The crypto era began 13 years ago with the publication of Satoshi Nakamoto’s seminal article, “Bitcoin: A Peer-to-Peer Electronic Cash System”. Two years later, the first commercial bitcoin transaction took place when a person bought two pizzas for 10,000 bitcoins, which is roughly $ 571 million today. Today, more than $ 6 billion worth of bitcoin transactions occur every day, and tens of millions of Americans own some form of cryptocurrency.
Crypto can bring millions of people into the economic system through immediate, non-discriminatory access to services. It adds renewed transparency to our financial system through blockchain technology and challenges undemocratic political regimes, which can seize bank accounts and shut down businesses. This allows people to avoid high exchange fees and barriers to remittances.
a platform for access to the crypto-economy in the broad sense, considers, since its creation in 2012, the regulation as beneficial. Clear traffic rules allow technological innovation and investment, and give the public and decision-makers confidence that these markets are fair. I have expressed some frustration with recent actions by regulators. My concern is that entrepreneurs and businesses have little visibility on what regulators expect of us. Positions taken by regulators are often not enforced in a way that appears to be consistent or fair.
On October 14, Coinbase posted its “Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership” online. The paper is intended to spark a conversation about the regulation of crypto, which is not anchored in specific products or enforcement actions, but rather takes a high-level view of how the financial system is evolving and the new technology behind it.
It’s not just about my business. Coinbase arguably benefits from an unclear regulatory environment – it’s a company big enough to absorb the costs, while the competition probably wouldn’t. Our policy proposal aims to enable more crypto startups, give the average consumer access to better financial services, and help America stay at the forefront of innovation, entrepreneurship, and technology.
Over the past few weeks, Coinbase has had more than 75 meetings with lawmakers, other digital asset companies, crypto innovators, and academics, whose comments informed the suggestions in our paper. Among the key points:
First, the government should regulate digital assets under a new framework. Our existing financial regulatory system does not work effectively for the open and decentralized networks created by crypto. Regulation has been built around a series of financial intermediaries – transfer agents, clearing houses and traditional brokers – who play no role in crypto transactions. It is widely accepted, for example, that it is difficult to determine whether a digital token is security. As a result, regulators rely on what is called Howey test, from a 1946 Supreme Court ruling on whether contracts for the sale or management of citrus groves in Florida should be considered securities, to answer this question.
Second, responsibility for this new framework should be assigned to a single federal regulator and a new registration process established for digital asset markets. In the tradition of other markets, a dedicated self-regulatory body should be set up to strengthen the supervisory regime and ensure more precise supervision of these markets. Together they can make new rules for everyone. The industry currently faces an impenetrable array of regulators in the United States, an impossible patchwork for entrepreneurs and the public who rely on them for protection.
Third, this separate framework should have three objectives to ensure that owners of digital assets are empowered and protected: 1) Improve transparency through appropriate disclosure requirements. 2) Protect yourself against fraud and market manipulation. 3) Promote efficiency and strengthen market resilience. Each of these goals must be achieved while recognizing that crypto has unique and new characteristics.
Finally, it is important to promote interoperability and fair competition. To realize the full potential of digital assets, marketplaces for digital assets must work with products and services across the crypto-economy. If fully realized, this can enshrine competition, encourage responsible innovation, and promote a thriving developer ecosystem. No company, including Coinbase, should be a gatekeeper in this industry.
My company believes its recommendations will help put the country on the right track to resolve the most confusing aspects of the current crypto regulatory system and create new protections for the public. Coinbase believes that they will also drive innovation and improve competition, for all market players. Washington can set a new global standard for informed regulation and advance the cause of economic freedom.
Mr. Armstrong is CEO and co-founder of Coinbase.
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