Like the internet did for the economy and technology in the 1990s, digital assets are reshaping both of these fields. There is compelling evidence that blockchain technology will be among the most transformational developments of our time.
There is a push from legislators to establish regulatory boundaries for the digital asset market as its use grows more widespread. While it's important for legislators to strive toward a standardised and clear regulatory framework, they must be careful not to stifle innovation in a field with extraordinary promise.
Before passing new rules or regulations, lawmakers should have a firm grasp on the sector they want to affect.
So, what exactly is this blockchain technology?
The term "blockchain" refers to a distributed ledger that is kept in sync over a network of computers. Cryptocurrencies like Bitcoin use blockchain technology to keep a decentralised and secure ledger of all transaction activity. While a transactional ledger is the most frequent use of blockchain technology, the underlying technology has many other potential uses.
Blockchains are distributed ledgers that store data in chunks rather than tables. These blocks have a finite amount of storage space, and once they are full, they are sealed and connected to the next full block in the chain.
A blockchain's framework is analogous to an immutable record of events. As soon as a block's data is complete, it is recorded in the blockchain and given a timestamp. By design, this distributed ledger offers users a high level of both openness and safety.
When asked, "What is cryptocurrency?"
For those unfamiliar, cryptocurrencies are a kind of digital currency built on the decentralised ledger technology known as blockchain. They make it possible to buy and sell online without using a financial institution as a go-between. There are already more than 10,000 different types of cryptocurrencies available.
The topic of how to regulate cryptocurrencies in the current environment is a pressing one for policymakers. Do we classify them as commodities, securities, or something else entirely? However, current SEC chairman Gary Gensler considers thousands of tokens to be securities, notwithstanding earlier statements by the SEC that Bitcoin and Etherium are not securities. This lack of clarity leads to misunderstandings and discourages new ideas in the business world.
The digital and financial worlds will be rocked for years to come by cryptocurrencies, and Washington has to figure out how to adapt to this new reality or risk stifling one of the most promising inventions in decades.
Stablecoins?
Stablecoins are distinct from other digital assets since their price is anchored to a commodity, most often a fiat money. Stablecoins are digital currencies whose value is pegged to another asset, usually the US dollar. Such coins should keep their value close to $1 per token at all times.
Stablecoins are a kind of cryptocurrency designed to mitigate some of the risks associated with using volatile cryptocurrencies like Bitcoin. These currencies achieve a constant value by keeping on hand reserves of assets or by using supply-control algorithms.
Inclusion in the financial system is greatly facilitated by stablecoins. They allow millions of Americans who are either unbanked or underbanked to interact with the financial system, which they previously had access to or had reason to dislike.
Tokens that cannot be exchanged for other tokens are known as NFTs.
New Financial Tokens (NFTs) are digital assets that each have their own unique identifying number. One bitcoin is equal to any other bitcoin, but NFTs are unique digital assets that can only exist on the blockchain and cannot be duplicated.
These tokens may be used to decrease the possibility of fraud by representing a wide range of physical objects. In the context of a supply chain, for instance, an NFT may provide improved visibility into the creation and distribution of commodities at every stage. You may use them to keep track of your car registration or medical information in a safe, secure, and fast way.
What to do next.
It's not too far off from now till the internet enters its next phase, one that's more user-friendly and open. In the midst of this fast transformation, digital assets and blockchain technology are upending conventional wisdom about the digital and financial spheres.
These advances unquestionably have great promise, which is why regulators must proceed with caution so as not to risk stifling this promising technology.
In the absence of clear guidelines, inventors are hampered by the uncertainty surrounding digital assets. There are literally hundreds of different types of digital assets out there, and it would be difficult to lump them all together. Those who behave more like commodities and those who behave more like securities should be classified accordingly.
Legislators should establish a well-defined regulatory framework that specifies the proper treatment of these assets. The goal of this approach is to normalise the use of digital assets inside the conventional financial system by accounting for their differences from traditional financial products. Any plan must minimise intrusive federal oversight as a prerequisite for success. It is essential that any regulatory scheme be designed with encouraging innovation as its primary goal, rather than stifling it.
