This is crypto’s moment of truth. We must choose utility over speculation. | Payment source

W. Scott McGill – stock.adobe.com

The Financial report of the president released by the White House last month devoted an entire chapter to digital assets. Many of them, it concluded, “have no fundamental value.”

Coupled with sweeping regulatory measures this year, including what some are calling a systematic de-banking of the sector, observers fear the crypto winter will turn into an ice age.

Every new technology, from the rise of electricity to the introduction of automobiles and airplanes, has paired the promise of a better life for billions with potential dangers. It is in our national DNA to innovate responsibly. We identify key risks and create sensible regulations to protect the public. We connect private innovation with public railings. We don’t kill new technology; we raise it, bend the arc of progress toward public purpose and utility.

Rejecting this tried-and-true approach risks letting an entire strategic technology arena slip away from American leadership—the very call to action in President Biden’s “Crypto Executive Order.” Due to a lack of action in the US, market players are shifting to unsupervised platforms, opaque banking and risk exposures, and stories of lax financial risk and financial crime controls. This does not end well.

What the public needs now from Washington is not suffocation, but sifting.

The good news is that Congress can elevate the crypto industry and strengthen US strategic interests by advancing legislation on stablecoins, America’s answer to competitive electronic money, and digital asset frameworks emerging around the world. Over the weekend, the House Financial Services Committee did just that, publishing a draft stablecoin bill and scheduling hearings this Wednesday where I am honored to appear as a witness.

This legislation would support responsible efforts to modernize America’s legacy financial plumbing, including ensuring that the dollar becomes the original currency of the internet. On top of cumbersome payment rails that have not kept pace with the 21st century economy, the ongoing banking crisis underscores the need to separate payment activity from banking. Had the federal government not intervened to stave off banking risk contagion, America’s small to medium-sized banks could have faced an extinction-level event.

At its core, cryptography is a way to automate a “trust but verify” approach to transactions. What it enables is to move money with the same speed, security and scale as text messaging, all at almost zero cost. It also unlocks a whole new ecosystem. Just as an iPhone’s OS fostered a thriving ecosystem of apps, the rise of programmable money, smart contracts, and blockchain-based economics could enable a vast array of applications that could level capital markets and commerce with greater transparency, auditability, and global reach.

However, like the proverbial chaff and wheat, another sector has also sprouted from this technological breakthrough. The reason is not financial inclusion or financial freedom, but hyping assets and creating unregulated, offshore financial markets. The result? Dating back to the dot-com bubble, questionable ads collapsed companies, angered regulators and hurt consumers. I share the White House report’s opposition to this counterfeit form of crypto, but categorically reject the notion that new technologies have no intrinsic value.

Our industry must take a decisive break from speculation to benefit. Now more than ever, we see the power of new, global, transparent, secure and always on blockchain-native financial infrastructure.

In December, UNHCR partnered with Stellar, MoneyGram and Circle to deliver universally portable digital cash assistance to war-displaced refugees from Ukraine. This is scalable humanitarian aid that is almost immediate, mobile, traceable and corruption resistant. Where inflation is rampant, people use fully backed digital dollars like USDC as a store of value. Workers send paychecks home without exorbitant money transfer fees. And Fortune 500 companies are beginning to realize the benefits of moving money and settling payments digitally.

Open networks attract regulatory fear as surely as light attracts moths. The early web was good, bad and ugly for users. Online shopping was risky and loading an image could take 10 minutes. Thanks to the dot-com crash that followed, web development passed into more stable hands. Online shopping became safer, search improved and developers moved from flying toaster screensavers to helping people do things faster, cheaper and more securely. The American economy, consumers and markets were the major beneficiaries of this wave of innovation.

But this almost didn’t happen. Potential policy avenues at the time included major restrictions on who could use the internet. Podcasting was nearly killed in its infancy: Some officials considered requiring would-be hosts to first obtain FCC licenses. Wiser heads fortunately prevailed, allowing American innovation to lead the global migration online.

We are at a similar point today. Just as the original internet democratized access to information, the internet of money may democratize access to dollars. Indeed, promoting rules-based competition is key to winning the digital currency space race and ensuring that global trends of de-dollarization are managed.

When was the last time you sent a cross-border email? Did you wait three days and pay $12? It’s a crazy concept, but that kind of friction in time and cost is built into our decades-old payment rails today. Even the White House report notes this need.

The form factor of money is always changing, from clay tablets and shells to metal coins and paper dollars. Most of the innovation in how you shop today, from credit and debit cards in your wallet to payment apps on your phone, has come from rules-based competition in the private sector. But everything must be rooted in trust. As financial historian Niall Ferguson has written: “Money is not metal. It is inscribed trust.”

Indeed, the White House report should signal an ice age for pure crypto speculation, noting that “protecting consumers” after the crash in the crypto market is like an airplane pilot turning on the seat belt sign after a crash. But with an industry course correction toward utility and effective congressional legislation, the Ice Age could become a Cambrian explosion of new forms of payment that anchor trust, democratic values, and American strategic leadership.