Welcome back to our course on FinTech, Security and Regulation. In this session, we're going to talk about regulations and how they might be helpful to society. Now, in some cases, you may say, really I don't know that governments are that helpful to my society or to my firm or to me personally, but the goal of regulation is to help society. So, we'll look at where might this be applicable, and how can regulations help us. Now without regulation, what we're going to find is this world of wild wild west is a world of criminals, gangsters, and fraud, and bankruptcies and business failures. Without regulation the world is a lot riskier place, and we're going to have more Ponzi schemes which is a Ponzi scheme is taking money from some investors using it to pay the older investors to give the illusion of a high return, and then going broke once you've gotten a lot of people to give you money, and walking away with all the cash. Named after someone named Ponzi, some people are critical of the name Ponzi being applied because he wasn't the first to do this. He just became very notorious, and very well known. When I look back in history at earlier Ponzi schemes, there was a celebration of women in history that looked back at one of the earliest Ponzi schemes in the UK was sponsored by a woman, who started a woman's banking society, and got people enamored with that, put their money in, and then walked away with a lot of cash, but didn't get it named after because we had to name and after a man later in America, instead of a British woman. But at anyway, why do governments care? Well, they're concerned, they're concerned about individuals, they're concerned about protecting individuals, but then we might ask why did the government of China gets so excited about blocking Bitcoin. How does this help consumers? Well, that's also an interesting perspective because Chinese society doesn't care as much about individuals as US or European societies, which are more individualistic based, and China is more of a society community or entire nation-based in protecting society. So, you would, why does China care what you're doing? I mean, they don't protect consumers as much from a lead poisoning and toys or bad milk or other products, they are concerned about that sum to, but less so than the US is. So, why block Bitcoin when America doesn't? Now what's interesting about that is China blocking Bitcoin is saying we don't want small investors in large numbers rushing off to put money in Bitcoin, because they might lose their money. That's the argument, we're going to protect consumers. But even more so, they don't want to lose control of currencies. They don't want destabilization of their currency flows or controls. So, they lose control and that's important. Governments particularly China likes control, and it's not a bad thing. I mean I'm not being critical of China, I'm just saying they don't want lack of controls of their financial services and institutions, but they also don't want lots and lots of consumers across the nation of China to systematically be defrauded in a one big cataclysmic event. If Bitcoin crashes, and by crashes I don't mean going from the peak of December 2017 to the troughs of February 2018, that we've seen recently. I don't mean that, that's a downturn. I mean we have that in markets and it happens, and that's not unique to this period of time of Bitcoin, it's gone up and down a lot. What they're saying is we don't want to have a systematic forced bankruptcy or liquidation of value in a major way if bitcoin crashes because, if there were many, many small investors investing, there may be an outcry across the nation of many people being discontent. If there're social discontent or social unrest, that becomes broad, big, well, that might be threatening to government stability. That might be upsetting and when you look at social transformations, the French Revolution, Germany before World War two, you often see some financial collapse leading to economic crisis, leading to a question of government legitimacy, and potentially threats to social stability. So, we don't want that. I mean that kind of lack of control and lack of stability, very bad combination from the perspective of leaders of China. So, regulating bitcoin makes a lot of sense, protects stability of society as well as protecting individual investors. Now, rich investors in China can still buy bitcoin, all you have to do is fly out of the country and take some money with you or take some gold with you or something creative. You can still find ways, if you're rich and you want to buy bitcoin and you're Chinese, you'll figure out how to do it, it's not that hard. But if you're a poor or normal Chinese person, no. You can put regulation and stop people from doing that. Now, other governments are also putting in policies to say we don't want average consumers, we don't want the masses of people jumping in on this crypto-currency move, which some people say is a conspiracy. Some people say it's a really bad thing, the cryptocurrencies are good in reducing government power. Some governments don't agree with that perspective. Might not surprise you, but regulations may promote social stability. So, that's why we'll see some governments coming out very strongly against these kinds of technological innovations. We'll also see efforts to declare ISOs to be securities or cryptocurrencies to be securities, and put them under tighter regulations to reduce fraud. The concern that regulators often have with ICO's or other innovations is these are ways to get around some regulations which are in place to protect small investors. Most of the regulations that are the most cumbersome, annoying, difficult or expensive to comply with, in some way relate to protecting individual investors from fraud, such as security regulations or protecting governments from loss of control of currency, AML and banking is anti-money laundering. We don't want money moving and shifting, avoiding taxes, avoiding government controls. We don't want criminals being able to move money in a dark world. Know your customer, you need to know not only who your customer is KYC, but also where they get their money from. Is that money from some kind of a legitimate source, and if so we want to tax it and maybe monitor trailer. Fraud is a big concern. We want to make sure people aren't cheating others or pretending to sell something that they don't, and the lack of government controls. This is not just important to China. Now, it's more important to China than it is to Western governments, but it still matters to England, it's still matters to USA, and it's still matters to Japan. They still like control, they like government controls, so it's just like a little less than the Chinese government does. Chinese governments still likes protecting individuals just a little bit less than the US society does on the individual side. So, it's a matter of degree or tone, not that individuals matter in one country and don't in another, control matters in one country and not in another, but it's a degree of focus or intensity of care.
