow, so the people can trust the market. If anyone refuses to follow those rules - or even worse refuses to have any such rules in place - his or her integrity is questionable.
Regulators are not perfect
There have been numerous incidents that market participants pretended to follow regulations, while in reality they were not. Imagine though how the market would look like when market participants knew there are no regulations and anyone was free to defraud everyone, without facing consequences. That's where we stand today.
Yes, following rules is inconvenient. But losing all your assets, because you trusted someone who can easily make you believe he or she is honest and legitimate, is more inconvenient than following rules.
