The world’s financial authorities were widely expected to propose tough regulation for cryptocurrencies at their G20 meeting this week. Instead, they surprised cryptocurrency investors by doing virtually nothing. Here are the obstacle they will encounter if they try too hard to snuff out crypto.
Obstacle #1: They’re too busy dealing with an imminent trade war. So they took crypto regulation off their agenda and set it aside until the next G20 meeting in July.
Plus, sooner or later, they’re also going to have to deal with the rising tide of global conflict between East and West … the still-lurking instability of the world financial system … their reliance on an ever-growing pile-up of debt … the woefully undercapitalized banks in Europe … and more.
Obstacle #2 is the fact that cryptocurrencies are borderless. So, until and unless regulation is skillfully coordinated among all nations, it will be pointless.
Fact is, it’s already hard enough for a single government — be it Washington, London, Brussels or Tokyo — to reach consensus on what to do about cryptos. It will be even more difficult for the global community to come together.
Consider, for example, China’s flubbed attempt to “ban crypto” in September 2017.
China said NO to Initial Coin Offerings (ICOs), and they said NO to crypto exchanges. The result? Business moved offshore. Most of the large Chinese exchanges packed their bags and transferred their operations to other, friendlier jurisdictions.
Sure, the initial knee-jerk reaction was for the markets to sell off. Yet a few weeks after the “China ban” was announced, the crypto market was already making new all-time highs. Meanwhile, the pace of ICOs didn’t slow down one iota.
Think China was just a sideshow and didn’t matter much? Not so! Prior to the ban, the country had a bigger chunk of the crypto market share than the U.S. itself. Indeed, in some respects, there’s reason to believe that, despite the ban, this continues to be the case today.
Obstacle #3. Even a coordinated effort by all the major nations would not stop crypto. Many medium-sized countries, especially those feeling left out of the elite G7 and G20 clubs, are far more receptive to adopting cryptocurrencies. So even if it were physically possible to ban crypto — or impose a tough regulatory regime — in some parts of the world (a false premise), it would be impossible to snuff it out everywhere.
Obstacle #4. Crypto is much more than money. It’s science and technology. And since when has it been possible for any central authorities to hold back the progress of science or the evolution of technology?
God knows they did try from time to time! Roger Bacon, Girolamo Cardano and Galileo Galilei are just three of the targets that come to mind. But they always failed pretty soon thereafter.
You see, the very term “cryptocurrency” is a misnomer. We should instead refer to “Distributed Ledger Technology” — databases that are shared across borders among multiple players and institutions.
These technologies represent a new, scalable way for billions of people to reach consensus. They will change the collective decision-making processes that are at the very core of civilization.
Consensus is required for laws to be obeyed and enforced … for a nation’s borders to be defined and respected … for the government’s authority to be established and accepted … and for money to be valued and exchanged for goods and services.
Money, authority, nations, laws, hierarchy, responsibility — all are based on various manifestations of consensus.
Now, Distributed Ledger Technology provides a totally new, more efficient, more universal, more democratic way of reaching that consensus. As such, it is entirely constructive and fundamentally disruptive to how societies reach broad, universal agreement.
If these concepts seem abstract, it’s because this technology is arguably the most profound change we’ve seen since 1800 BC. That’s when the Hammurabi Code established the foundation for Sumerian law in the first nation-state known to mankind.
Obstacle #5. Even among the crypto visionaries, it’s too soon to predict how all of this will play itself out. Officialdom is even more confused.
On one extreme, some in government still dismiss crypto as nothing more than a speculative bubble. They turn a blind eye to the technology that’s bubbling under its surface.
On the other extreme, some are eager to learn how to adopt, mold or co-opt this megatrend.
The majority are somewhere in the middle. They are beginning to recognize the potential of Distributed Ledger Technology. But they choose a cautious “wait-and-see” approach, while they try to get their bearings and figure out how this technology may impact society. That’s the unspoken reason the G-20 punted and deferred.
Unlike authorities of feudal times, they realize that forbidding or over-regulating will merely serve to cripple innovation. Few will pursue that dead-end path enthusiastically. And those who do will be promptly left behind by countries that help make it happen or just let it happen.
The big, obvious exception to all of this: Unregistered ICOs, for which there is both an urgent need and a clear pathway for regulation. More on this next time.
Best,
Juan and Martin