In the centralized finance world, people trusted their money to banks and other financial institutions that could steal it. Forcing crypto companies to register with a central authority makes no sense, as they would waste valuable time and energy.
The US Securities and Exchange Commission (SEC) charges Coinbase with trading in unlicensed securities. The agency stated it must first decide whether the tokens issued by the smart contracts on a blockchain are securities. Therefore, anyone offering them in the United States needs a license from the SEC.
If the SEC succeeds in its claims against Coinbase, that will affect other cryptocurrency exchanges like Kraken and Bittrex. In addition, those platforms in other jurisdictions might also have to stop service to US customers. Therefore, centralized and regulated exchanges might lose business to decentralized ones.
That would be a favorable evolution toward more decentralization and less regulation. It is necessary to move away from centralized companies forced to comply with government rules to decentralized and self-regulated finance.
The case between the SEC and Coinbase reveals that the authorities face a dilemma over the crypto industry. They want to apply rules made for the old centralized world to the new decentralized world.
In the old world, people had to trust their money to banks and other financial institutions that could easily steal it. Since there were not many institutions to stop that situation, the financial industry became highly regulated.
Old Rules Do Not Apply in the DeFi Sector
In the new world of decentralized finance, nobody needs to trust money to others. Confidential and transparent smart contracts containing authenticated, error-free, and indelible information only changeable under strictly defined conditions govern it.
However, smart contracts may and do have bugs/errors as they are software, which makes an audit process by specialized companies necessary. These auditors try to find flaws and loopholes in a smart contract to avoid hacks and other types of exploitation.
No crypto company may deploy a smart contract not approved by an established auditor, which has skills that government authorities lack.
Forcing crypto companies to register with a central authority and follow outdated regulations makes no sense. They would waste much time and energy that could otherwise help improve their products and serve their customers.
People Need Education to Avoid Being Victims of Fraud
Laws against fraud and theft and agencies to enforce them are necessary to combat fraud and swindling in the cryptocurrency world. However, forcing crypto companies to comply with outdated regulations does not change that. The best solution to that problem is that people learn how to avoid being victims of fraud and protect their money.
An excellent rule is never to trust cryptocurrencies to a third party to avoid losing them. Investors could also send their funds to a smart contract audited by a reliable company. Furthermore, crypto companies do not need to register with government institutions to protect their customers.
By Alexander Salazar
