Crypto Auditors Caught between Investors and Government Regulations

Crypto auditors are getting sandwiched between investors and government regulations

Within a very short time, cryptocurrencies have become an integral part of the global financial system. However, much of the cryptocurrency market is shrouded in secrecy and mystery, and suspicions and doubts continue to dominate it. Crypto audit is an inevitable outcome of the growing concern about the 'free play' of such cryptocurrencies and the clamour for regulating them. A crypto audit basically is an assessment of the fact whether the recorded transactions within a blockchain ledger are verifiably complete and correct, based upon the available evidence of the transactions recorded in the ledger. There are several specialized smart contract audit servicing companies that do the work. But it is evident that the crypto auditors are sandwiched between crypto investors and government regulations.

A smart contract or crypto audit is an extensive methodical examination and analysis of a smart contract's code which is used to interact with a cryptocurrency or blockchain. Like in any audit, this process is conducted to detect errors, issues, and security vulnerabilities, and the protocol also requires suggesting improvements for the betterment of crypto investors. Governments in many countries are coming up with regulations, some quite stringent. The fundamental reason for this is the logic that regulating cryptocurrencies is essential not just for the healthy development of the cryptocurrency market but also for the appropriate functions of the global financial system. There are other important issues for crypto investors like the prevention of fraudulent activities like money laundering and violation of national security by crypto dealings. Government regulations also seek to reduce the high rate of speculation that marks crypto transactions. The governments want from crypto audit— much greater transparency, insisting that the concerned parties, be they individuals or companies, must disclose the volume of trading in cryptocurrencies and the auditing firms with specialized crypto auditors must play a key role in this regard. For instance, the Government of India has brought in some "additional requirements" to be addressed by the auditors as part of their enhanced responsibility with the rise of the cryptocurrency market. The US government under President Biden is also busy in enunciating further regulations. So does Russia.

Not all crypto investors are happy with the increasing governmental interventions in the form of regulations and crypto audit. The basic objection comes from the apprehension that strict auditing by professional crypto auditorswill weaken the decentralized feature of cryptocurrencies which were supposed to be free from the regulatory clutches of any institution. Another reason for objection is that it will also destroy the innovative acts that go with the mining and trading of such cryptocurrencies. It is also being pointed out that excessive crypto audit will also demotivate crypto investors and will lead to severe erosion in the huge potential of cryptocurrencies in adding to the GDP. Most crypto investors are dead against treating cryptocurrencies like ordinary currencies and they pressurize crypto auditors to follow a more flexible method of assessment.

To ward off such dual pressure confronting crypto auditors there is a need to strike a balance between freedom of investors and governmental regulations insofar as cryptocurrencies are concerned. Such balance has to be supported by generating the idea that some degree of regulations will serve the long-term interests of crypto investors in the highly volatile and largely unstable cryptocurrency market.

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