The year 2022 has seen a number of significant shifts in public policy on digital assets in the United States, the United Kingdom (UK) and the European Union (EU). The newly announced policies are not intended to prohibit digital assets at all, but rather are an overt and positive sign that digital assets are being integrated into existing regulatory and legislative frameworks in different parts of the world. Since digital assets are too large and too profitable to ignore, these governments are now catching up with Switzerland and Singapore. These two countries are now home to thriving digital asset industry clusters due to the clear regulatory and legislative stance they established years ago.
The digital asset ecosystem is no longer the Wild West as it once was. It is maturing, becoming more secure, and may benefit more as regulation increases.
This is the same process that many technology products go through when they become “part of the furniture”. Using these networks will become second nature to us, just as many people use the GPS/Global Positioning System to navigate cities they have never been to without much thought.
Scale that can’t be ignored
In November 2021, the market capitalization of the digital asset ecosystem reached an all-time high of more than $3 trillion. The benefits of this new technology – such as increased speed, accessibility and transparency – are becoming too great to ignore. At the same time, the potential risks – particularly those associated with cybersecurity and criminal activity – are now well known.
The first major policy announcement came from the United States. In March, the Biden administration announced the Executive Order on Responsible Development of Digital Assets. This is a beautifully worded policy document that clearly outlines the potential benefits and risks of digital assets and then requires federal agencies to conduct further investigations and provide recommendations that will lead the U.S. to continue to be “a global leader in the ongoing development and adoption of digital assets and related innovations” and to be able to “defend against certain key risks that would force the U.S. government to evolve and adapt its approach to digital assets.”
Not wanting to be left behind, the UK Treasury has also announced their intention for the UK to become a “global cryptocurrency hub.” While details are scarce, some initial initiatives include “legislation to create a ‘financial market infrastructure sandbox’ to help firms innovate, to be implemented by the Financial Conduct Authority (FCA) in May 2022. A 2-day ‘CryptoSprint’ event led by the FCA/Financial Conduct Authority in May 2022, and an NFT engagement group with the Royal Mint to work more closely with industry. “
Finally, the Markets in Crypto Assets (MiCA/Markets in Crypto Assets) proposal is being vetted through various working groups of the European Parliament. While the actual wording of the proposal is under constant review, if it continues to progress, it will eventually be reviewed by the Parliament, the European Commission and the European Commission in order to provide a unified regulatory framework for digital assets in the EU.
Governments Approach New Technology Differently
Each government will take a slightly different approach depending on its domestic political structure, the extent to which the digital asset industry is developing within its jurisdiction, and other policy requirements.
The approach may take time to develop, or it may evolve over time. The process is no different from all previous waves of technological change.
Railroads went through a round of legislative efforts in the 1840s in England to improve safety standards for train cars and lines. So did automobile safety in the United States, made possible in part by Ralph Nader’s efforts in the 1960s.
The most recent major wave of technology, the Internet, is still playing out to this day. There is one aspect of Internet governance, data protection and privacy that has been handled very differently in the United States. That is, there is no federal digital privacy legislation to correspond to the European Union and its General Data Protection Regulation and Directive (GDPR/ General Daa Proection Reglaion and Directive). Of course, this legislation did not happen overnight – it took two years to develop and implement the GDPR.
Another example can be seen in the way speech is regulated online. Section 230 of the US Commnications Decency Act (CDA) provides a safe haven for online service providers from liability related to the actions of their users on their platforms. This was implemented in the 1990s and is part of the reason why many social media companies are located in the United States. This is also in contrast to the EU Digital Services Act, a relatively new initiative that will only be introduced in the EU institutions in 2024 – some 30 years after the advent of the commercial Internet.
The digital asset industry can have many homes
For years, the recurring question about digital assets has been, “What would happen if the ‘government’ banned it?” . As it turns out, there are a lot of governments in the world – but none of them can choose how to use new technologies globally.
This is especially true for open-source software, which runs in the Internet world.
Not only have many governments not banned digital assets, they are now vying to become “homes” for companies using this technology.
Governments that manage to strike the right balance between policy measures will usher in a new wave of technological change – including the jobs, taxes and well-being that come with it.