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Politics isn’t something that we typically delve into, but a new executive order has gotten us talking. The “Executive Order on Ensuring Responsible Development of Digital Assets” that recently went into place has made an initial effort to put some (many would argue, needed) parameters around cryptocurrency.
First, a bit of background: When the U.S. and other nations imposed sanctions on key Russian players in the wake of the invasion of Ukraine, some of them simply transferred their assets into crypto. That made many politicians and even some folks who had been opposed to regulations on crypto say that we at least need to establish some guide rails against abuse. The crypto community feared that this executive order would put onerous taxes and regulations on the currencies, but that is not the case. Instead, it advocated exploring new federal crypto and governmental fact-finding.
Why does it matter?
Crypto was created by entities that wanted to break away from a centralized bank or recording system and make it easier to move assets. Think of a bank’s traditional closed ledger system as a bottleneck, with millions of digital transactions waiting to be processed by a system controlled by a singular entity, which slows things down. That old system worked fine before the age of instantaneous internet transactions – when transactions were done with paper and pencil and rarely crossed international boundaries. Today, millions of us routinely hop online to order things that may be coming from around the world, where many different currencies are in play.
Blockchain – the engine that makes crypto work – is an open, distributed ledger system that records transactions between two parties in a verifiable and permanent fashion outside of a central bank. That allows transactions to be processed by a global network much more quickly, eliminating centralized control.
The fear from many government entities is that, in theory, corporations and individuals could begin dealing exclusively in crypto assets that are easier to hide from taxation, which would devastate governmental budgets. They also fear that widespread usage of crypto has the potential to encourage criminal activity since law enforcement agencies, in theory, could lose their ability to track assets. That has enormous implications for everything from money laundering to human trafficking.
When you step back and look at the larger picture, crypto can influence a host of significant issues like data privacy, security, financial stability, systemic risks, crime, national security, human rights, financial inclusion, and energy climate change.
This executive order and others like it around the world are calling for ways to ensure that law enforcement and other governmental agencies don’t completely lose control. For example, banks now have to follow laws that ensure that the money that passes through their hands is not used for terrorism or other illegal activities. Digital currencies don’t face these same constraints.
What it does
From our Executech experts’ reading of the executive order:
- 60% of the verbiage merely states the current lay of the land.
- Asks various governmental agencies to report back on how crypto impacts them.
- Lists deadlines for those reports above.
- Establishes that banks that hold cryptocurrency for consumers follow similar guidelines as traditional institutions to ensure that those funds are not being used to support terrorism.
- Advocates finding ways to deal with existing iniquities for the millions of Americans who don’t have access to traditional banking institutions.
The executive order also advocates creating a Central Bank Digital Currency or CBDC. Essentially, CBDC would be a Bitcoin minted by the government. It would be the bank’s method of entering the world of crypto while still maintaining control and the value of the U.S. currency. While it’s too early to speculate, since it presumably would be a closed ledger system, it would be a digitization of U.S. dollars rather than an actual cryptocurrency.
In about 180 days, the reports should come back in. How (or if) these findings are acted upon remains to be seen, but the hope is that any measures put in place will mitigate risk without stifling creativity or innovation in this evolving space.
Visit our Between the Bytes podcast page to hear more of our team’s thoughts on this timely subject, and you can read the entire executive order at this link from The White House.
