This is why “the government” is not going to ban digital assets
Benjamin Dean, Director, Digital Assets, WisdomTreean asset management company and an exchange-traded fund (ETFs) vendor.
2022 has seen a number of major changes in public policy for digital assets in the United States, United Kingdom (UK), and European Union (EU). Far from banning digital assets, the new announcements are clear and positive signs that digital assets are being integrated into existing regulatory and legislative frameworks in different parts of the world. Now that the scale and benefits of digital assets are too great to ignore, governments in these countries are now catching up with Switzerland and Singapore. The latter is now home to thriving digital asset industry clusters due to the clear regulatory and legislative positions established years ago.
The digital asset ecosystem is no longer the Wild West it once was. It matures, becomes safer and more could benefit from it as it becomes more regulated.
It’s the same process that many technologies go through when they become “part of the furniture”. Using these networks will become second nature, just as many no longer hesitate to use the Global Positioning System (GPS) to navigate a city they have never been before.
A scale that has become impossible to ignore
The digital asset ecosystem reached an all-time high of over $3 billion in market capitalization in November 2021. The benefits this new technology brings – such as increased speed, accessibility and transparency – are becoming too important to be ignored. At the same time, the potential risks – especially related to cybersecurity and criminal activities – are now well known.
The first major announcement came from the United States. In March, the Biden administration announced the “Executive Order for Responsible Development of Digital Assets.” It is a finely worded policy document that clearly lays out the potential benefits and risks of digital assets, then tasks various federal agencies with investigating and providing recommendations on how the United States can continue to be , “a global leader, growing digital development and adoption”. assets and related innovations,” and “defending against certain key risks, require evolution and alignment of the U.S. government’s approach to digital assets.”
Not wanting to be left behind, the UK Treasury has announced plans to make the UK the “global crypto hub”. Although details are scarce, some initial initiatives include, “Legislating for a ‘Financial Markets Infrastructure Sandbox’ to help businesses innovate, a 2-day seminar Financial Conduct Authority “CryptoSprint” event led by (FCA) in May 2022, in collaboration with the royal mint on an NFT and an engagement group to work more closely with industry.
Finally, the Crypto Asset Markets (MiCA) proposal is sneaking through various European Parliament working groups. Although the current wording of this proposal is under constant review, if it continues to progress it will eventually be reviewed by Parliament, the European Commission and the Council of Europe with a view to providing the EU with a unified framework to regulate digital assets.
Governments deal with new technologies in different ways
Each government will take a slightly different approach depending on its own national political structure, the degree of development of the digital asset industry in its jurisdiction, and other political imperatives.
The approach may take time to develop and may also evolve over time. This is no different from previous waves of technological change.
The railways went through a series of legislative efforts in the UK during the 1840s to raise safety standards for carriages and train lines. The same goes for automobile safety in the United States, thanks in part to the work of Ralph Nader in the 1960s.
The newest major wave of technology, the Internet, is still going strong. One facet of Internet governance, data protection and privacy, is treated very differently in the United States. In the absence of federal digital privacy legislation, to the EU and its General Data Protection Regulation and Directive (GDPR). It didn’t happen overnight – it took two decades for GDPR to be developed and implemented.
Another example can be seen in how speech is regulated online. Section 230 of the US Communications Decency Act has provided online service providers with a safe haven for liability related to the conduct of their users on their platform. This was set up in the 1990s and is part of the reason so many social media companies are based in the United States. Contrast that with the EU’s Digital Services Act, which is a relatively new initiative that won’t come out of the EU apparatus until 2024, or about 30 years since the arrival of the commercial internet.
There may be many hotbeds for the digital asset industry
For years, a recurring question about digital assets has been “what if ‘the government’ bans it?”. It turns out that there are many governments – none of which chooses how new technologies will be used around the world.
This is especially the case for open source software in an Internet-connected world.
Far from banning digital assets, many governments are now competing to be the “home” of companies using this technology.
Governments that manage to strike the right balance of measures will welcome a new wave of technological change, including the jobs, tax revenues and welfare that come with it.
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