Fuzzy.One: Crypto regulations and the New World Economic Order.
In this article, we present to you our reasons why regulating blockchain derivatives (cryptocurrencies) will create a new world economic order. We present how we envision the fundamentals of the values, exchanges and regulations and provide our conclusions based on recent events.
One of the biggest issues facing the cryptocurrency world is regulation. With conflicting views and ambiguous terminology, the blockchain world is constantly evolving new catchphrases and methodologies to confuse even the most astute traders and financial experts. However, the reality is really very simple and we are going to present to you the reasons why regulation will force some cryptocurrencies up and destroy a plethora of others.
Crypto value is based on market perception only. In other words, crypto’s value is similar to the value that was used in the days of bartering. Where livestock and commodities were traded based on a supply/demand need. Perhaps the closest historical version to the crypto market was the tulip boom of the 17th century, where tulip values rocketed sky high and then, dropped to nothing. The value of cryptos are not directly based on the profitability or projected success of the project or company that owns the contract. Neither is it based on the type of cryptocurrency being traded such as an original blockchain coin, an ETH blockchain token, or just a name such as Ripple that is not a true cryptocurrency. The value of the cryptocurrency is based on the market perception of the value. Where the supply and demand control the price. BTC is the overlord of such a market, where there is actually no value to BTC other than what people were and now still are willing to trade for it. Doge is a classic example of a derivative coin based on luckycoin which forked from litecoin. It was set up as a “fun project”. All ETH tokens use the Ethereum blockchain and are reliant on the gas fees, but are not part of any specific project, instead they are created as “stand-alone” tokens representing each specific project in various forms, such as proof of payment, proof of work, or just something fun to have. On the other side of the spectrum are stable coins such as USDT that is directly linked to the USD as well as having reserves or assets such as loans in escrow, providing a buffer for value. So the estimated real value of USDT is around $0.74 when liquidating the asset base. The trading value is around $1, and this is the closest you get to a cryptocurrency that has a real tangible value. Then there are security tokens that are directly linked to a security such as a companies stocks, where there is a direct relationship between the stock/share value and the token value. These are the only tokens that provide some kind of linkage between the cryptocurrency and stocks with a possible mechanism for converting one into the other.
Also worth noting is that 70% of trade in the market is made by market-making bots (mm bots), and only about 30% is real trading between real people.
Conclusions: Cryptocurrency value is a market perceived value irrespective of the type of coin/token is being traded. The variances in trade are higher the less linkage there is between the coin/token and physical assets. So coins/tokens with no linkage are the ones that can either shoot up or plummet, while the stable and security variety tend to move in slight increments if at all.
There are two types of exchanges on the market today: Centralized, Decentralized :
The content of this section (Exchanges) is a direct quote from an article published here: https://blog.bitnovo.com/en/cex-and-dex-what-are-the-differences/#:~:text=Security%3A,CEX%20is%20faster%20than%20DEX.
Centralized Exchange (CEX):
A centralized exchange is an exchange managed by a company. The company has a CEO and employees and has full control over the exchange. These are similar to traditional stock exchanges, except that they deal in cryptosystems instead of shares.
There will be a third party operator
- Fiduciary currency transactions will be allowed
- The entries will be in the database most of the time until the withdrawal or extraction of coins occurs
- Improved negotiation speed (no real-time cryptographic node update)
- Liquidity will be more noticeable in the exchange
- Use of Know Your Customer (KYC) and Anti-Money Laundering (AML)
( KYC & AML facilitates the regulation and verification of the identity of the users, this is used in CEX exchanges, due to this reason it can be said that it is against the main objective of “Satoshi-Nakamoto” — “Anonymity and decentralization”. )
Prone to hacking the system
Decentralized exchanges (DEX):
A decentralized exchange is not directed by anyone. It has no CEO or employees. The exchange runs on blockchain technology and is sometimes controlled in a democratic way by which users participate in the exchange’s decision-making processes. Decentralized exchanges also do not depend on a third party to maintain the cryptocurrency so that it is faster to perform a transaction than in a centralized exchange.
No transactions in fiduciary currency will be allowed
- Most of the time, Market Takers will only be part of the platform
- The volume of the encryption trade transaction will be much lower.
- Low-grade trading speed (due to real-time updating of the cryptographic node)
- Liquidity will be the challenge (only handle Crypto Coins in Nodes)
- No, Know Your Customer (KYC) and Anti-Money Laundering (AML) practices
- No private keys in the application
DEX works much better, since private keys are not part of the application, while in a CEX the user can recover his username.
CEX works with a third party or authority body, which offers volume and liquidity so that transactions can be made more quickly, meaning that CEX is faster than DEX.
Conclusions: There is no similarity between the “exchanges” that are for stocks, such as NYSE, NASDAQ etc and “exchanges” used for crypto. CEX’s tend to charge exorbitant listing fees that can reach over $1m but do not provide access to a market large enough to generate that kind of ROI nor provide the facilities and stability to ensure continuous trade. Essentially, a CEX is a money-making machine only for the owners, and as such resembles a casino with a large entrance fee. The other aspect is the KYC, where all users are giving non-regulated individuals access to your most private details. DEX’s such as Uniswap provide a more anonymous service, but if there are issues with the DEX and the trades, you have no one to go to.
3) International & National Regulation
We view regulation from two aspects, a national one and an international one. In other words, while some countries might regulate crypto, others ban it. There are currently ten countries that are actively working on regulating cryptocurrency and these are Japan, Malaysia, Singapore, China, Spain, Germany, India, the Philippines, the U.S., and South Korea.
Note that in India there is some confusion, as the country is bouncing between regulating and banning.
The issue with regulation is that once a country regulates cryptocurrencies, it means that it has an intention to create its own national digital currency. Note the difference in terminology; crypto vs digital. In any event, once a nation regulates cryptocurrencies in full, there will then be a plethora of regulations to ensure that exchanges are managed correctly and that trade in crypto becomes taxable just like trade in stocks and fiat. Add to this the then regulatory requirement for cryptocurrencies that are to be traded to meet specific regulatory requirements. Yes, this is the final step that separates the real projects from the fake. Even now, CEX’s do filter who is being listed, not just by cost but also by project analysis. In a regulated system, the filters will be prominent and the fees will be reduced to meet a standard listing fee that is government regulated. No more listing fees above $100k etc…or linked to BTC. (Yup, a fee linked to BTC is a sham, considering that 1 BTC last year was trading at $10k, and not trading at $50k). This means that the exchange is making 5x profit just on the listing fee alone. In a regulated society, the CEX listing fee would be linked to the digital currency and not BTC, so that listings would be focused on the quality of the project and not just the wealth of project owners.
Conclusions: In a regulated world, about 90% of the current tokens and coins will disappear, or will only be traded on DEX’s that do not require any filtering, and obviously trade then as it is now, will be based on the traders own risk. Trading on a CEX will be regulated, and coins such as BTC, ETH will skyrocket as they gain regulated credibility as a currency equal to fiat but based on market perception. New tokens/coins added will be traded just like fiat, and alternative markets, such as binary (forex) futures for crypto.
While the ideological desire for “Anonymity and decentralization” is the reason for the creation of BTC, it is inevitable that the worlds governments and financial institutions will not allow such a vast financial resource to go unchecked, and will assimilate cryptocurrencies and eventually regulate them and control them…(just like the Borg) Especially when billionaires such as Elon Musk join in and create a true focus on the crypto world that the regulatory institutions can no longer overlook. (In other words; while there might be anonymous BTC millionaires and millions of small traders when a real fiat billionaire joins in, the game changes for everyone.)
Post Note: Elon Musk has been string things up in the crypto world, but his action has a much deeper impact and will continue to develop over time. The three steps that Elon has taken are: enable the purchase of cars using BTC, allow for transactions using Doge and investing in cryptocurrencies. Elon’s actions cannot be overlooked or disregarded due to the level of impact he has on a global level. Elon is essentially enabling retail trading with crypto at a level that has not been seen before. With this, the implications on regulation and taxation are already being implemented, not just for him, but for anyone that purchases or trades via one of his companies and partners. What he has also shown is that you don't need to own a blockchain or have a viable project, you can take a token such as Doge and make it into a tradable coin for b2b, b2p transactions. This is the real gamechanger.