In the seventh episode of the Block Stars podcast, David Schwartz, CTO of Ripple, discusses the current state of global cryptocurrency regulation with Stu Alderoty, General Counsel of Ripple.
David probably didn’t expect Ripple’s chief legal officer to refer to Beanie Babies during their conversation, but the often valuable stuffed animals are a great analogy for why not every digital asset is a security.
The British Financial Conduct Authority (FCA) categorizes digital assets according to their primary use case, with tokens for the exchange of value, utility tokens for certain products and services, and security tokens that represent a stake in a company. But only the latter are subject to securities regulation.
“The UK recognizes that some people may purchase an exchange or utility token for speculative purposes,” explains Stu. “The analogy would be someone buying beanie babies in the hope that those things would increase in value. That doesn’t make a beanie baby a security. It turns a beanie baby into a beanie baby. You can give it to your son or daughter as a gift, or you can keep it in the attic thinking that the beanie baby market will eventually increase. “
For Stu, clear regulation in the UK and other countries, including Japan, Singapore, Switzerland and the United Arab Emirates, helps drive innovation in the blockchain.
“The days of the Silk Road … the days of the Wild West of crypto … are behind us,” says Stu. The industry is now being “driven by responsible actors who want to work with regulators … to arrive at a smart, regulatory framework … that protects customers [and] the integrity of the market, but also enables the development of the industry. “
He is concerned that the United States is falling far behind these other countries. Ultimately, the problem in the US could be that the cryptocurrency was mostly regulated by enforcement by the Securities and Exchange Commission (SEC).
“There’s a good reason for that,” explains Stu. “A few years ago there was this ICO madness (Initial Coin Offerings) in the USA [that] expressed real concerns about fraud and market manipulation. The SEC did its job and … brought a machine gun to ICO madness … rightly so. But in doing so … they crammed this new technology in [an old] Rulebook, ”which included orange groves, oil rigs, payphones, whiskey and even beavers. In this way, we get “many examples of what the bad and the ugly look like, but we don’t get any examples or ideas of what the good might look like in the US. Despite the publication of a digital asset framework by the SEC in 2019. Stu and many other observers feel that these non-binding guidelines are too broad and can mean something to everyone and are therefore not particularly useful.
Stu contrasts this approach with the advent of the internet in the 1990s. By not just applying the rules for rotary telephones or transistor radios to the then-burgeoning online world, US regulators fueled innovation, and American Internet companies remain global leaders to this day. The current lack of clarity around blockchain and digital assets is already driving blockchain investment overseas and pushing that digital asset innovation, perhaps most worryingly, to state jurisdictions like China. However, it is not too late for the US to act decisively.
“Probably what is most useful,” Stu concludes, “is if the SEC and the Commodity Futures Trading Commission (CFTC) merged.” [to] Get feedback from the industry [and] Consumer. Then they could propose a workable framework that protects the integrity of markets, protects consumers, but doesn’t stifle innovation in the process. “
Listen to the latest Block Stars podcast to learn more from Stu about how the US is catching up, including the Consumer Financial Protection Bureau’s new remittance rule, which recognizes that blockchain solutions can benefit consumers and why 1940s orange grove in Florida that can’t hold back the country’s blockchain and digital asset industries.