Nicholas Weaver wrote an excellent paper on the problems of cryptocurrencies and the need to regulate the space—with all existing regulations. His conclusion:

Regulators, especially regulators in the United States, often fear accusations of stifling innovation. As such, the cryptocurrency space has grown over the past decade with very little regulatory oversight.

But fortunately for regulators, there is no actual innovation to stifle. Cryptocurrencies cannot revolutionize payments or finance, as the basic nature of all cryptocurrencies render them fundamentally unsuitable to revolutionize our financial system—which, by the way, already has decades of successful experience with digital payments and electronic money. The supposedly “decentralized” and “trustless” cryptocurrency systems, both technically and socially, fail to provide meaningful benefits to society—and indeed, necessarily also fail in their foundational claims of decentralization and trustlessness.

When regulating cryptocurrencies, the best starting point is history. Regulating various tokens is best done through the existing securities law framework, an area where the US has a near century of well-established law. It starts with regulating the issuance of new cryptocurrency tokens and related securities. This should substantially reduce the number of fraudulent offerings.

Similarly, active regulation of the cryptocurrency exchanges should offer substantial benefits, including eliminating significant consumer risk, blocking key money-laundering channels, and overall producing a far more regulated and far less manipulated market.

Finally, the stablecoins need basic regulation as money transmitters. Unless action is taken they risk becoming substantial conduits for money laundering, but requiring them to treat all users as customers should prevent this risk from developing further.

Read the whole thing.