London Blockchain Conference 2023 Day 2: Time for regulation to enable growth of blockchain, digital currency

For fans of Ben McKenzie’s acting work, seeing him on stage with Yves Mersch may have been a bit surreal. Mersch, the former board member of the European Central Bank (ECB) and the former governor of the Central Bank of Luxembourg, had just finished delivering a keynote on the regulatory framework for digital assets being developed in Europe.

But McKenzie is also an economist and has just written a book that takes bites out of the digital asset industry and its penchant for scams and scams, called “Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Scams.” That’s why he joined Mersch and BSV Blockchain Association’s Global Director of Public Policy Bryan Daugherty for a panel discussion on “It’s Time for Regulation to Enable the Growth of Blockchain and Digital Currency” moderated by BSV Blockchain Association executive committee member Marcin Zarakowski.

“I like to joke that it’s about money and lies,” McKenzie said of the book. He knows about the money – he has a degree in economics – and as for the lie, he said: “I’m an actor. I do it for money.”

For McKenzie, he said most “cryptocurrencies” fit the textbook definition of a security.

“You put money into them and you expect to make money from them without work. It’s an investment contract for me,” he noted.

Moderator Zarakowski asked Mersch about his observations at the heart of the European financial world during his tenure.

– Innovation must be viewed positively. It is the first start. Second, we are in a functioning market economy where you should support innovation because it brings welfare and productivity gains to our societies,” Mersch replied.

– Disruptive changes are one of the elements that make the market economy superior to a centralized planned economy. But change also gives the opportunity to circumvent rules, to have illegal activities. This is where the less positive part of innovation needs to be delineated, he added.

Zarakowksi also asked Mersch about his thoughts on the digital euro and similar CBDC proposals. He said that many of the loudest voices in support of digital assets in the early days came from the same corner that doubted whether the euro could be a viable project.

“We have a mandate to defend monetary sovereignty in our region. That’s why we said ok, we need [to be] sure of regulation to get this innovation in organized patterns. But we will also maintain public money as the anchor of the public system. Especially in the European area where the economy is financed to 70% by the banking system as opposed to other jurisdictions where it is only half so, he said. “But central banks need to be prepared when people ask for it – not in another seven years.”

In Mersch’s keynote which kicked off the second day of the conference, he addressed the wave of regulatory frameworks being developed around the world, particularly Europe’s MiCA regulation, which was just adopted today. But what exactly is the need to sit behind this new wave?

“[Cryptocurrencies] often preys on those less fortunate. I think that’s one of the biggest concerns,” Daugherty chimed in. “Then I’ve started to notice that people understand the conflict of interest that occurs. Think of FTX – you create a token, set the value on it and exchange it. There is a serious conflict of interest there.”

Daugherty highlights the FTX case as an example of regulation failing and succeeding in protecting investors from predatory players in the industry. On the one hand, FTX had tried – and failed – to obtain a New York BitLicense, which Daugherty sees as a high watermark for licensing regimes globally. This kept FTX out of New York, but it ultimately didn’t stop the Sam Bankman-Fried empire from courting lawmakers and growing enough of a presence in the industry to cause a near-meltdown when it finally collapsed.

As for the state of affairs in the US, McKenzie refers to the imperfect division of labor between the SEC and the CFTC, saying that this invites hard divisions between asset classes and their regulatory regimes, which may not be easily applied to digital assets.

“This creates perverse incentives, in my opinion,” he said. “First of all, there is a gray area: what should be classified as a commodity or a security? Bitcoin’s classification as a commodity was somewhat accidental – it was a futures contract; therefore it can be classified as a commodity. It created a gray area where many companies felt that they could come in, issue their coins and commit what looks like fraud.”

Zarakowski asks Mersch about his views on the incoming European framework for digital assets, MiCA. Does it go far enough?

“There is absolutely always something missing. It is not comprehensive. It is to recognize that there are gaps to be filled. As I said myself, some future legislation re [distributed ledger technology] will come in, and even in different opinions from different agencies, it was mentioned that there are still gaps … NFTs are not covered by this legislation. There are new innovations and new investments every day. So it’s not meant to be comprehensive.”

Echoing this sentiment, Daugherty said regulation alone is not enough. What is needed is education – and this should not be pre-empted by the promised utility offered by blockchain technologies.

“Although we are in desperate need of this tool today, I don’t feel that the education and understanding of what the value proposition that was brought forward by Satoshi as far as this fusion of data and finance and what this involved and removed this heavy reliance on trusted third parties and provides a way to monetize something on the internet without trusting them,” he explained.

“I have been working with the NY Attorney General on the crypto bill, where I feel it provides even more fines and regulatory oversight that is necessary. There is a huge misunderstanding of these technologies and the purpose of these technologies. It starts with the definitions of these terms and the implications of what this technology can do,” he added.

Daugherty also said that one area where the EU is making the right moves in this area is that they are “very open to having these conversations and kicking the tires on these technologies to understand them.”

“I love the idea of ​​the EU sandbox. Ultimately, to bring this to the forefront, we need compliance, so governments and businesses feel confident to bring these technologies and use them,” he said.

However, McKenzie and Daugherty were both keen to stress that the legal system already has many of the answers to the question of digital assets. For example, the US securities regime already has a mechanism for determining whether a new type of offering constitutes a securities offering, and that mechanism has been used to classify digital assets.

On the prospect of whether the industry can be left to self-regulate, the panel had mixed views:

“I am very surprised that this is something that is not widespread in the crypto world because it helps official regulation,” Mersch said. “It doesn’t replace it. But even official regulation and oversight doesn’t prevent crisis… But if there’s not an element of self-regulation in the industry, I think there will always be a tendency to over-regulate, and then there won’t be a cooperative attitude .”

Daugherty and McKenzie were less optimistic that the industry could ever rely on self-regulation. McKenzie, who interviewed Sam Bankman-Fried when researching his book before the FTX name became a dirty name in the industry, said: “I’m a father of three young children … I’m skeptical of self-regulation. Let’s put it that way.”

To illustrate, he asked about exchanges like FTX: “Why were they created through shelf companies in the Caribbean? Was it because innovation was being stifled domestically, or was it that they were trying to get away with something?”

See: Crypto regulation will make life easier for BSV

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