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The collapse of cryptocurrency exchange FTX ticked all tech cynics’ boxes. The founder and CEO had his eye on wallets on Silicon Valley’s Wag and Sand Hill Roads. Tech-enabled services that most people don’t understand, riding the waves of boom-and-bust ecosystems. And at its heart is an opaque black box with little external oversight.
As congressional investigations heat up, such voices of criticism will call for strong new regulations to protect consumers. And clearly, more regulatory oversight in this area is needed, especially for society’s most ignorant and wealthy people, after the collapse that saw the market value of the largest cryptocurrency lose more than $152 billion from him. is.
However, establishing rough controls without a full understanding of the nature of the broader cryptocurrency ecosystem and its potential benefits could result in a fairer, more efficient, integrated and transparent global economy. Innovation is hindered. As legislators consider new regulation, six key principles should guide their efforts.
First, they need to understand that FTX is not a true cryptographic entity. At its core, FTX, like Enron and Lehman Brothers before it, had a traditional corporate structure that escaped significant regulatory scrutiny. In this case, the fraud occurred by transferring money to a hedge fund and withdrawing for personal use, but the business model itself was essentially the same as a traditional currency or stock trading platform.
The usual policing of new technologies, such as blockchain, which is at the core of many new cryptocurrency services, will not prevent this kind of illegal activity. In fact, since the data in blockchain ledgers is public, it may provide an easier way for regulators to audit financial flows, even if receivers and senders remain anonymous.
Second, we need to stop lumping together a wide range of promising cryptocurrency technologies. Block innovation in other applications such as borrowing and lending by building guardrails around bitcoin and other cryptocurrencies, such as oversight over custody, liquidity, and “know your customer” standards for certain types of exchanges. You can protect your users without having to.
Third, it should also be remembered that “crypto” is shorthand for the broader Web3 ecosystem, which includes much more than digital financial coins and exchanges. New blockchain-based microfinance applications could extend credit to the unbanked, peer-to-peer music sharing could provide new outlets for artists, and the blockchain-based web could ward off censorship. It can help you secure your freedom. The wide potential of this cryptographic technology is something that must be kept in mind when starting to draft regulatory controls. Protecting the public from harm is important, but so is taking advantage of the unique opportunities these technologies offer.
Fourth, given this wide variety of potential use cases, we need a regulatory approach that can be tailored to different categories of crypto services. Consider a decentralized autonomous organization (DAO) that makes governance decisions, often by voting anonymous members. There is no single point of contact or accountability. And while it can facilitate more democratic, accessible and fluid economic activity, the underlying thinking behind today’s financial market regulation has not begun to contemplate this kind of organizational structure. A new style of regulation should clarify different kinds of control, ownership and governance in centralized and decentralized environments and take advantage of them.
Fifth, when we regulate, we must not ignore the important role of usability and user experience in new systems. While this may sound like a product design issue, previous regulatory experience should highlight the importance of a smooth user experience and interface. European Union data protection regulations have created a bevy of pop-ups and legal jargon that users rarely read or use to their own advantage. If we want to push the positive aspects of the blockchain and crypto ecosystem forward beyond early adopters, evolving regulations aim to encourage improved user experience in ways that minimize the complexity of use. there is.
Finally, Principle 6 compels us to recognize that the decentralized nature of the cryptocurrency ecosystem means that these organizations and services inherently cross jurisdictional boundaries. Some cross-border bodies, such as the Financial Action Task Force (FATF) and the Basel Accord, could serve as useful guides or even shoulder some of the burden of cryptocurrency regulation, but existing bodies is not suitable for other types of regulation. Infinite crypto application. We need to rethink and form a new agency better equipped to handle the new dimension of the crypto world.
While these six principles only provide a rough roadmap for the more detailed multi-stakeholder process we need, the time for this kind of wise regulation is now. According to the Atlantic Council’s Crypto Regulation Tracker, 88% of the countries surveyed were in the process of making significant changes to their regulatory frameworks.
It is not possible to take a one-size-fits-all approach to cryptocurrency regulation. The nature, scope, and possibilities of this ecosystem are too broad and too promising to be smothered with cheeky rules. But with caution, the trend toward more regulation could lead us to higher levels of economic inclusion and vitality.
Olaf J. Gross, Ph.D. CEO of Cambrian Futures, Professor of Business at the Haas School of Business at the University of California, Berkeley, Professor of Practice at the Hult International School of Business, author of The Solomons Code and the forthcoming Great Remobilization: Strategies & Designs for A He is also the author of Smarter World. (MIT Press).
Tobias Straube is Cambrian’s VP of Analytics, Director of Digital Waves, Founder of the Scio Network, and Assistant Instructor at UC Berkeley Executive Education.
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