Crypto regulation is the hot topic of 2022. The fear of a global cryptocurrency ban seems to have almost completely disappeared as adoption takes us past the point of no return. Banning crypto now is practically impossible. Still, the lack of an impending general crypto ban doesn’t mean there won’t be changes.
Most, if not all, crypto projects fall outside current regulatory frameworks or are subject to incompatible policies aimed at existing financial assets such as traditional securities.
Is regulation possible at all?
Unlike fiat investments, there are no protections for individuals investing in crypto. For example, if a bank in the UK goes bankrupt and you lose your money, the FSCS will pay you £85,000 per company. In the US, the FDIC is the standard deposit insurance policy of $250,000 per depositor, per bank. The European equivalent, EDIS, pays up to €100 000. Given today’s world of social engineering, it seems sensible that we accept some rules to allow governments to protect investors.
However, it is a real question whether we need such help from governments. Perhaps it should be up to the crypto community to create these systems?
Projects such as Nexus Mutual provide coverage for contract bugs, economic attacks, including oracle failures, and governance attacks at about 2.6% per year. Do we need traditional solutions for disruptive technologies? Furthermore, is it even possible for governments to create fundamental, impactful regulations for crypto? It seems smart contracts were born for this, and a cross-chain global crypto-DAO would be my preference over traditional governments where most politicians don’t even understand what blockchain means. I would like to see a cross-chain DAO, somehow secured by a reliable voting system, issued to the world’s validators of the best crypto projects.
I have no idea how this would work in a way that is not subject to exploitation, but there has to be a world where we can achieve this. In this world, the crypto community could vote through the blockchain to ensure safe practices and deposit insurance.
If a chain is hacked, the DAO can cash out from its cross-chain treasury to repay investors. Maybe it’s a stupid idea. Message me on Twitter if you think so, and tell me why. I would be happy to explore the alternatives to government regulation with you.
Regulation & Globalization
It is unlikely that the crypto community will be able or allowed to regulate itself any time soon. Therefore, the need for some form of government regulation is inevitable. When new technologies can grow exponentially without formal regulation, we can have potentially socially devastating consequences. However, this is not just any new technology; this is a unique global monetary system.
Whoever controls the regulations potentially controls the future financial system as a whole. Credit Suisse claims that we are witnessing the birth of a ‘new world monetary order’. They argue that a digital renminbi will be much stronger in the coming months as a result of the current global economic crisis.
Crypto is not going away and it shows the potential to replace the current system. This creates a new battlefield. Mastering crypto regulation may be the only way centralized governments can maintain their grip on the global economy. Globalization has three facets: economic, political and cultural. I doubt few would argue for just one culture and one political system for the entire planet. Why then do we assume a single economic system?
Economic globalization has made trade more accessible, services more efficient and outsourcing more practical. However, the agendas of the US, EU and China dominate most of the system. Crypto will enable all the benefits of economic globalization without centralized control. No one likes to lose control, especially not global superpowers.
The US as a leader in crypto regulation
In Biden’s recent executive order, the US made it clear that it wants to be the global leader in crypto regulation. In a conversation with Moe Vella, a former senior adviser to Joe Biden, I asked some direct questions about the US stance on regulation.
Vela believes that given current inflation levels and Russian aggression, Biden felt the need to examine the market’s volatility, anonymity, decentralization and lack of protection. Vela agreed that crypto is “here to stay”, and there is now a need to “encourage innovation” and “reduce risks for investors”.
The primary purpose of the injunction is to “establish a clear delineation of responsibilities, powers and regulatory oversight between the federal agencies with cryptocurrency jurisdiction” as the SEC and CFTC have fought over who should have regulatory control over digital assets. for some time.
When asked directly if the US wants to become the leader of crypto regulation, he said:
“Over-regulation should be avoided at all costs, but reasonable, fair regulation, including centralization, should be embraced, provided they do not stifle innovation while protecting vulnerable investors… some corporate centralization (not necessarily government) and transparency in the transactions and exchanges would ensure a safer, healthier, more secure and more stable industry and world.”
The executive order stated the need to protect global financial stability, promote US leadership in economic competitiveness and strengthen US leadership in the global financial system. The US believes it is ideally placed to lead the global financial system and will not be happy with the concept of Bitcoin replacing the dollar as the world’s reserve currency. Since the US has both state and federal laws, this article would be two hours long if I were to outline the complete regulatory history of crypto in the US
The SEC has still not approved a spot Bitcoin ETF years after the initial request. However, crypto futures ETFs are now traded within the country. The SEC sees crypto as a security and the CTFC sees it as a commodity. Part of the executive order’s role is to bring these opposing views together. The Ripple Lawsuit With the SEC Will Likely Be the Next Catalyst for the Regulatory Fate of Crypto as Led by the US
Europe’s Claim to Lead Cryptocurrency Regulatory Policy
In Europe, the cryptocurrency regulatory levy comes in the form of the Markets in Crypto Assets report. The report has received a lot of press because of a now-deleted amendment. It would have banned any proof of working coins from being traded within the EU Head of Strategy & Biz Dev at Unstoppable Finance, Patrick Hansen follows EU crypto regulations and accurately described the purpose of MiCA as:
“Mainly the harmonization of rules across the EU and the establishment of clear guidelines and requirements for companies.”
He also believes that the EU’s goal is to “lead the way in crypto regulation and set global standards.”
The report, which is currently making its way through the European Parliament, is said to provide legal definitions for crypto and associated blockchain technology. For the most part, this should be supportive of crypto businesses rather than restrictive. Clear definitions allow you to know the rules of the game you are playing. However, there are further clauses in the 60 page document that many in the crypto community will disagree with regarding Defi and KYC.
Interestingly, the report states that the legislation should not regulate any central banks or governments under any of the proposed bills. Of course they are subject to existing regulations, but some may wonder: if the rules are not good enough for the government and the banking sector, why are they being imposed on the rest of Europe?
I have contacted every member of the EU Parliament involved in the MiCA report without a reply. However, Alan ChiuCEO and founder of Boba networka next-generation Ethereum Layer 2 Optimistic Rollup scaling solution, recently gave us its thoughts on the EU’s proposed approach to crypto regulation.
“We are pleased to see the EU signal that it is open to continued innovation in the blockchain space. The European Parliament is now positioned to lead the development of these technologies and advance access and opportunities for billions of people worldwide.”
“These people tried to ban a math equation, something as stupid as this should be treated as such and it’s a good thing it was thrown out, what’s the next step to ban E=mc^2? if anything, the vote should have been even stronger for this bill to be thrown out.”
Patrick Hansen follows EU crypto regulations closely. He believes the EU’s goal is “to lead the way in crypto regulation and setting global standards.” When asked whether the EU is capable of this, Hansen replied:
“The EU is one of the most important economic areas in the world and will have a huge impact on how both other countries approach the complex effort to regulate crypto, as well as how crypto companies set up their legal frameworks.”
Set up central bank digital currencies
In a world where CBDCs are under scrutiny by nearly every central government, the regulatory frameworks will now act as a precursor to what we can expect from government-backed digital assets. If the regulations don’t apply to CDBCs, they can work just like fiat. Today, money is largely digital anyway. If a CDBC meant that every citizen acted as a validator for the network and voted on how the monetary system was run, that could be interesting.
However, this is unlikely. We’re more likely to see the potential for government-issued smart contracts. Imagine receiving your paycheck so it is automatically removed from your CBDC wallet through a smart contract issued to pay taxes. In an ideal world with a fully competent and efficient government, smart, programmable money could be utopian without anyone wanting anything. However, in my experience with the HMRC, governments are far from both.
In my opinion, it would be completely irresponsible to hold back crypto any longer, as it is clear that blockchain technology can propel humanity forward.
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