This is one of the major concerns that people have with web3 in general. “If governments ban it - it’ll go nowhere”. Crypto regulation is always changing and many different countries have chosen to use their own, unique approaches. Here, we’ll just go over some of the most recent changes to regulation, and look at governments at both ends of the spectrum when it comes to crypto adoption.
The answer depends on how decentralised the sector actually is. We will touch on this further but there are points of centralisation in web3, which means they are actually very easy to regulate. Coinbase is one of the largest crypto exchanges in the world and a US company, so the US government has the power to regulate Coinbase any way they see fit. A good example of this is the Tether controversy. USDT, the largest stablecoin in the world, is run by a centralised company called Tether. And the US government did in fact fine Tether for making some false claims about their stablecoin being fully backed.
That being said, if a network is truly decentralised, there is no company or place to actually regulate. However, governments around the world still have a few tools they can use.
For example, at the moment, very few places accept crypto payments. Because of this, investors often need to exchange their crypto for fiat currency. At this point, governments can ask investors to pay taxes or regulate them in any way they want.
If blockchain networks and cryptocurrencies are open and available to everyone, how can investors who don’t know too much about the space be protected from large losses?
If crypto and web3 grow in importance, the sector might start to have an impact on traditional financial markets. Let’s use an extreme example. Let’s assume everyone in a country owns a sizeable amount of Bitcoin, and the price of Bitcoin crashes. That could affect the economy by decreasing investment in other sectors, and consumers could start spending less. How can governments stop crashes and problems in the crypto space from affecting banks and the traditional financial system?
Here is how some different governments around the world have been approaching these challenges.