It still seems largely debatable that cryptocurrencies are anything more than a gimmick. For instance, Bitcoin is 11 years old now, and still largely a marginal activity.  A recent study from Copenhagen Business School retains a bullish hue, however, and goes as far as to suggest that regulatory oversight of cryptocurrencies may be impossible if their development continues on its current path.

“If decentralized privacy-preserving cryptocurrencies become popular in the future, to the point they can be routinely exchanged without users having to convert to other currencies and systems, there is no obvious way for regulators to impose post-hoc regulation,” the researchers say.  “What the regulators do not realize is those who control the code will control the rules and so far, they have not accepted this and are in denial.”

Multitude of currencies

The researchers highlight that a lot of attention is given to the likes of Ethereum and Bitcoin, but there are a multitude of other currencies also being developed that they believe could be even more disruptive.  The paper itself focuses on Monero, which is widely regarded as a pioneer in privacy-focused cryptocurrencies.

The researchers examined the attitudes towards privacy from users, developers, researchers, and regulators to try and understand any disagreements between these various stakeholders.

“Monero strongly believe the privacy trade-off that allows for our digital transactions to leave an explicit data trail behind it has not been worth it,” the researchers explain. “They argue we went into this digital finance system and have given away all of our data, but we did not actually consent to this.”

Monero argues that the very system of crime detection is unfair, as it has been built on tracking the transactions we make.  As such, a better way should be found to track crime.  The researchers believe that regulators will struggle to ban cryptocurrencies, such as Monero, that focus on privacy because it would be almost impossible to enforce across all the jurisdictions the currency operates in.

As such, it is better for regulators and criminal investigators to begin planning for the future whereby exchanges that link transactions to identities may no longer exist.  For instance, under Monero, users and businesses could remain compliant but retain control with the entity that owns the information, who would then have the final say on sharing that information with investigative agencies.

“If these cryptocurrency communities have their own financial system which exists separately, and they become impossible to regulate, then it’s important to understand and understand this early. Once regulators accept it, they can then begin developing new methods to compensate,” the researchers conclude.