US and Europe Cannot Regulate Crypto Alone

VSrypto is keeping lawmakers on both sides of the Atlantic busy.

They should really work together – and, for that matter, with other legislators around the world. When it comes to a technology that hardly takes into account borders, a borderless approach is necessary.

In the past month, U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (DN.Y.) announced their co-sponsorship of comprehensive crypto legislation, Senator Pat Toomey (R-Pa.) has filed a detailed proposal to regulate stablecoins, and five Democratic congressmen introduced the Electronic Currency and Secure Hardware (ECASH) Act. to develop a cash-like digital dollar.

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Meanwhile, in Brussels, the historic legislative framework for the European Union’s Crypto Asset Markets (MiCA) moved to “trilogue” talks between the European Parliament, the Council and the Commission, with the goal of a model single source for licensing crypto asset service providers that is “passportable” in all 27 EU member states. After a knife vote last month, the bill was stripped of draconian provisions that would have banned proof-of-work mining for environmental reasons and now focuses heavily on stablecoins.

From the perspective of the crypto community, there are pros and cons to these different US and European approaches. But all of this could be a moot point. Developments outside of major Western economies serve as a reminder that crypto is global in nature and will grow wherever it encounters the least resistance. This has huge implications for any industry control or management decisions made in Europe and the United States.

Global adoption

In Africa, for example, a partnership between mega crypto exchange FTX and Nairobi-based AZA Finance is set to open a network of on- and off-ramps for Africans using a variety of national currencies to s engage in commerce and web systems 3.

This comes as crypto activity in Africa is booming. According to Chainalysis’ 2021 Global Crypto Adoption Index, Kenya and Nigeria – with a combined population of around 260 million people – were ranked fifth and sixth respectively in the world. In June last year, Nigeria was the biggest market for Paxful, a leader in peer-to-peer crypto payments, representing 1.5 million users. And as we learned in an episode of our “Money Reimagined” podcast last year, crypto innovation hubs are thriving in Lagos, Kenya, Johannesburg and Cape Town, with decentralized finance (DeFi) projects. and non-fungible tokens (NFTs) taking off everywhere. .

Meanwhile, the biggest exchanges are rushing to set up shop in the Middle East. Binance recently obtained relatively liberal licenses to operate in Bahrain and Dubai and received approval in principle to operate as a broker-dealer in Abu Dhabi, with accommodating new laws being established in the United Arab Emirates. Around the same time, FTX got a license from Dubai.

And let’s not forget what is happening in Ukraine. Even before the Russian invasion, which caused an unprecedented influx of crypto funds into Ukraine to support both the war effort and humanitarian causes, Ukraine was a global leader in adoption. Now, with President Zelenskyy rushing to pass a new law legalizing cryptocurrencies, he may now be the world leader in crypto usage.

Crypto is a slippery target for regulators

If you’re a crypto developer, these places are where the action is right now. Not only are these more user-friendly schemes, but the rapid pace of their adoption creates a virtuous cycle of growth that encourages developers to offer profitable crypto services.

And because digital nomad developer teams don’t even need to physically travel to such locations to take advantage of these opportunities, the speed with which they are seized is very fast indeed.

This means that regardless of US and EU efforts to contain and manage the development of cryptocurrency services, the broader ecosystem around crypto will continue to develop and grow.

However, there is no assurance that he will do so in a way that benefits the US or the EU.

Indeed, the argument that killed the attempt to impose an EU ban on proof-of-work mining was that it would create opportunities for greenhouse gas-producing energy providers to woo bitcoin miners at their locations – Kazakhstan’s coal-based mining boom being a case in point. If the aim of regulation is to achieve benefits for the world as a whole – which is the case for all climate-related rules – then its designers should be wary of such perverse outcomes.

International approach

Regulating bankers is relatively easy. By definition, they require a license, their very existence being defined by their relationship to the monetary arrangements of the central bank. Remove the license and the entity is literally no longer a bank.

It is much more difficult to regulate open source developers, especially if they are not paid by a centralized company per se, but rather paid by the open network they serve with tokens generated and issued by a protocol. Although policymakers in the US and Europe are making concerted efforts to impose licensing constraints on DeFi coders – we covered an example last week – it is very difficult to force people who may be anyone where and who are only responsible for themselves not to write open-source code.

I’m not saying crypto projects shouldn’t be regulated, by the way. There is a real societal interest in trying to direct such projects towards the protection of a public good. It’s just that crypto regulation needs a more nuanced, accommodating and, importantly, internationally coordinated approach if it is to be effective.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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