Crypto is worth fixing. Regulators should move

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New technologies can take time to create new industries and new ways of doing business.

However, such thinking ignores two important points. The first is that the US government generally takes steps to protect people who do not have the ability or the means to do so themselves.

It aims to ensure that prescription drugs are effective and correctly used, that motor vehicles are safe, that roads are properly marked and maintained, that doctors and lawyers have the necessary qualifications, even that casinos do not cause excessive damage. Why should crypto be any different?

Second, why throw the baby out with the bathwater? Making investing in crypto safer would help the development of technology that could still have valuable applications.

Some promising areas include:

Digital Identity: With today’s technology, anti-money laundering and know-your-customer compliance requires costly and often redundant assessment and reporting. Blockchain has the potential to make the system more efficient and strike the right balance between privacy and security.

Cross-border payments: Blockchain could underpin new global payment rails that would improve slow and expensive correspondent banking.

Securities trading: By enabling the immediate and simultaneous transfer of money and assets, blockchain technology could significantly reduce the risks associated with clearing and settlement.

Asset Ownership: By enabling the use of digital tokens to represent ownership, blockchain could eliminate the need for title insurance in real estate transactions and could foster inclusion by making small investments easier and less costly.

So why, one might reasonably ask, haven’t these use cases been more fully realized?

New technologies can take time to translate into new industries and new ways of doing business, and at first it’s nearly impossible to know where they will lead.

It took several decades for electricity generation to allow the transition to mass production and the Model T; there has been a long lag between the advent of open source software and the use of Linux in applications ranging from cloud computing to Android smartphones.

Xerox’s famed Palo Alto Research Center produced innovations that eventually led to the personal computer, and much more, though Xerox reaped little benefit from it.

Sitting idly by and letting the crypto crash is no way to maximize the benefits of this fledgling technology.

Instead, legislators and regulators should do their job: ensure that client assets are protected and markets have integrity; require stablecoins whose values ​​are pegged to fiat currencies to be fully backed by safe assets denominated in those currencies, such as short-term sovereign debt and central bank reserves; work with industry to establish best practices and apply these standards nationally and internationally.

So far, regulators have preferred errors of omission to commission, opting for inaction rather than risking errors. The result is billions of dollars in losses and an erosion of confidence in both industry and regulation. They need to be much more proactive.

BLOOMBERG

Bloomberg Review

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