Thought Leadership: What the Biden Executive Order Means for Crypto, Blockchain
This article was originally published on Nasdaq, 3/30/2022 by Merav Ozair PhD
Regulations on cryptocurrencies and blockchain technology (i.e., the technology that underlies cryptocurrency) in the U.S. has been expected. Other countries have already been looking into these regulatory issues, and their approaches have varied, from the very progressive, like in Japan, Switzerland or Malta, to the other extreme of banning or making crypto illegal like in China or India.
In between these extremes, you’ll find the E.U. and the U.K., who have been investigating the space and coming up with proposals. It was only a matter of time before the U.S. joined them in taking a serious stance on how to regulate the crypto and blockchain space.
U.S. President Joe Biden signed an executive order on March 9 directing different federal agencies to examine the risks and benefits of cryptocurrencies and to coordinate their approach to this space. The executive order neither laid out specific positions or directions the administration would like agencies to adopt, nor does it impose new regulations on the space.
This approach is very welcome.
It indicates that the administration has not taken a concrete stance on regulation and is cautiously awaiting to collect the findings of the report before setting forward any proposal.
It is encouraging to see the Biden administration taking a holistic approach and involving different state departments and regulatory agencies and investigating the various aspects of blockchain technology, including any privacy and environmental implications. After all, blockchain technology has many facets and all must be examined and evaluated.
If blockchain technology and its various applications, including non-fungible tokens (NFTs), decentralized finance (DeFi), or decentralized autonomous organizations (DAOs) ever become mainstream, regulatory certainty in this space is imperative. It is crucial, however, that regulation of this space is done smartly and ensures regulation does not impede innovation, but stimulates it.
Illicit Activity: Demystifying Misconceptions
One of the key areas that Biden’s executive order focuses on is illicit activity. It calls for an “unprecedented focus of coordinated action” from federal agencies in mitigating illicit financial and national security risks posed by cryptocurrencies. It is important to mitigate illicit activity in any currency; however, the enhanced focus on cryptocurrencies is rooted in some misconceptions.
Equating cryptocurrency transactions to cash transactions stems from the misconception that they both equally suffer from lack of transparency and are susceptible to money laundering. This is far from the truth. Cryptocurrency transactions are fully transparent, immutable (can never be changed or deleted) and are traceable and trackable, by design, unlike cash transactions. Due to their trackability, the Federal Bureau of Investigation (FBI), with the assistance of Chainanalysis or similar companies, is able to capture criminals and terrorists who use cryptocurrencies in a matter of days. On the other hand, cash transactions are much harder to track, if at all.
In February, the U.S. Department of Justice (DOJ) announced their biggest seizure of cryptocurrency, $3.6 billion worth of bitcoin, using blockchain and new analytical tools which enable effective long-term tracing of digital assets. As a result, the FBI launched in February a new crypto crimes unit known as the National Cryptocurrency Enforcement Team (NCET), which will investigate ransomware and other crimes with tools such as blockchain analysis.
The DOJ and the FBI will be able to report to the administration on their continued success in capturing criminals who use crypto, and hopefully educate regulators about the capabilities of blockchain technologies and alleviate any misconceptions.
Financial Inclusion: The Power of Blockchain
The executive order also addresses equitable access to safe and affordable financial services. The order instructs the Treasury Secretary to lead efforts across relevant agencies to produce a report on the future of money and payment systems, including its implications for economic growth, financial growth and inclusion, national security, and the extent to which technological innovation may influence that future.
Financial inclusion is at the core of blockchain technology. When Bitcoin was introduced by the Satoshi whitepaper in 2008, it presented quite a novel and liberating concept: a peer-to-peer, decentralized payment system that can be used by anyone, anywhere and for everything. No intermediaries, no bank accounts, no central bank – accessible for anyone, reducing costs and inefficiencies.
There's an old proverb that goes, "Necessity is the mother of invention." If we modify it slightly and change the last word from invention to "adoption," we can see this play out in real-time. Take the Philippines, a developing country:
- 71% of adults don’t have a bank account (also known as the unbanked).
- A trip to the bank and accessing bank services may take half a day (underbanked).
- Even before the pandemic, one in five people lived below the poverty line, with many relying on cash in hand jobs and living from day to day.
- Many Filipinos work overseas and send money back home to support their families.
Due to these problems, the adoption of blockchain in the Philippines is one of the highest in the world: One in seven adults use blockchain-based digital payments applications.
We are currently observing how Ukrainians, due to necessity, are adopting cryptocurrency. Millions of Ukrainians are being uprooted, forced to escape their homes or the country due to the war. Those who have used cryptocurrency are able to escape with a portion of their savings intact by keeping it on the blockchain, which is accessible from anywhere at any time.
Blockchain technology could usher financial services to the underserved communities in the U.S. These communities have been neglected and underserved for decades and it’s time to correct this social (and racial) injustice and provide adequate access of financial services (and other services) to these communities. Biden’s administration has the potential to increase financial inclusion while mitigating social injustice.
The Path to Innovation
The order tasked the Department of Commerce with “establishing a framework to drive U.S. competitiveness and leadership in and leveraging of digital asset technologies.” The Order prioritizes U.S. competitiveness within the digital assets industry by examining a coordinated global approach for standardizing crypto rules.
The Department of Commerce has been asked to work across the government to develop a framework for interagency international engagement with foreign counterparts, resulting in the creation of an international forum to enhance the adoption of digital assets and standardized rules.
This call for global coordination and collaboration is especially encouraging and is instrumental to the continued innovation in this space – something I have been advocating for. Blockchain applications are cross-border, and global standardization of crypto regulations might be the better way to approach it.
I should also encourage countries around the world to create a global sandbox – working together with industry participants and regulators around the world and creating a trusted environment for a progressive, innovative regulation for blockchain technology.
The U.S. has the opportunity to materially advance blockchain technology and its various use cases and become the leader in innovation – paving the path to a better financial and social future, nationally and internationally.
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