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A series of Federal reports on cryptos were made available last week as part of the Biden administration’s directive for a whole of government approach to digital assets.
The reaction from the largest crypto groups? Color them underwhelmed.
Industry group The Blockchain Association said the reports provided no concrete clarity, and lacked “substantive recommendations.”
Republicans backing the sector as a source of needed innovation and economic potential, echoed the criticism, saying that the Biden administration was leaving a murky “regulation by enforcement” protocol in place, which only created uncertainty for the still infant industry.
Six Reports In Search Of A Policy
The six issued reports include:
- ACTION PLAN TO ADDRESS ILLICIT FINANCING RISKS OF DIGITAL ASSETS (Department of the Treasury)
- Crypto-Assets: Implications for Consumers, Investors,and Businesses (Department of the Treasury)
- The Future of Money and Payments (Department of the Treasury)
- Climate and Energy Implications of Crypto-assets in the United States (White House Office of Science and Technology Policy)
- Policy Objectives for a U.S. Central Bank Digital Currency System (White House Office of Science and Technology Policy)
- Technical Evaluation of a U.S. Central Bank Digital Currency System (White House Office of Science and Technology Policy)
- The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets (Department of Justice)
- Responsible Advancement of U.S. Competitiveness in Digital Assets (Department of Commerce)
Despite the lack of clarity regarding things like whether and what kinds of cryptos should be classed as commodities, securities, or acknowledged and regulated as a novel technology, the reports contained a lot of info to unpack.
Some aspects of the reports made quick news, including a suggestion in the Climate and Energy report that Bitcoin might one day face restrictions due to the claimed undue energy use of its Proof of Work (PoW) consensus method.
The reports on CBDCs contain interesting—and troubling—aspects. The reports dismiss permissionless and decentralized technologies as being incapable of operating a CBDC. That’s patently untrue.
Networks like Algorand and Hedera are working with countries elsewhere, already establishing CBDCs, including the LacChain initiative, which is developing a CBDC system for at least 12 Latin America and Caribbean nations.
Those initiatives are at the least hybrid systems of private and public networks and players.
Why would a government want a centralized authority and a permissioned system? It would retain the ability to enact changes in the ledger, and protect a lack of transparency.
One of the reports on a U.S. CBDC also admits that a digital dollar would likely not be built to have features otherwise identical to cash.
Many fear that the Fed will inevitably build a currency which can be controlled and surveilled. A CBDC will likely feature the ability of the government to cut off holders from transacting or using their digital assets, and track every transaction as the CBDC flows around the system.
That’s very different from the functionality and resistance to censorship and shutdown that cryptocurrencies like Bitcoin provide.
The Trends Journal recently pointed out that the coming FedNow Digital payments system is using a blockchain with China and Digital Yuan connections (see “FEDNOW WITH CYPHERIUM BLOCKCHAIN NOW IN BETA,” 13 Sep 2022.)
A Missed Opportunity
Only one of the six reports, “Responsible Advancement of U.S. Competitiveness in Digital Assets,” considered the potential economic and other benefits that the private crypto sector could bring.
One of the key points of that report emphasized education and research investments that would help the U.S. continue to lead in the area of crypto technology.
The report advised:
“Sustained U.S. leadership in technological research and development (R&D) will be advanced through activities such as increased investment in government, academic, and industry-led research, workforce development, and digital literacy. Leadership in these activities will ensure that considerations of particular importance to the United States, such as privacy, security, resilience, transparency, and accountability, are taken into account early in the development of new technologies and their applications in the financial services sector and elsewhere.”
Overall, the blizzard of reporting in response to the Biden executive order calling for an all-of-government assessment of cryptos contains plenty of bloated whiffs of dithering bureaucracy.
It’s pretty clear from industry reaction that a few incisive regulatory recommendations to unleash the power of innovators would have been vastly preferred by the people actually working in the sector.
The Blockchain Association’s Executive Director Kristin Smith said the reports added up to “a missed opportunity to cement U.S. crypto leadership.”
Others, including bitcoin advocate and investor Michael Saylor, argued that “environmental concerns” were being cynically put forward as a pretext for trying to squash threats to elitist control and profit from the current global financial system:
“If you don’t like how someone is using energy, pay a higher price than them […] No amount of hysteric screeching about climate change will stop the next block from being mined.”
As Cointelegraph noted, crypto analyst and investor Scott Melker, known as The Wolf Of All Streets on Twitter, had even more withering criticism of the reports:
“The White House’s proposed framework is a fucking disgrace.
“- Clear attack on proof-of-work by implying they will set environmental standards for mining.
“- Pushing FedNow over crypto
“- Framing everything as a potential scam or threat
“- Harping on volatility and consumer risk”
“9:06 AM · Sep 16, 2022”