Cryptocurrency is no longer the obscure, esoteric concept once associated with finance nerds, market enthusiasts, and message-board techies. After the seminal 2009 paper written by the pseudonymous Satoshi Nakamoto about the prospect of cryptocurrency, Bitcoin (the most famous and valuable one) and digital equivalents (i.e. Ethereum, Dogecoin, Litecoin, etc.) have emerged and proliferated across the world, transforming the way we conceptualize currencies and digital information technology. 

The term “cryptocurrency” refers to a decentralized digital asset that can be exchanged and traded like a currency. Rather than using a financial system like a bank to mediate purchases and transactions, a large number of people agree on the set of transactions that occur with a cryptocurrency, called a blockchain¹. The blockchain consists of the connection of “blocks,” the ledgers of all transactions in that given period. The ledgers, which consist of a secured list of all cryptocurrency transactions, form the building blocks of the entire blockchain technology. The minutiae of cryptocurrencies can be complex, but the process can be summarily described by these tenets:

1.  Confidential private keys (or signatures) are used when a person participates in a transaction on a ledger.
2. Transaction activity is pseudonymous.
3. Transactions are irreversible and immutable.
4. The entire blockchain of a cryptocurrency is publicly accessible.
5. For blocks to chain together, the two connecting blocks must have the same code (a “hash”)
6. Each block must contain a “proof of work,” a set of complicated data structures that must be verified by investors. Because of this hard work, groups called miners usually perform the task of adding new blocks to the blockchain. 
7. Each cryptocurrency has a maximum limit of how many can be built so that the currency can have artificial monetary scarcity. For instance, there will only be 21 million Bitcoin mined in existence.

The ingenuity of this currency is that fund transfers can happen almost instantaneously, anyone can join, people are in control of their money, and transparency is encouraged more compared to typical financial services. Despite the crypto market’s precarious price-discovery status, thirteen percent of Americans reported purchasing and/or trading cryptocurrency within the past 12 months, according to a survey done by NORC at the University of Chicago. 

Despite the quixotic promises some crypto fans make, cryptocurrencies are far from being trusted currencies. According to the same survey, 62% of respondents claimed one of the reasons for not investing in cryptocurrency is because of a lack of understanding. Additionally, people, despite being more skeptical of huge financial institutions, are overwhelmingly trustful of them compared to digital currencies. The current, unregulated crypto sector is less protected and secured against abuses by brokers and companies. Even though the idea of cryptocurrency is founded on the removal of intermediaries, many investors use intermediary sites to protect their currencies against illegal activity and theft. These crypto exchanges have no self-regulation mechanisms that prevent fraud, manipulation, or even corruption. Conflicts of interest, namely the ability of brokers to pool their assets with that of the trader and engage in proprietary trading, are left unchecked. These issues are only exacerbated by some regulators’ misguided attempts at fixing these industry failures. If unchecked, the crypto sector could further become a site for black market activity and illicit payments like ransomware for cyber attacks and dark market goods (e.g. drugs, firearms, weapons). Another ramification of using cryptocurrency, especially as it relates to the computational mining of “blocks” in the blockchain, is that it requires exorbitant amounts of energy, which contributes to increased greenhouse gas emissions.

The nascent cryptocurrency industry poses a considerable risk in its fledgling, inaccessible state. Such concerns have lawmakers and politicians skeptical about the benefits of using cryptocurrency as a robust and more inclusive alternative to our current financial system. In response, crypto enthusiasts and companies behind these currencies are amassing teams of consultants and lobbyists to push back against the calls for intense government intervention. The problem specifically relates to two key aspects of the industry: the currencies themselves (“tokens”) and the platforms that allow rapid money transfers (buying & selling) with the cryptocurrencies. Currently, Washington is seeing an ever-growing schism between advocates of a “light-touch regulatory approach” to crypto and seemingly recalcitrant lawmakers who do not see its tangible benefits. 

The question of whether regulation will happen or not is futile; regulatory oversight of crypto is inevitable and should happen. Indeed, the Biden administration is taking on a more activist role in cryptocurrency than its predecessor. Smart and all-encompassing legislation safeguards against the aforementioned pitfalls facing the industry (e.g. illegal activity, greenhouse gases, lack of consumer protection). However, in addition to much-needed policies, a new political framework for understanding the value of cryptocurrency is needed. Cryptocurrency, and specifically blockchain technology, has the potential to engender massive change in almost every industry sector, from banking to even healthcare. This framework should not only foresee the potential for cryptocurrency’s technology but allow the crypto market to be transformed into an equitable system of governance.

At best, cryptocurrency represents a remunerative opportunity in an emerging economy; at worst, a meaningless speculative asset. The policy responses to the growing and lucrative market must be multi-pronged, long-lasting, and efficient enough to produce positive results for the industry and society-at-large.

Already, we are seeing growing calls by top financial officials, including SEC (Securities & Exchange Commission) chair Gary Gensler, for Congress to pass legislation concerning investor and consumer protections. Consequently, being pro-regulation, I would want Congress to establish clear guidelines and standards that explicitly allow federal administrative agencies like the SEC to regulate the distribution, trading, and offering of Bitcoin and other cryptocurrencies. This regulation will and must include that of the brokers, traders, intermediary companies, advisors, and trading platforms. It will protect the average investor from high-risk, unpredictable deals with brokers and encourage safe transactions. Moreover, legislation should be passed that prepares such agencies to handle the current and seemingly intractable issues facing cryptocurrency. Principally, environmentally-friendly regulations on the wasteful mining process can incentivize more “green” methods of building cryptocurrency blockchains, which necessitate new jobs and a cleaner planet. 

In addition to new legislation, pre-existing laws such as the Securities Investor Protection Act (consumer protection, net capital rule, and alternative bankruptcy) can include provisions for cryptocurrency, which will further protect consumers in the event of a broker-trader failure². The IRS could also help tighten these regulatory loopholes by requiring investors to disclose more about their transactions. This allows for transparency and offers a new method for tax revenue. It is estimated that this policy could bring in an estimated 28 billion dollars for the infrastructure bill currently in the Senate. These are but only a handful of reformist policy tools available to lawmakers and regulators that could transition the cryptocurrency industry into a more controlled, safer sector.

Cryptocurrency is certainly not occurring in a vacuum. The world is already seeing the positive implications of cryptocurrency: hyperinflated countries such as Argentina are using crypto to improve their material conditions despite inflationary cycles. In June 2021, even El Salvador gave Bitcoin the status of legal tender—a form of money that is acceptable as a payment of debt. While the future of cryptocurrency cannot be predicted, it will most definitely leave an indelible legacy on digital information technology. The litany of articles being written about crypto’s eclectic application showcase that blockchain technology is not niche; rather, it could jumpstart new ways of looking at industries from the “bottom-up.”

¹ Jordan Pritchett. (2017). Cryptocurrency: An Overview. The Banking Law Journal, 134(10), 547.

² Chu, Dennis. (2018). BROKER-DEALERS FOR VIRTUAL CURRENCY. Columbia Law Review, 118(8), 2323–2360.