The digital or virtual currency, safeguarded and secured by cryptography, can be used as the medium of exchange is called cryptocurrency.
The word crypto is derived from the Greek word ‘krypto’ which means hidden or private. Cryptocurrencies are decentralized mediums, which means that they are not issued by any governing bodies or central authorities. It does not involve any government regulation or interference.
These digital currencies are based on blockchain technology and they do not possess any physical challenge. This means the holder of the digital token has only the right to hold, buy or sell the token but does not have the physical form.
The cryptocurrency is binary data that is introduced as a source of exchange. Cryptocurrencies are mined by solving ultra-complex mathematical calculations by supercomputers and issued by a single issuer.
However, the concept of cryptocurrency is decades old but in reality, the first-ever cryptocurrency, named Bitcoin, was launched in 2009 by an anonymous person, who was named Satoshi Nakamoto. He is still unidentified.
Before discussing the need of regulating the cryptocurrency market, we shall let us understand what regulating bodies mean. After understanding what regulating bodies means we can determine the fiscal situation of the market.
Crypto market
Cryptocurrencies are unregulated tokens issued by private organisations and are not backed by any central authorities such as the government, banking institute or financial governing institutions.
They run through a network of computers and are bought and sold through exchanges, safely kept in the hot and cold crypto wallets.
What is regulation?
Regulation is an organisational structure that gives the capacity of decision making to elevated management. The assigned members are given the authority to establish and specify the technique and purposes.
It also elucidates the intention and exploration of the organisation which must follow its goal. In centralization, the type of organisational hierarchy enables higher surveillance to create the rules comprising procedures that are used to communicate with lower-level employees.
These breadwinners have to heed the rules made by the higher management organisation without questioning the rules and regulations.
Factors inferring regulation of authority:
Uniformity of action is apparent when decision-making administration is centralised. The decision taken at the prime will always be executed at all levels. There may be one department and the same administration and may desire to have the same strategy and protocols.
There may be a desire to merge all undertakings of enterprises for achieving a common factual.
Under distinct situations, there is a need to take catastrophe decisions. The centralised organisation takes quick and prompt decisions.
Advantages of Centralization
Standardization
Regulation enables the standardization of procedures and systems. It promotes steady working in the organisation. There is viscosity in day to day working. The service to the holder will also enhance if standard policies are used.
Uniformity
When similar strategies are used for all segments of the market their accomplishment can easily be evaluated. It also helps in distinguishing the result of different departments. This will give rise to a sense of pursuit among various segments. Fortunately, the across-the-board performance will enhance.
Supervision
Centralization of supervision will bring in scrimping of enormous ranking. There will be a centralized buying and selling of currency. This will result in bulk buying occurring in rebates and savings. When selling of currency is done in vast quantities then holders are offered adequately. There will be an econo in administrative expenses.
Conflict Reduction
Coordination of recreations of numerous segments is also facilitated by centralised administration. In the scarcity of centralization different particles may pursue their independent policies. This may occur in conflict and disintegration.
Other components may vigour their own goals without taking care of organisational objectives. Restriction management will always help in coordinating the work of various segments in such a way that organisational goals are persuaded.
Evils of regulations
Single Rule
Centralization swirls around one governing body only. The financial institutions take all the ruling and determine the modes of enforcing them.
Burden on One
This method puts all burden on an authorised organisation and these organisations remain overloaded. The regulating bodies do not allow the head to devote sufficient time for important tasks of planning, coordinating and motivating.
Challenge in Issue Addressing
The operation of the market slows down under the governing bodies and few issues remain pending due to lack of time and decision making. Things move slowly in a centralized organisation because every decision goes through a process.
Lack of Specialization
Centralization does not give any scope for specialization. Even if specialised people are employed in a centralised organisation they will not be given the right to makedecisions free handed.
What is deregulation?
Deregulation is an organisational structure where the envoys are allocated to manage the organisation. They are assigned by the higher administrations. The selected prospect is mostly their middle and lower dependents. The deregulation type of administrations helps to organise daily duties.
They also take part in trivial decision making. A lot of obligations are given to the middle or lower-level subordinates. Due to the well-administered chore roles, the higher administration authorities get a chance to focus more on important business decisions.
Advantages of Deregulation
Alternate Currency: A digital or virtual currency is free of national financial policy. In the countries where the currencies are destabilised there decentralised currency can be used alternatively.
Inflation Proof: Decentralised currencies are immune to inflation or deflation. Digital currencies are not subject to exchange rates. These are real world demonstrations of blockchain
Disadvantages of deregulation
Deregulation comes with its set of challenges and constraints and are not liable in every scenario. Here are a few of them:
Lack of Uniformity: There is lack of uniformity and since no governing bodies are undertaking there is a high fluctuation in the market which is not constant.
Challenge of Acceptance: There are very few suppliers or entrepreneurs who accept cryptocurrency as money for the goods so it is not accepted completely in every aspect of business. There is also a possibility that governments might force vendors to not accept or transact in digital money.
Issues of Hacking: If the wallet file is damaged or destroyed due to virus or hard drive crashes then the currency will be lost completely and there is no other way to get back.
Irreversible Transactions: When goods are purchased using cryptocurrency the buyer pays the current amount using digital coin, and if the seller doesn’t send the promised goods, it becomes very difficult for the buyer to get back the money and so nothing can be done to reverse the transaction.
Time taking and Tedious: As there is no proper authority or norms or form that is followed while transacting in the crypto market, it cannot be used in normal stores. The holder of the coin has to always follow the procedure.
Cross-border Payment: Since there is no central authority or governing bodies or financial institutions involved due to its decentralised system, it lacks it’s importance worldwide. Also, it may create serious challenges to the cross-border payment system.
Thus far, we have understood that there are multiple drawbacks of the decentralised system of cryptocurrencies, which leave room for improvement in the market. However, nothing will happen overnight.
Also, one should remember that decentralization is the biggest trump card of the cryptocurrency market, which is likely to be the biggest threat to its acceptance as a medium of exchange across the globe.
Conclusion
Every coin has two sides: pros and cons. By going through the disadvantages of decentralisation, it is much needed to regulate the cryptocurrencies and the crypto market. Once regulated, it may hold the trust of more investors. Once the crypto market is regulated and is controlled by a governing body, it will gain a lot of popularity among the new progeny and long term investors. Decentralisation makes it very difficult for the investors to mark or exchange the tokens.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes. Discuss with your investment advisor before making such risky calls.
