US diplomat to Washington: You are becoming obsolete in one large area of ​​technology policy

Meanwhile, Chinese fintech company AliPay is using its private blockchain to push aggressively into Pakistan and the Philippines, where American rivals PayPal or Coinbase have no operations.

Late last summer, the People’s Bank of China partnered with the central banks of Hong Kong, the United Arab Emirates and Thailand to facilitate 160 cross-border payments totaling more than $12 million on the “mBridge Ledger,” a blockchain system that uses China’s own central bank’s digital currency for cross-border payments.

The dollar’s influence on the digital future is at stake. Just as the dollar has projected America’s economic power in the analog world, digital assets linked to the dollar, called stablecoins, project the dollar into the digital economy.
But if, for example, an Indonesian natural resource exporter can only be paid on China’s own closed network and cannot be paid in US dollar-denominated digital assets such as dollar-backed stablecoins, the US financial system will suffer.

Just as capitalist and communist trade blocs were spawned in the 20th century, companies wishing to export their goods to select markets will soon have to navigate competing trade blockchains. They must choose between permissionless – or interoperable – systems built on open blockchains versus firewalled, permissioned closed systems like those favored by China. Given that China is becoming the largest trading partner for most of the world, many nations will be tempted to opt for the system. If US regulators continue to discourage open blockchain systems, economic participants will continue to view them as legally risky, making China’s closed alternative that much more appealing in comparison.

So far, the United States has not taken up the challenge.

The September release of the White House’s Digital Asset Development Framework was a step in the right direction, but it was not enough. While the framework requires U.S. agencies to “send messages about U.S. values ​​related to digital assets” in international forums, it otherwise remains vague on foreign policy.

At best, the US only supports a nebulous paper-based exercise called the “G20 Roadmap to Improve Cross-Border Payments.” In reality, this constitutes innovation theatre. The word “Web3” does not appear anywhere in the latest joint statement of the State Department-organized US-Japan “Internet Economy Dialogue.” On economic policy, America’s stance on digital assets is skewed in favor of domestically oriented financial sectors at the expense of promising innovations. Risk-averse lawyers have too much control in the political debate at the expense of technologists and informed foreign policy hands. Seen from abroad, the signals from US politicians suggest that the US has turned towards innovation. While digital assets pose real risks, these risks are currently overemphasized, while potential benefits are overlooked. The result is erratic “regulation by enforcement” and onerous tax policies that drive away trade.

Take “staking”. Staking is a process in which the owners of blockchain tokens temporarily relinquish control of the tokens as part of a process called “proof-of-stake” that some blockchains use to ensure network reliability. To compensate people who stake their tokens for stakes, these networks provide stakers with fees paid in tokens, which is vaguely similar to interest paid on a bond. Because staking requires some technical skills, investors often use services that stake tokens on their behalf.

An advantage of stake is that it acts as a substitute for the energy-intensive “mining” process used by Bitcoin. But because nothing like staking has existed before, its exact regulatory status remains unclear.

In February, the Security and Exchange Commission charged US crypto exchange Kraken, saying it had failed to treat the betting service as an investment contract. As a result, the country’s second largest crypto exchange has stopped offering this service to its customers. This means that US investors have lost an important avenue to participate in and benefit from the governance of global blockchain networks.