Having not participated in the practice of shorting I hold a...

Having not participated in the practice of shorting I hold a huge amount of knowledge on this matter (experiential and otherwise)

I can see both the pros and cons for allowing this practice to continue. Most evidently, the government makes a bucket load of money through tax revenue (so it will stay).

There are a number of things that could be debated and potentially instituted to increase transparency into what is going on. Here are some of my suggestions.

1. Shareholders should be given the explicit option to allow there shares to be shorted or not. If I own a share in a particular company, why would I want my shares to be loaned out to an unknown third party to bet against my long position? Seems dumb to me. Therefore, allow the owner of the share to make that explicit decision as they are the owner of that share.
2. If I, for some reason do allow my shares to be loaned out, then I, as the owner of that share, should receive some form of compensation. At present, the institution that is lending those (my) shares out receives a payment from the entity to which the shares are being loaned to. As the owner, I currently receive no payment (compensation) for allowing that third party to bet against my position. The debate then becomes how do we know that my shares have been lent out and what is the level of compensation do I as the shareholder receive. Much of this could be overcome with the use of blockchain technology I would think.
3. Given the assumption that shorting is allowed, and given the need for greater transparency, then another process that could be implemented could be to publish, on a daily basis, the top 20 companies with short holdings in a company. This could possibly be limited to all companies that have more than say 5% short exposure. Given the ASX already publishes short selling already I would not think that this would be too difficult to implement.
4. Finally, there could be consideration given to halting the shorting of any stock where a BOD has notified the market that they are in discussions with another party re takeover. Shorters would be allowed to buy back stock to cover their position but no additional short positions could be entered into until a final decision has been made about a takeover process. This would have the effect of allowing short sellers to continue to ply their trade, but they also have to add into there decision-making risk matrix being caught out on the wrong side of a trade due to merger activity. In the Li space at present that would be very high.

Anyway these are just some of my thoughts. Some of the ideas above may have merit others may not. Some would be much easier to implement than others as well.