Produced by | Tiger Sniff Technology Group Author | Zhou Zhou
“We need to formulate international rules for Web3 (next-generation Internet based on blockchain), otherwise in a few decades, future generations will be strangled like now (chips, operating systems, etc.).” One is participating in the formulation The personnel of the domestic blockchain technology standard said.
Although the positions are different, Christopher Giancarlo, the former chairman of the CFTC in the United States, expressed a similar view in “Crypto Dad”.
“In the early 1990s, it was difficult to predict the huge opportunities that the Internet brought, and now these Internet companies are the biggest drivers of the global economy… The competition for the Internet has been going on for 30 years, and the United States has led the way. status, and it’s early days for another new race, the Internet of Money, which is as valuable as the Internet, and the U.S. needs to be a leader in that space,” Christopher said.
The Internet of Money, Internet of Value, Next-Generation Internet, Crypto Industry, Digital Assets, Web3… These terms all point to an industry. However, because a broad consensus has not been formed, people have not yet formed a consensus on what this industry should be called. Unified, but one thing can be confirmed, they are all based on the ecology of blockchain technology. In the past six months, due to the extremely active companies in this ecosystem, showing great energy to empower or destroy traditional industries, governments in the United States, Japan, Singapore and other countries have intensively issued a series of policies, regulations and even laws.
Among them, the United States once again stood at the forefront of regulatory innovation and tried to define encryption, digital assets or Web3. On September 16, the White House released a regulatory framework for bitcoin and cryptocurrencies. According to the document, this is the first comprehensive and systematic government report issued by the United States that seeks to develop digital assets.
This year, the Biden administration has increased its focus on Web3 and the crypto industry. According to incomplete statistics, since March 2022, the Biden administration has issued a report almost every month, and a total of 9 “encryption reports” have been issued, hoping to guide the development of Web3 in the United States by further improving these reports.
Not radical, nor conservative
After six months of research, the White House officially released the first systematic government report on the development of digital assets on September 16.
This report did not formulate any new legislation, and some industry insiders even believed that the report lacked “substantive recommendations”. Generally speaking, the American business community showed a “radical” attitude, hoping that the regulation could be further opened, while the US regulation Institutions are relatively conservative. However, this report still reflects the major directions that American encryption regulation is paying attention to, and also revealed the possible route of the future development of Web3 in the United States.
First, the report states that hundreds of thousands of people in the United States have purchased digital assets such as cryptocurrencies, and that American fintech companies (including crypto companies) are leading the world. According to various data, compared with most countries in the world, the United States has shown a more positive attitude towards the encryption industry in terms of people and businesses.
The digital asset market has grown significantly in recent years. Millions of people around the world have purchased digital assets, including 16% of U.S. adults. American companies lead the world in innovation, and digital asset companies are no exception. About half of the 100 most valuable fintech companies in the world as of 2022 are located in the United States, many of which are engaged in digital asset services.
At the same time, the report also pointed out why the United States wants to develop digital assets and encrypted finance, and what problems are expected to be solved by encrypted finance.
About 7 million Americans are unbanked, and 24 million rely on expensive non-banking services like check cashing and money orders for everyday needs. For those who use banks, paying through traditional financial infrastructure can be expensive and slow—especially cross-border payments.
To improve payment efficiency, the Federal Reserve plans to launch fednow, an instant, 24/7 interbank clearing system, in 2023, which will further advance instant payment infrastructure nationwide. Crypto-finance (digital assets) can make payments faster and make financial services more accessible.
The Biden administration also expressed concerns about the huge risks of digital assets in the report, and mentioned more than 10 government units in the report, some of which will directly supervise encrypted finance and digital assets, and some will guide and help consumption Some are responsible for investor education.
In the document, the U.S. government found that the development of digital assets is accompanied by great risks and requires strong supervision.
In November 2021, the global market capitalization of digital assets reached $3 trillion ($1 trillion today). Digital assets are an opportunity for the United States to maintain leadership in the global financial system and remain at the forefront of technology. But at the same time, there are also risks in the cryptocurrency market. In May 2022, a stablecoin called UST (Luna) collapsed and the subsequent wave of bankruptcies wiped out the $600 billion of investors.
In addition, the Biden administration has also proposed some goals related to digital assets. The report states that U.S. institutions will leverage the U.S. position in international organizations to convey U.S. values related to digital assets. The U.S. agency will also continue and expand its leadership role in digital asset work among international organizations and standards-setting bodies.
Finally, the report believes that the US central bank digital currency (CBDC) has the potential to bring huge benefits to the United States. It could make payment systems more efficient, provide the basis for further technological innovation, facilitate faster cross-border transactions, and be environmentally sustainable. It can promote financial inclusion and equity and make financial services accessible to a wider range of consumers. In addition, a CBDC can promote economic growth and stability, guard against cyber and operational risks, protect the privacy of sensitive data, and minimize the risk of illicit financial transactions. A potential U.S. CBDC could also help maintain U.S. global financial leadership.
More than ten government agencies “escort”
How the US government regulates encryption, digital assets and Web3 is also one of the focuses of this report. In this report, the White House also listed in detail more than ten relevant government agencies that are participating in and building the development of digital assets in the United States, and described their specific roles.
As the most important part of the ecology, the Biden administration has affirmed the two major US regulatory agencies that are regulating digital assets: the SEC (US Securities Regulatory Commission) and the CFTC (US Commodity Futures Trading Commission). Prior to this, the two major regulators with real power had been in constant conflict over the division of labor in the supervision of cryptocurrencies, and there was a trend of escalation.
On Sept. 15, SEC Chairman Gary Gensler said that if oversight of the cryptocurrency market is divided among government regulators, it could undermine market regulation. “If you end up with multiple government agencies defining what a security is, and another agency tries a new definition, that could undermine what we’re doing.”
As he spoke, another U.S. government agency, the Senate Agriculture Committee, was debating legislation to give the CFTC more powers to regulate digital assets. The CFTC is also actively seeking to expand its regulatory powers within the crypto market. To this end, CFTC Commissioner Chris Giancarlo also complained that the SEC took money and did nothing. He said the SEC’s budget is three times that of the CFTC, but the workload is not three times that. It is reported that the SEC currently has an annual budget of $2.65 billion and has more than 5,000 employees; the CFTC has an annual budget of $1.5 billion and has more than 700 employees.
Overall, the SEC and CFTC debate whether digital assets such as cryptocurrencies are securities or commodities. If it is defined as a security, it is under the control of the SEC; if it is defined as a commodity, it is under the control of the CFTC.
To this end, the SEC and CFTC have been trying to define or redefine cryptocurrencies, digital assets and Web3, and due to the delay in clarity, the entire industry is flooded with various new terms and “industry slang”.
As it stands, Gary Gensler sees most cryptocurrencies as securities and crypto exchanges as stock exchanges. However, due to the rapid development of Web3 and the encryption industry, it is still difficult to decide which are securities and which are not during the actual supervision. For example, whether PoS Ethereum is a security has recently become a hot topic in the industry, and the regulators are not interested in encryption. The definition of currency, such as whether Ethereum is a security, will directly affect the development of many Web3 companies.
In addition to these two major regulators, the report also mentions that there are many other government agencies in the United States that are or will be involved in the development of digital assets. For example, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) need to actively monitor and handle consumer complaints and enforce fraudulent practices; encourage the Financial Literacy Education Council (FLEC) to help consumers understand the risks involved in digital assets and fraudulent practices.
The Office of Science and Technology Policy (OSTP) and the National Science Foundation (NSF) will develop a digital asset research and development agenda to enable next-generation cryptography, transaction programmability, cybersecurity and privacy protection, and how to mitigate the environmental impact of digital assets Basic research on topics such as impact. It will also continue to support research that translates technological breakthroughs into market-ready products. In addition, NSF will support social science and educational research to provide information, education and training to diverse stakeholder groups on the safe and responsible use of digital assets.
The U.S. Department of Energy, Environmental Protection Agency, and other agencies will consider further tracking the environmental impact of digital assets and mitigate the harm to the environment during the development of digital assets. The Commerce Department will study the establishment of a permanent forum to bring together federal agencies, industry, academia, and civil society to exchange knowledge and ideas to inform federal implementation of regulation, standard setting, coordination activities, technical assistance, and research support.
Biden’s 9 reports “hiding” the future of Web3 in the United States
This year, the Biden administration has released more than 9 encryption reports, showing America’s ambition to become the global leader in encryption and Web3.
In the report “Responsibly Improving the Competitiveness of U.S. Digital Assets” issued by the U.S. Department of Commerce, it pointed out that digital assets have so far become a global phenomenon, digital asset network nodes are distributed all over the world, and the transfer of assets can instantly cross national borders. To this end, federal departments and agencies should continue to engage in promoting the development of digital asset policy and CBDC technology.
The report argues that technology-driven financial innovation often crosses borders, and that fintech’s continued leadership of the U.S. economy may be important. The United States also began to try to regulate digital assets very early.
Since 2013, the SEC has conducted enforcement activities against individuals and entities related to digital assets for alleged violations of the federal securities laws; since 2015, the CFTC has brought more than 50 digital asset-related violations of the Commodity Exchange Act It also oversees the offering of derivatives related to digital assets such as bitcoin futures.
In the “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activities Related to Digital Assets” published by the Justice Department, a marketplace called Hydra was busted by the Justice Department. The largest and longest-running darknet market in the world, the site was created in November 2015 and will account for about 80% of all darknet market-related cryptocurrencies in 2021. From inception to closure, this market received approximately $5.2 billion in cryptocurrency. Some users even set up shell accounts to transfer funds, laundering money through Hydra’s bitcoin wallets.
More than $3.2 billion in cryptocurrency was stolen in 2021, nearly six times the amount stolen in 2020, according to the report, citing data from the blockchain analytics firm. And the reason is largely because the open-source architecture of DeFi (decentralized finance) platforms makes it easier for attackers to identify security levels and exploit vulnerabilities in smart contracts.
Among Web3 companies, there have been some corrupt transactions similar to those in the financial industry, which have also become the focus of US regulators. On June 1, 2022, the Department of Justice announced the indictment of Nathaniel Chastain, the product manager of OpenSea, the world’s largest NFT platform. When working at OpenSea, Chastain was in charge of the NFT display on the OpenSea homepage, so he sometimes made a profit by buying these NFTs displayed on the homepage in advance through insider information. To cover up the fraud, Chastain used anonymous accounts and wallets for these transactions, which are similar to the financial industry’s use of inside information to profit, but were eventually discovered.
Like the Department of Justice, the Treasury Department has also released a report on the risks of cryptocurrencies, the Action Plan to Address the Illicit Financial Risks of Digital Assets.
In addition, the Biden administration has also issued two reports on the digital dollar: “Technical Assessment of the U.S. Central Bank’s Digital Currency System” and “Policy Objectives of the U.S. Central Bank’s Digital Currency System”, and the digital dollar is mentioned in almost every report. , it can be seen that the Biden administration has a strong interest in developing a digital dollar.
In addition to the digital dollar, the risks of digital currency, and the development of digital assets, the Biden administration also released a report on the relationship between digital assets and climate energy, and the relationship between currency and payment. In general, the Biden administration’s nine crypto reports covered all aspects, and paid more attention to the leadership of the United States in digital assets, CBDC, future payment systems, money laundering and fraud risks.
These reports constitute the basic attitude of the Biden administration towards cryptocurrencies, digital assets, and Web3. On this basis, the U.S. Department of the Treasury will also complete the Defi (decentralized finance) assessment by February 2023, and by 2023 Complete the assessment of NFTs (non-fungible tokens) by July of this year.
The report is not a substitute for legislative clarity, but is an important reference for future legislation. At present, the US Congress is calling for changes to the Bank Secrecy Act, Biden is considering its necessity, and these reports, people are also looking forward to his first clear law on digital assets.