How Hard Is It To Regulate Crypto Exchanges?

Recently, the crypto world has found itself caught up in a heated debate: should cryptocurrency exchanges be allowed to discriminate between cryptocurrencies on various grounds? On that note, how difficult is it to regulate cryptocurrency exchanges or make them more egalitarian without necessarily inviting the tag of censorship? All these questions have seemingly gained ground after Binance and several others of the top cryptocurrency exchanges delisted Bitcoin SV owing to the controversy Bitcoin SV backer Craig Wright had found himself in.

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Several crypto commentators have hence taken to discussing the contours of what is a difficult problem: the necessity of regulating crypto exchanges effectively.

While stock exchanges also routinely delist companies for not adhering to their regulations or for misconduct, such rejections are usually governed by stricter frameworks that have a more uniform basis.

Can Crypto Exchanges Be Regulated?

Although the United States Securities and Exchange Commission (SEC) routinely tries to control the trading of crypto exchanges by declaring certain types of offerings illegitimate, it is yet to be able to regulate them on a more uniform and standardised basis.

There are a couple of key areas where the regulation of crypto exchanges is suffering a setback. They are as follows:

1. The Principle of Decentralization

The crypto world is essentially governed by the principle of decentralization as it is a central notion of the operation of virtual assets. As a result, there is very little scope for a central entity to interfere in the operations of what is essentially a decentralized system.

Even though crypto exchanges, especially large ones are often centralized themselves, and adhere to KYC/AML regulations, there remains a certain barrier to imposing centralised rules on such exchanges.

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2. Lack of Uniformity

Since it’s a very new industry compared to the age-old stock market scene, it has not yet been possible to implement internationally uniform schemes and regulations across the length and breadth of the crypto market. Resultantly, the crypto exchanges are still able to take decisions based on yardsticks they set themselves.

Till these two obstacles are taken care of, it seems unlikely that it will be possible to regulate crypto exchanges very definitively.

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