5 crypto regulations that will never see the light of day

If you were given the chance to contribute to the process of creating cryptocurrency regulations, what would be on your wish list?

We ask only because the European Commission has apparently launched an effort to encourage public opinion as it moves forward with developing its own regulatory regime. CryptoNews says that the EC has initiated a public consultation and is now inviting consumers to join investors, banks, and other stakeholders in determining future regulation.

CryptoNews further reports that the EC recognises the potential for cryptocurrency to "bring significant benefits to both market participants and consumers." In simple English, the EC recognises that cryptocurrencies are here to stay. Therefore, they want to get ahead of the game by regulating sooner rather than later.

Regulators have lots of questions for consumers. For example, they want to know:

• If you have ever owned crypto assets.
• If you plan to own crypto assets in the future.
• If you believe regulations should be limited to cryptocurrencies - as opposed to all digital assets.
• What you believe are the most important benefits and greatest risks of crypto assets.
• What you believe are the most important benefits and greatest risks of stablecoins.

In order to participate in the public consultation, you must have an account with the EUSurvey website. Log on to the website with your username and password, then navigate to the appropriate survey. Answer the questions as they come up. It is all pretty simple (but how many crypto enthusiasts will be willing to provide personal information to the regulators remains to be seen).

Meanwhile, those of us who follow cryptocurrencies professionally have our own ideas of what regulation should look like. Many of us would prefer no regulation at all, but we are pragmatic enough to know that permanently avoiding regulation is a dream.

Cryptocurrency regulation is a foregone conclusion at this point. Rather than being disheartened by it, let us have a little fun with it. Here are five crypto regulations that will never see the light of day:

1. Private crypto recognised as legal tender

The most profound regulation that will never come to be is one that would recognise private cryptocurrencies as legal tender. Imagine the potential Bitcoin would have if it carried the same legal weight as U.S. dollars, British pounds, and Japanese yen. Cryptocurrency, as legal tender, would mitigate the need for fiat altogether.

Legal tender status is what makes fiat an instrument for legally settling debts. When a debt is paid in fiat, the law recognises that debt as being permanently settled. Applying the same status to private cryptocurrencies would give them legitimacy, which is why such a regulation will never see the light of day.

The last thing governments and central banks want to do is legitimise private cryptocurrencies as legitimate financial instruments. To do so would be to relinquish control of the banking system and financial sector. We all know how governments and central banks feel about that, don't we?

Private cryptocurrencies and stablecoins will never be recognised as legal tender. However, central bank digital currencies will be. All indications seem to point to a future when the majority of sovereign fiats will be completely replaced by digital equivalents. Indeed, the day when minted coins and printed bills are no longer available is a lot closer than many people realise.

2. Crypto assets made completely tax-free

Next up is a regulation that grants all cryptocurrency assets tax-free status. Such a regulation would be awesome in that it would actually encourage people to transact business in cryptocurrency. Granting cryptocurrencies tax-free status would essentially create a digital bartering system that would allow both individual consumers and businesses to trade goods and services among themselves.

Why will such a regulation never happen? Because governments are not willing to give up even the smallest amounts of tax revenue. Remember that tax revenue is the government's lifeline. It is the only source of government funding. Make cryptocurrency tax-free and you guarantee that government coffers will shrink.

Perhaps the best we can hope for in this regard are some uniform regulations that draw a clearer distinction between crypto-derived capital gains and income paid in cryptocurrency. Such a distinction already exists in some jurisdictions, but not in others. In their absence, cryptocurrency holders have trouble figuring out how to declare their assets and pay whatever taxes are due.

3. Banks must serve crypto-based businesses

As long as governments are moving to regulate cryptocurrency, it would be nice to see them force banks to serve crypto-based businesses. The need for such a regulation is pretty significant in some jurisdictions. Why? Because banks are so afraid of cryptocurrency that they will not provide services to companies that deal in it.

The fear is that serving crypto-based businesses could land a bank in trouble with regulators for facilitating potentially illicit activity. No bank wants that kind of trouble. So instead of trying to find ways to work with crypto-based businesses, they simply refuse service.

This sort of regulation is likely to never see the light of day because implementing it would delegitimise other government attempts to hit criminals by denying them banking services. If regulators were to force banks to serve crypto-based businesses, they would be hard-pressed to also expect banks to continue denying services to gambling operators, cannabis-based businesses, etc.

As you can see, this would open an entirely new Pandora's box of conflicting regulations that would make both regulators and banking officials crazy. Governments do not want to give up banking services as a tool to fight criminals, so they will not force banks to serve crypto-based businesses either.

4. Government tokens and cross chain interoperability

Next up on our list of regulations that will never see the light of day is one that forces government blockchains to be capable of cross chain interoperability. What would this look like? It would be a system in which both public and private cryptocurrencies coexist and interact seamlessly.

As things currently stand, cross chain interoperability is nearly nonexistent. If you want to convert some of your Bitcoin (BTC) to the stablecoin known as U.S. Dollar Coin (USDC) you cannot make the conversion as simply as trading British pounds for U.S. dollars at the airport. The blockchains of the two tokens cannot interact to complete the transaction.

The only way to pull off a conversion to USDC is to first sell some of your BTC for fiat. Then you would take that fiat and purchase USDC. Rather than a clean unit-to-unit conversion, you would be conducting two separate transactions. One would be a sell transaction, the other a buy transaction. Both transactions would incur fees.

Forcing government tokens to offer cross chain interoperability will never happen because such interoperability would force governments to recognise private tokens as legal tender. For more information on that, you can refer back to the first unlikely regulation in this list.

Another potential pitfall would be cross chain interoperability giving government a means of influencing private cryptocurrencies. So even if regulators were willing to put this sort of regulation in place, it might not sit well with private blockchain operators. Nor should it. The minute you let the government get its foot in the door, you have to expect the whole body to follow.

5. Approving digital-only banks

One final regulation that will never see the light of day is one that would formally approve the establishment of banks that deal only in digital assets. These banks would be funded by their owners through investments in cryptocurrency platforms like Bitcoin and Ethereum. It would be up to ownership to provide its own funding from start to finish.

A digital-only bank would not process fiat transactions. That means no credit cards, electronic funds transfers, or cash withdrawals where fiat is involved. All such services could be offered using digital tokens instead of sovereign coins and bills. Furthermore, the banks could loan cryptocurrencies as well.

Such a setup would give consumers access to the kinds of banking services they are already used to while simultaneously freeing them from the restrictions of banking as we currently know it. The cryptocurrency market would be less subject to manipulation because decentralised cryptocurrencies exist and operate beyond the purview of central banks.

It should be obvious why regulators would never approve such a scenario. If they were to allow private institutions to establish digital-only banks, they would lose a significant amount of the control they currently possess. They would be turning over a large section of the global economy to bankers and institutions that do not rely on fiat or central-bank policies to operate.

If there is one thing that we know for sure about cryptocurrency regulation, it is the fact that it is inevitable. Governments around the world are already working on establishing regulatory frameworks. Some, such as China, are closer to being done than others. But make no mistake, all will reach the finish line at some point.

If you live in the EU, you have an opportunity to make your voice heard. If you could write any cryptocurrency regulation you wanted, what would it be? Maybe you should tell the EU what you think.