The persistent disconnect between policymakers and technology invariably results in proposed and approved regulations neglecting relevant parts of new technologies. US lawmakers and regulators face the challenge of regulating emerging technologies in blockchain and AI. Policy makers, like Senator Cynthia Lummis, recognized the need for innovation in the financial sector and proposed laws like the Digital Asset Innovation Act to address concerns. However, the Recent SEC Actions Against Ripple Labs point to the current “regulation by enforcement” approach, which critics say stifles innovation.
To be effective, they must be well-versed in cryptocurrency and its underlying technology. As an example, public blockchain assets allow any person or entity to mine coins and tokens; there is a significant threat to the end consumer and national security if mining activity is not monitored and controlled. That said, the effort has been to regulate blockchain under current regimes which, while trying their best, cannot create a framework to effectively address the real risks that could threaten our financial markets.
Senators Elizabeth Warren and Roger Marshall are sponsors and supporters of the Digital Assets Anti-Money Laundering Act of 2022, which would provide specific rules for cryptography. The downside is that the rules resemble those we currently have imposed to accommodate blockchain technology. A 51% attack poses a significant threat to national security, especially as more users enter the crypto market.
Although the bill calls for certain entities to register as money services businesses, it does not consider blockchain a global business. The influence of American regulations is considerably reduced outside our borders. One possible solution would be to create a blockchain oversight division within FinCEN.
Policymakers often respond to public concerns. Because they are generally reactive, solutions are sometimes superficial at best and create rules without a nuanced understanding of the technology. This oversight results in attempts to integrate cryptography into existing regulatory frameworks, without considering the complexities inherent in new technologies.
A proactive regulatory approach is probably the most effective in regulating blockchain technologies. Lawmakers and regulators should probably start by creating a working group of industry leaders, consumers, miners and enthusiastic regulators to determine which regulations, rules and laws would be most effective.
Major crypto players have turned to regulators for clearer regulation to ensure consumer protection. Instead of providing comprehensive new frameworks, policymakers are taking coercive action against the industry, as evidenced by SEC lawsuits and high-profile settlements against major crypto companies. This “regulation by enforcement” approach is fundamentally flawed; it creates adversaries, not allies, and stifles innovation that government could rely on to improve.
Uncertainties over the legal status of digital assets, as evidenced by ongoing cases like by Hinman, hinder progress. Instead of relying on traditional lobbying efforts, policymakers should actively engage with the crypto community and industry professionals. The lack of defined precedents from unresolved court decisions in crypto cases is detrimental to both sides.
Although the judiciary should not legislate from the bench, well-formulated opinions that discuss the court's perspective on blockchain could benefit how lawmakers act. The lack of clarity on whether digital assets or investment products constitute securities hinders progress toward comprehensive regulation of cryptocurrencies.
To compound the problem, many politicians continue to confuse the good and bad uses of blockchain technology. Indeed, some persist in associating cryptography with illicit and other high-risk activities. These positions create doubt among the public and hinder individual participation in the crypto industry.
Dispelling these misconceptions is crucial to fostering an accurate understanding of the crypto landscape. The aforementioned task force could be the solution. Crypto transactions are significantly more complicated to conceal than cash transactions.
Contrary to popular belief, crypto transactions are not a secret haven for criminals. Crypto offers enhanced traceability, with a searchable and immutable record of every transaction. Understanding the significant differences between crypto and traditional banking transactions is essential for informed policymaking. Can be seen by a wider audience,
Law enforcement can play a crucial role in leveraging blockchain intelligence to track activities on public blockchains and identify bad actors. A well-trained task force familiar with blockchain technology provides a powerful deterrent against criminal activity.
Policymakers face the ongoing challenge of adapting to the rapid pace of technological progress. A proactive approach is essential to formulate effective regulations, requiring connectivity with important projects and stakeholders rather than relying solely on traditional lobbying efforts.
The crypto community and industry professionals can contribute to a more informed policymaking process by forming trade groups and inviting policymakers to educational events. Closing the knowledge gap is essential to creating regulations that facilitate innovation while ensuring safety.
Actions proposed to policy makers to build a secure and innovative crypto future
Striking a balance between strengthening security measures in the crypto space and promoting innovation requires an informed approach. Policies should be designed to protect users while allowing the industry to thrive, primarily if the United States wants to maintain its global leadership in innovation.
Realizing crypto's full potential depends on policymakers' ability to grasp its intricacies. It is time to move beyond superficial approaches and embrace a more informed regulatory environment supporting innovation and safety. The crypto community is ready to engage in constructive dialogue, bridging the gap between technological advancements and effective regulation.