The digital asset ecosystem isn’t the wild west it used to be. It’s maturing, it’s becoming safer, and more players will benefit from its increased regulation.
The year 2022 has witnessed several major shifts in public policy related to digital assets in the United States, United Kingdom and within the European Union. Far from banning digital assets, the new announcements are clear and positive signs of the integration of digital assets into the current regulatory and legal frameworks in different regions of the world. Now that the size and benefits of digital assets are too great to ignore, these governments are now trying to catch up with Switzerland and Singapore. Singapore is now home to thriving industrial clusters specializing in digital assets due to years of clarity in regulatory and legislative policies.
The digital asset ecosystem isn’t the wild west it used to be. It’s maturing, it’s becoming safer, and more players will benefit from its increased regulation. This is the same process that many technologies go through when they become “part of the furniture”. Using these networks will become second nature, as will the many people who no longer think twice about using GPS to get around a city they are discovering for the first time.
A size that has become unmistakable
The digital asset ecosystem hit an all-time high in November 2021 with a market cap of more than $3 trillion. The advantages of these new technologies such as speed, accessibility and increased transparency can no longer be ignored. At the same time, its potential risks, including those related to cybersecurity and criminal activities, are now well known.
The first big announcement came from the United States of America. In March, the Biden administration announced the Executive Order for the Responsible Development of Digital Assets. It is a well-written policy document that clearly outlines the potential benefits and risks of digital assets and urges various federal agencies to investigate and make recommendations on how the United States can remain “a global leader in the growing development and adoption of digital assets” and associated innovations” and “defense certain key risks that require an evolution and convergence of the US public’s public approach to ‘looking at digital assets.’
Not wanting to be left behind, the UK Treasury has announced plans to make the UK the “global hub for cryptocurrencies.”. Although details are scarce, some initial initiatives include “legislating a ‘financial markets infrastructure enabling environment’ to help companies innovate, a two-day ‘CryptoSprint’ event chaired by the Financial Conduct Authority (FCA) in May 2022, a Working with the Royal Mint (UK Minting Agency) on a non-fungible token or NFT and a dialogue group that will work more closely with the sector.”
Finally, the proposal for a market for crypto assets (“Markets in Crypto Assets (MiCA)”) makes its way through various working groups to the European Parliament. The text of this proposal is under constant review. If it continues on its way, it will eventually be scrutinized by Parliament, the European Commission and the Council of Europe to provide the EU with a unified regulatory framework for digital assets.
Governments deal with new technologies in different ways
Each government will take a slightly different approach depending on their own local political structure, the level of development of the digital asset industry in their country, and other political imperatives. This approach may take time to develop and evolve over time. There is no difference from previous waves of technological change. Railways were the subject of several legislative efforts in the 1840s in the United Kingdom to raise safety standards for railway carriages and tracks. This is also true of automotive safety in the United States, thanks in part to the work of Ralph Nader in the 1960s.
The internet, the latest big wave of technology, is still relevant. One facet of internet governance, data protection and privacy, is handled very differently across the United States. There are no federal online privacy laws like the European Union and its General Data Protection Regulation (GDPR). This law was not enacted overnight. In fact, it took two decades to develop and implement the GDPR. Another example of these differences is the regulation of comments on the Internet. Section 230 of the US Communications Decency Act gave online service providers protection from liability for the conduct of users of their platform. This law was enacted in the 1990s and is one of the reasons why so many social media companies were founded in the United States. In contrast to this US law, the EU Digital Services Act is a relatively recent initiative that will eventually go through all the legal stages of the EU process in 2024, some 30 years after the advent of the commercial internet.
The digital asset industry can be found in many places
For years, the question has often been asked about digital assets, “What if the government bans them?” But it turns out that many governments, and not just one, decide how new technologies are deployed on a global scale. This is especially true for free software in an internet-connected world. Far from banning digital assets, it turns out that many governments are currently competing to accommodate companies using these technologies. Governments that manage to find the right balance between their policies will welcome a new wave of technological change and the jobs, tax revenues and welfare that it brings.
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