Washington needs a smart approach to the blockchain industry

The rapid growth of blockchain technologies have raised many questions about how authorities should regulate this relatively new sector. Some politicians worry that overlooking the industry could put the financial system at risk, including Democratic Rep. Juan Vargas, which has gone to the post office as if to say “Most people I know who have invested in cryptocurrencies (have done so) … because they think they can get rich quick. We’ve seen this before, unfortunately, and it led to the financial crisis.

He is correct that as blockchain-based financial instruments become more widespread as an investment class, there is a greater risk of financial instability that could result from the unregulated use of such assets in US financial markets. However, an adequate set of regulations put together in a smart way can ensure both a high level of investor and consumer protection, while ensuring market integrity and promoting innovation. We have seen this in the last century when we consider the various regulations that cover brick-and-mortar financial institutions and Wall Street.

As blockchain assets continue to integrate into the global economy, many countries have already developed laws and regulations at the national level. For example, the EU recently announced a set of new regulations for cryptocurrency sector – EU Markets in Crypto Assets Act (MiCA). The legislation covers issuers of unbacked cryptoassets, and stablecoins, as well as the trading venues and wallets where cryptoassets are held. The MiCA Act protects both consumers and investors, standardizes actors and monitors the energy consumption of crypto-assets.

Another positive example is South Korea where they passed legislation on anti-money laundering and combating the financing of terrorism. The regulation implements mandatory requirements for a wide range of virtual asset service providers. This step creates a safer financial environment, with financial regulators gaining access to data regarding crypto transactions, which due to the technical nature of the blockchain protocol is preserved with each additional transaction.

The United Arab Emirates has established the Dubai Virtual Assets Regulatory Authority (VARA) which aims to protect and regulate the stakeholders in virtual asset services. VARA’s mandate includes monitoring trading activities in virtual asset services to prevent price manipulation and establishing high standards for the protection of personal data.

It is certainly worth utilizing the most beneficial regulations from other successful frameworks for America’s Blockchain Ecosystem. This will bring the industry in line with similar regulations legacy financial institutions have been subject to for decades without changing the inherent benefits of decentralized finance (also known as DeFi). A set of laws governing digital assets would also provide greater stability to the US economy while consumers would benefit from greater protection. This will help ensure that the government and American citizens will get all the benefits that crypto and blockchain offers.

However, overly harsh restrictions risk stifling growth, development and innovation. This would put the United States behind almost equal competitors such as China, create economic and national security issues. Washington is arguably behind our European and Asian partners when it comes to a blockchain strategy.

Regulation should not change the fundamental nature of these technologies in any way, they should only make users safer. Rules for asset classes should concentrate on making them safer and easier to use, rather than erecting ersatz barriers in the name of “protection”, which the industry would bypass anyway. In sum, US blockchain success will depend on a regulatory policy environment that provides clarity, allows for growth, and holds the industry accountable.

The will to create this political environment exists. The serious and legitimate voices in the blockchain industry all agree that regulation is overdue and a significant number of lawmakers on both sides of the aisle, including bipartisan The Congressional Blockchain Caucus, recognize the benefits. A balanced set of regulations will ensure a higher level of investor and consumer protection, and market integrity in this sector in the US, and will help push fly-by-night crypto operations as well as scammers out of the market.

Going back to Rep. Vargas and other lawmakers, hopefully our leaders in Washington will seize this opportunity to deliver the right kind of regulation to help America stay on top of this critical, innovative and evolving industry.