With the rise of Web 3.0, a genuinely decentralized internet, blockchain technology promises to bring humanity and freedom. Some even suggest that the large growth of the decentralized finance (DeFi) sector is a symptom of the conceptual move away from centralized to decentralized services, with Web 3.0 as its cornerstone.
Furthermore, others have compared the development of blockchain technology to the change ushered in by the internet’s arrival. The source code for the World Wide Web, created by British computer scientist Tim Berners-Lee, is slated to be auctioned off as a nonfungible token, or NFT, on June 23 at Sotheby’s. The three — NFTs, DeFi, and Web 3.0 — are inextricably linked. But there’s a fundamental point to be made with that internet-blockchain comparison: without adequate regulation in the crypto and blockchain area, there won’t be the same level of technological progress as we’ve seen in the past 25 years, which has revolutionized the world as we know it.
It is becoming increasingly clear that a lack of regulation would stifle crypto innovation. As the decentralized technology industry has evolved, regulators throughout the world have begun to pay more attention to stablecoins, DeFi, NFTs, crypto assets, smart contracts, unhosted wallets, central bank digital currencies, and other decentralized technologies. Meanwhile, some experts, such as Caitlin Long, founder, and CEO of Avanti Financial, regard the ongoing “crypto regulatory crackdown” as a positive development that will only benefit innovators. Others advocate “a proper mechanism to govern cryptocurrency.”
On the other side, current regulation is incompatible with crypto, and adapting freshly emerging decentralized technologies to it risks jeopardizing decentralization’s essential objectives, returning us to where we started: with centralized parties controlling the sector. Is this the price we’re willing to pay to become a regulated business?
The crypto space demands a much deeper and closer working relationship that includes both regulators and innovators to find the proper balance. Only through dialogue between crypto businesses and regulators, authorities, and industry representatives will it be possible to find the best way to regulate the emerging tech industry — through smart regulation — and the space that has the potential to change our lives — a promise that was fulfilled by proper internet regulation at the turn of the century.
To find out what representatives from the crypto and blockchain industries think about this regulatory quandary, Cointelegraph reached out to a few of them and asked for their thoughts on the following question: Will crypto’s essential ideals be lost in the process of being regulated, or will regulation adapt to decentralized technology and its societal benefits?
Professor of law and expert at the EU Blockchain Observatory and Forum, Agata Ferreira:
“When it comes to blockchain in general, regulators are still learning. Legal and regulatory frameworks have been constructed over time to manage centralized and intermediated social design within clearly defined jurisdictional boundaries. Blockchain networks that are decentralized, disintermediated, and borderless provide a challenge to regulators who have been caught off guard by some blockchain technologies, such as stablecoins.
The regulatory landscape has changed, as have the approaches to blockchain innovation. There has been an uptick in regulatory activity and scrutiny recently, and we can expect this trend to continue. Regulators continue to apply established regulatory ideas to cryptocurrency, which is not always in sync with decentralized technology.
The goal is that as time passes, authorities will see the value and benefits of decentralization and change their regulatory approaches to reflect this. The regulatory approaches to technology will evolve as the technology matures. Hopefully, not via trial and error, but through well-thought-out and well-informed regulatory actions.”
Co-founder of The Giving Block, Alex Wilson:
“Crypto isn’t going away, and I’m convinced it’ll get through any regulatory roadblocks along the way. I’m sure there will be ups and downs, as well as significant differences between countries. Countries that accept crypto now will have a significant advantage over those that try to suppress it, as they will be missing out on an entire generation of entrepreneurs who will be developing crypto enterprises. Singapore, Switzerland, and Portugal are three countries that have done an excellent job of luring crypto entrepreneurs, thanks in part to low or no crypto taxes. I’m surprised that more countries haven’t made a more concerted effort to attract the next generation of entrepreneurs.”
InsideChains founder and CEO Cristina Dolan, vice-chair of the MIT Enterprise Forum:
“By default, crypto on-ramps and off-ramps are regulated since exchanges that offer crypto-to-fiat conversions must follow Know Your Customer and Anti-Money Laundering procedures. Traditional siloed financial systems prohibit visibility throughout the transaction process, hence there is more visibility across crypto blockchain networks than there is across traditional siloed financial systems.
The speedier implementation of these beneficial and transparent technologies for next-generation financial systems will be enabled by the regulatory acceptance of crypto. The level of ingenuity displayed by fintech companies is increasing at an exponential rate; DeFi’s recent success is only the beginning.
CDBCs, or central bank digital currencies, will provide programmable money. Governments will be able to see what’s going on with these CDBCs, and they’ll be able to program fees and taxes into transactions. CDBCs will neither replace nor compete with the entrepreneurial inventiveness that is driving the development of new crypto and DeFi solutions. While interest rates remain artificially low, the appeal of crypto-enabled investments will expand, especially as rules become clearer.”
Stellar Development Foundation CEO and Executive Director Denelle Dixon:
“There is disagreement over what crypto’s essential ideals are. People who wanted access to the financial system to be dispersed, out of the hands of institutions and into the hands of people, were attracted to the early usage of cryptocurrencies. While those original ideas excite us, we see a way to operate with existing financial systems.
Connecting to the rest of the world’s infrastructure is necessary for blockchain to provide individuals with access. Regulation, in my opinion, is an essential and ongoing process. At Stellar, we have a crystal-clear vision of how our technology can assist developing countries to achieve financial inclusion and positive economic growth.
Furthermore, any business that wishes to operate globally would need to adapt to legislation in many countries and authorities. We see blockchain/crypto as a chance for more collaborative regulation while maintaining its essential ideals and delivering a societal benefit.”
Diana Barrero Zalles, Emergents @ Weild & Co. director of ESG and impact:
“Throughout history, civilizations have been constructed on universally agreed-upon principles based on an underlying sense of morality and conscience and justified by a universal acknowledgment of each person’s intrinsic dignity. Promises must be honored, and promises must be fulfilled. Breaching contracts can cause harm to the other party while breaking commitments is considered unjust.
The core of cryptocurrency is decentralization, which introduces a new and exciting form of governance that will support a new generation of community-driven ideas and business models. This does not imply that crypto should be divorced from the fundamental ideals of fairness that underpin human civilization simply because it is new.
When it comes to solving issues, making decisions, forecasting outcomes, and innovating, the ‘wisdom of the crowds’ theory claims that collective intelligence can outperform individual expertise. A collective estimate will be far closer to being correct than any single person’s estimate for a population that is at least 51% likely to be correct (e.g., guessing the weight of a cow at a country fair). The response to the DAO breach, where the Ethereum hard fork was established to refund stolen monies to their rightful owners, demonstrates that most communities would disapprove of the usage of decentralized organizations for damage.
Regulation, which has traditionally served to uphold society’s fundamental norms, is increasingly being replaced by a wave of decentralized governance. Regulators all over the world are changing to allow these structures to thrive while staying true to key principles. We can take a step back from the debate about decentralization vs. centralization to consider how both can be balanced for the community’s ultimate benefit.”
Emin Gün Sirer, CEO of AvaLabs, Cornell University professor, and co-director of IC3:
“There will always be a foundation in crypto that argues traditional regulations have no say in how these networks operate. This attitude is critical for continuing to develop and offer technology that connects people all around the world to a financial system. Access to the traditional banking system can rest on forsaking your values and submitting to state-approved messaging, as we’ve seen in some totalitarian regimes.
However, service providers who work with fiat will always have to respond to authorities’ requests. The most likely conclusion is a crypto split between regulator-approved services and those who make business trade-offs in the name of permissionless systems’ ideals.”
Marc Powers, former SEC attorney, and law professor:
“Blockchain has the potential to provide the entire world with a technology that promotes some important core values, including financial independence and freedom, financial and political security for many sovereign populations, financial inclusion for billions of people, and the ability to conduct peer-to-peer transactions without the use of intermediaries at a low cost. It’s a good question if sovereigns will enable crypto to flourish with acceptable legislation that promotes such objectives. As a former employee of the Securities and Exchange Commission in the United States, I am skeptical yet hopeful.
To begin with, blockchain is the polar opposite of a central government or authority, and its deployment marginalizes traditional financial intermediaries. Second, groupthink refuses to study and construct a more efficient financial system that adapts to changing technology. Our customary laws on finance, banking, and capital raising, I believe, have the potential to accomplish so. Hester Peirce, a former acting comptroller of the currency for the US Office of the Comptroller of the Currency, and Brian Brooks, a former acting comptroller of the currency for the US Office of the Comptroller of the Currency, are on the right road here.
However, after the growth of the last big technology, the internet, and the dot-com crash, the passing of SOX, which needed thousands of new laws in the name of consumer and investor protection, this is not what happened.
This time, however, calls for regulation will be predominantly for the advantage of sovereigns and banks, rather than for the good of consumers and investors. As a result, I envision a dual system continuing, with one crypto-owned, used, and managed by people, and the other — the old financial system, which will eventually offer its population central bank digital currencies.”
Founder of Quantum Economics, Mati Greenspan:
“By design, many crypto assets are extremely resistant to regulation. One of the key objectives for Bitcoin’s creation was to create a currency that was independent of governments and banks, so, understandably, regulators are having such a difficult time regulating this market. There’s no doubt they’ll gentrify popular usage over time, but there will always be loopholes and workarounds, especially for the more technically savvy.”
Chairman of the IOUR Foundation and specialist at the World Bank and the EU Blockchain Observatory and Forum, Thibault Verbiest:
“As long as our societies are governed by the rule of law, regulators will continue to hunt for legally responsible entities in the event of illegal or repulsive activities, even if it means pursuing the wrong person. This mindset has been present from the dawn of the internet when access and hosting providers were penalized even though they were not actual criminals. To protect these intermediates, the United States and later Europe had to legislate some 20 years ago. Today, the ‘neutrality’ of intermediaries is being questioned in the name of counter-terrorism and intellectual property protection.
With the first lawsuits against miners, a similar tendency is at work in the blockchain ecosystem (and certainly tomorrow against block producers in the case of proof-of-stake protocols). Regulators face a significant issue in dealing with DeFi. Regulators face a significant issue in dealing with DeFi. In the current environment, authorities are naturally targeting stablecoins backed by national currencies (the US dollar, the euro, and so on) since their connection to a fiat currency obligates them to follow existing regulations (AML, KYC, etc.).
But if we’re talking about completely decentralized finance, with no middlemen, no stablecoins backed by a national currency, and only non-professionals intervening anonymously, then the regulator is in for a wild ride.
In the end, legislation will most likely focus on digital identification, and this will be the actual democratic battleground. Regulators will be tempted to impose a centralized identity, which can be issued either by the state or by private entities that the state can requisition if required (this is already the case with Facebook, in particular). As a result, the challenge is to promote decentralized identities that consumers can manage directly from their wallet.”
Draper Associates and Draper Fisher Jurvetson founder Tim Draper:
“That’s a good question. Bitcoin, as a symbol of trust and freedom, will, in my opinion, continue to be global. I believe that the finest governments are attempting to adapt to this new technology in their current form, understanding that it will benefit their citizens in the long run. Bad governments who try to control their people with their currencies will make life tough in this new, global, trusted, and free world and their citizens will suffer as a result. People can, of course, vote with their feet.”
Wes Levitt, Theta Labs Inc.’s head of strategy:
“If you believe in crypto values, the optimum conclusion is for crypto and regulators to meet in the middle. There was never a realistic scenario in which Bitcoin would completely replace global finance without the involvement or approval of government regulators.
Censorship resistance will persist because governments will find it nearly impossible to prevent peer-to-peer crypto transactions. They can impose surveillance and limits on fiat-to-crypto gateways, which may prevent some crypto users from receiving traditional financial services.
CBDCs, on the other hand, are largely at odds with crypto’s initial values. They are not decentralized, censorship-resistant (rather the opposite, a central bank will almost certainly be able to refuse you access to them), or inflationary. CBDCs will not replace Bitcoin, Ether, or other cryptocurrencies, but they will coexist. But it’s vital to remember that, aside from the fact that they’re both digital currencies, CBDCs and Bitcoin serve quite distinct purposes.”
eToro’s founder and CEO, Yoni Assia:
“Breaking down barriers and improving access to information, products, and services will continue to be a core value for the crypto industry – this is why it was created in the first place — and will improve processes at all levels across numerous sectors.
Regulation of crypto in the financial sector is anticipated to set the stage for the regulation of decentralized technology and blockchain more broadly, with CBDCs being a hot topic for both industry and policymakers. EToro is a firm believer in regulations that safeguard and educate investors and end-users. We hope that any guidelines put in place will strike a balance between the need to protect investors and the desire to encourage their participation in the crypto markets and that increased regulation will help to facilitate greater use of a technology that can deliver real benefits to the financial services sector while also facilitating greater global financial inclusion.”