Regulating cryptocurrency exchanges

Abstract

The genesis of Bitcoin and its underlying technology known as blockchain dates back to 2008, over this period we’ve had a handful of turbulences, speculation and most of all legal uncertainty. Bitcoin represents only one of the countless cryptocurrencies that have emerged over the past decade. It has on various occasions been compared to the early start of the internet, which was said to be unregulable. The openness and decentralised manner in which it once operated, are similarly seen in distributed ledger technology. However, in Constance Choi’s words ‘this technology holds both promise and peril. It’s how we wield it.’ Having said this, decentralised exchanges, built on top of blockchains are seen as a ‘clever trick to avoid legal accountability’. Money laundering and tax evasion laws are few of the legal frameworks that are being jeopardised as a result of decentralisation. Additional concerns relate to the issue of liquidity, a direct consequence of the complex nature of the platforms, the restricted use of cryptocurrencies in the outside world and inability to be regulated. On the other hand, centralised exchanges are seen as a suitable alternative for users seeking to enter the cryptosphere. In this paper we will see that by operating fiat to cryptocurrency exchanges, legal compliance is expected. This implies that existing laws extend also to those operating cryptocurrency services. This development has helped overcome some of the obstacles which Bitcoin as well as blockchain seem to have created.