The U.S.-based political think tank, American Enterprise Institute, recently published an essay arguing for the self-regulation of the cryptocurrency industry and said that government regulation should only be used as a last resort. Broynwyn Howell, author of the essay, started off by mentioning how it is understandable for governments that see the price volatility and technical complexity of cryptocurrencies to have an initial reaction to regulate cryptocurrencies.

However, he quickly points out that bad regulation could spell bigger issues and that governments should learn more about the industry first. He points to the emergence of the early financial shares market in the 18th century and bank-issued currencies in the 19th century as evidence for how self-regulation in various industries can function to benefit consumers.

“So long as alternatives exist, strong incentives are provided for those issuing currencies and operating the exchanges to address activities that decrease trust and therefore the attractiveness of their platforms to users. Users also have strong incentives to invest in information identifying those currencies and exchanges with stronger (more trustworthy) and weaker (less trustworthy) activities and governance arrangements” He then went on to mention how new businesses and analysts are emerging in the cryptocurrency space to “requisite investigations, thereby contributing to more informed actors and more efficient markets than would otherwise be the case.” Howell finishes the article by mentioning that government intervention and regulation should only be a last resort if there is clear evidence that self-regulation has failed.

Self-regulation benefits consumers The previous periods of market self-regulation that Howell mentioned benefited consumers since consumers were able to spend their money freely, and thus, encouraged businesses to act in the best interests of consumers in order to make revenue. This free market competition existed in the early financial shares and private bank notes market with little to no government intervention.

Today, this period is often said to have been “lawless” with “wildcat” banks, but it actually eliminated moral hazard since everyone was responsible for their own financial due diligence or unnecessarily risked losing their money. This disincentivized heavy risk taking and incentivized individuals and businesses to make responsible decisions, which in turn, benefited all consumers. Read more from…

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