Someone made the comment on my platform piece about what happens when there are no Jack Ma’s or Mark Zuckerberg’s, as the whole thing is decentralized? I guess that this is logical as my last line was that government control of cryptocurrencies is “not so easy for cryptocurrencies that have no head office or central control”. This was exactly my point: how do you regulate something that is completely decentralized and has no office?

I struggle to find an answer for this. I know that when my exchange is hacked or my hard wallet is lost, I am frustrated and have no authority to report it to or bail me out. What is the answer?

Luckily, I got a very good insight into this space from Alex Larsen of the Institute of Risk Management (IRM), who wrote a lengthy piece about how he sees regulating the cryptocurrency markets. Here’s what he has to say:

Regulating the cryptocurrency markets

According to Reuters: “Japan’s financial regulator said on Friday it had ordered all cryptocurrency exchanges to submit a report on their system risk management, following the hacking of over half a billion dollars of digital money from Coincheck.”

Whilst the whole premise of blockchain technology and cryptocurrencies revolves around it being essentially unhackable, the exchanges that trade these currencies are vulnerable. The introduction of system risk management (which we assume to be risk management of the software/operating systems and servers) checks is a step forward for the cryptocurrency space although it only covers one area of exposure linked to the cryptocurrency market.

History of incidents

Cryptocurrency has been a booming market with increases in some major coins in the high 1000’s of percent over the last year. This rise, coupled with a lack of regulation, has seen the cryptocurrency world being hit with a number of negative incidents from Ponzi schemes to fraud, scams and hacking incidents.

Bitconnect, which as of the writing of this article, is trading at roughly $8.60, a huge fall from its height of over $300 a month ago, is an example of a potential major Ponzi scheme which has lost $2.4 billion worth of value over 10 days.

The subpoena by US regulators of crypto exchange Bitfinex and its relationship with Tether is another concern to the cryptocurrency market with many claiming Tether to be a scam. Tethers are tokens backed by US dollar deposits, with each tether always worth one dollar. These tokens should be backed by dollars but thus far the company has yet to provide evidence of its holdings to the public and has not had any successful audits as of yet.