It has been a big month for the crypto market. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) announced their co-sponsorship of comprehensive crypto legislation, while Sen. Pat Toomey (R-Pa.) submitted a detailed proposal for regulating stablecoins. At the same time, 5 Democratic congressmen also introduced the Electronic Currency and Secure Hardware (ECASH) Act. to develop a cash-like digital dollar.
In Brussels, the European Parliament, Council, and Commission have been discussing the possibility of a Markets in Crypto Assets (MiCA) legislative framework, aiming to create a single model for licencing providers of crypto asset services that is “portable” across all 27 EU member states. The bill is heavily focused on stablecoins.
While there are pros and cons to these different U.S. and European approaches, the global nature of crypto could make any attempt to regulate crypto inside national siloes futile.
Global adoption
For example, in Africa, a partnership between the world’s largest cryptocurrency exchange FTX and Nairobi-based AZA Finance is poised to establish a network of on- and off-ramps for Africans utilising a variety of national currencies to engage in Web 3 commerce and systems.
This comes at a time when crypto activity in Africa is on the rise. Kenya and Nigeria – with a combined population of around 260 million people, were ranked fifth and sixth in the world, respectively, in Chainalysis’s 2021 global crypto adoption index. Nigeria had 1.5 million users as of June last year, making it the largest market for Paxful, a leader in peer-to-peer crypto payments. Crypto innovation hubs are thriving in Lagos, Kenya, Johannesburg, and Cape Town, with decentralised finance (DeFi) and non-fungible token (NFT) projects exploding everywhere.
Meanwhile, the world’s largest exchanges are rushing to expand their operations in the Middle East. Binance recently obtained relatively liberal licences to operate in Bahrain and Dubai, and has received preliminary approval to operate as a broker-dealer in Abu Dhabi, where new accommodative laws are being established. FTX received a Dubai licence around the same time.
And let us not forget about the situation in Ukraine. Even before the Russian invasion, which resulted in an unprecedented inflow of crypto funds into Ukraine to support its citizens, Ukraine was a world leader in adoption. Now, with President Zelenskyy hastily passing a new law legalising cryptocurrencies, it is now possibly the world leader in cryptocurrency usage.
Cryptocurrency is a difficult target for regulators
If you’re a crypto developer, these places are where the action is right now. Not only are they friendlier regimes, but the rapid pace of adoption there is creating a virtuous circle of growth that’s encouraging developers to offer profitable crypto services.
And because digitally nomadic developer teams are not required to physically relocate to such locations in order to take advantage of these opportunities, they are seized with lightning speed.
This means that, regardless of efforts by the US and EU to contain and manage the development of cryptocurrency services, the crypto ecosystem will continue to develop and grow.
However, whether it does so in a way that benefits the US or the EU is far from certain.
Indeed, the argument against imposing a restriction on proof-of-work mining in the EU was that it would offer chances for greenhouse gas-producing energy providers to lure bitcoin miners to their locations – Kazakhstan’s coal-based mining boom being one example. If the goal of regulation is to benefit the world as a whole – as is the case with any climate-related rules – then its designers must be wary of such unintended consequences.
Bank regulation vs crypto regulation
Regulating bankers is relatively simple. They require a licence by definition, and their very existence is defined by their relationship to the central bank’s monetary provisions. If the licence is revoked, the entity is no longer a bank.
It is much more difficult to regulate open-source developers, especially if they are not paid by a centralised company per se, but rather by the open network they serve with tokens generated and issued by a protocol. While policymakers in the United States and Europe are working hard to impose licencing constraints on DeFi coders. It’s difficult to force people who can be anywhere and are only accountable to themselves not to write open-source code.
In order to be effective, crypto regulation must be more nuanced, accommodating, and, most importantly, internationally coordinated.
