Effective crypto regulation takes time and caution. Here’s why

(Credit: Unsplash)

This article was exclusively written for The European Sting by Ms. Marcela Trocha, a second year medical student at Poznan University of Medical Sciences (PUMS) in Poland. She is affiliated with the International Federation of Medical Students Associations (IFMSA), cordial partner of The Sting. The opinions expressed in this piece belong strictly to the writer and do not necessarily reflect IFMSA’s view on the topic, nor The European Sting’s one.

  • Premature regulation can chill innovation and create unexpected outcomes.
  • Caution, collaboration and neutrality are needed when approaching crypto regulation.

The United States Congress is in the process of negotiating a bipartisan infrastructure bill with the hopes of passing sweeping legislation that will invest in areas such as transportation, climate initiatives, and broadband access. Buried within the text, though, was something seemingly unrelated: a proposal related to taxing cryptocurrencies.

We won’t get into the details of the proposal and the corresponding amendments (you can read more about that here if you’re interested). We’ll instead put our focus squarely on a topic not often taken to heart: premature regulation. https://www.youtube.com/embed/KHBxDi219dU?enablejsapi=1&wmode=transparent https://www.weforum.org/videos/what-s-next-for-decentralized-finance-defi

To start, let us establish that we are not anti-regulation. At the World Economic Forum, a big part of our role is working directly with a global set of stakeholders, including policymakers and regulators, to assess how to accelerate the benefits of technology and mitigate its risks. We are not naïve and nor do we deny that there are risks with any new technology and its evolution. With this, crypto is no exception.

This attitude is reflected in much of the crypto community at-large. Leaders across business, innovation and civil society recognize the role regulation and policy makers can play. We’ve seen leaders in the sector explicitly welcoming regulatory clarity. Initiatives like the recently-established DeFi Education Fund (DEF) reflect the industry’s desire to support the education of government actors on these complicated topics.

But progress on this front cannot – and should not – happen overnight.

The past decade or so has provided deep insight into the shortcomings of the financial system as it stands. In the United States and globally, we have seen the consequences of increasing inequality, stagnant growth, and a lack of transparency. In some cases, the result has been disillusionment and resignation. In others, we’ve seen large-scale civil unrest.

At a minimum, there are aspects of the current financial system and the regulations surrounding it that are not working for people all over the world, including in the United States. Such a situation requires self-reflection and investigation into what’s gone wrong – and how to think creatively about new capabilities and resources. This approach is key to avoid diving headfirst into potentially re-creating or exacerbating the problems of the past.

“Failing to sift through the distinctions – and regulate accordingly – could significantly stifle innovation and progress.”

This is especially a concern with cryptocurrency, where the technology is generally poorly understood by the average person. It isn’t anyone’s fault – the space is relatively new and growing rapidly. It’s truly a full-time job to stay on top of it all. Crypto is one of many new areas that policymakers and regulators are juggling, which can make it difficult to fully understand the nuances of the technology and services within the space.

That is why it is critically important to proceed with caution around these questions, ensuring that there’s enough time to get up to speed on these incredibly complex and novel issues. Take, for example, the emerging space of decentralized finance, which builds a variety of financial services on top of blockchain technology.

Decentralized Finance Policy-Maker Toolkit
Decentralized Finance Policy-Maker Toolkit Image: World Economic Forum

As the graphic above shows, though they are grouped together for obvious reasons, DeFi services are not monolithic. They represent various parts of the technical stack, varying objectives, and services, and have different interactions with other services within the space. At the same time, DeFi is explicitly not the same as traditional finance, though there may be some similarities and overlap. Failing to sift through the distinctions and regulate accordingly could significantly stifle innovation and progress.

Here are some principles for policymakers and regulators to keep in mind as they proceed down this path:

  • Don’t rush into regulation: Regulation can add value when it is carefully considered, evaluated, and weighed. Legislative rulemaking is usually a slow process for a reason.
  • Don’t shy away from industry: Many industry players are lucid about the potential risks within the space. Honest projects welcome clarity and seek to avoid mishaps down the road. Dialogue between the public and private sectors can be extremely useful and have — in our experience — resulted in action-oriented outputs like the DeFi Policy-Maker Toolkit and the CBDC Policy-Maker Toolkit.
  • Tech neutrality is essential: Regulating the underlying technology itself, especially in a space that is changing as quickly as crypto, may be a fast path to unintentionally anointing winners that may or may not be the optimal choice for constituents. Being technology neutral has always been a core principle of policymaking for this reason, and this approach isn’t something that demands change at this point in time.

Ultimately, jurisdictions that are thoughtful, cautious, and collaborative will find themselves attracting the new era of internet pioneers. In doing so, those jurisdictions will provide their constituents with a critical asset: front-line access to the digital economy.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Australia urged to evacuate offshore detainees amid widespread, acute mental distress

Any doubt?

From funders to partners: elevating community expertise to help communities thrive

German opposition win in Lower Saxony felt all over Europe

London is becoming the world’s first National Park City

Yemen consultations have started, insists top UN negotiator

Commission approves emergency measures to protect eastern Baltic cod

How data can help mining companies tackle their trust deficit

From drought to floods in Somalia; displacement and hunger worsen, says UN

From raised fists at the 1968 Olympics to taking the knee: A history of racial justice protests in sport

Will the European Court of Justice change data privacy laws to tackle terrorism?

This is how travel hotspots are fighting back against overtourism

Do all you can to resolve climate change ‘sticking points’ UN chief urges South-East Asian leaders, in Bali

Four lessons from Africa on building effective business ecosystems

Australian homes are turning to solar power in record numbers

European research priorities for 2021-2027 agreed with member states

Meeting the basic needs of our healthcare workers

Mental health: a medical school’s demand

Embracing the diversity in a multicultural city of Romania

The EU Commission lets money market funds continue the unholy game of banks

How the power of sport can bring us together and drive social justice

EU Blue Card: Commission welcomes political agreement on new rules for highly skilled migrant workers

Why building consumer trust is the key to unlocking AI’s true potential

Ukraine’s new political order not accepted in Crimea

Protecting European consumers: toys and cars on top of the list of dangerous products

This is how New York plans to end its car culture

Progress against torture in Afghan detention centres, but Government needs to do more, says UN report

European Citizens’ Initiative: Commission registers ‘Mandatory food labelling Non-Vegetarian / Vegetarian / Vegan’ initiative’

Is South Korea set to lose from its FTA with the EU?

Anti-vaccers: does the empty can rattle the most?

The role of public affairs in student NGOs

Future Forces Forum: Prague will be hosting the most important project in the field of Defence and Security

Latin America’s cities are ready to take off. But their infrastructure is failing them

Political power of women suffering ‘serious regression’, General Assembly President warns

7 top things to know about coronavirus today

How global trade can save lives and livelihoods – and help protect the planet

EU job-search aid worth €9.9 million for 1,858 former Air France workers

European Semester 2018 Spring Package: Commission issues recommendations for Member States to achieve sustainable, inclusive and long-term growth

COVID-19: Save European culture and values, MEPs tell Commission

Children suffering ‘atrocities’ as number of countries in conflict hits new peak: UNICEF

We need to rethink ESG to ensure access to water and sanitation for all

International Court of Justice orders Pakistan to review death penalty for Indian accused of spying

Rise in violent conflict shows prevention ‘more necessary than ever’: UN chief

Top UN political official updates Security Council on Iran nuclear deal

It’s not summer holidays what lead to the bad August of the German economy

How can the world end viral hepatitis by 2030? 5 experts explain

How to talk about climate change: 5 tips from the front lines

Failure to open accession talks with Albania and North Macedonia is a mistake

Myanmar doing too little to ensure displaced Rohingya return: UN refugee agency chief

Further reforms in Sweden can drive growth, competitiveness and social cohesion

EU-UK relations: solutions found to help implementation of the Protocol on Ireland and Northern Ireland

Statistics show the ugly face of youth training schemes

Croatian Presidency outlines priorities to EP committees

Media and entertainment in flux: it’s time for the close-up

5 droughts that changed human history

Are the G20 leaders ready to curb corporate tax-avoidance?

European Youth, quo vadis?

China is the first non-EU country to invest in Europe’s €315 billion Plan

EU institutions agree on priorities for coming years: A common agenda for our recovery and renewed vitality

Coronavirus Global Response: EIB and Commission pledge additional €4.9 billion

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s