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It has been more than 10 years since Bitcoin launched, but the cryptocurrency industry remains largely reserved for blockchain enthusiasts and fintech startups. The reason why incumbent financial institutions have not yet fully exploited the potential of digital assets is clear to the European Commission’s digital innovation advisor.
Peter Kerstens participated in a panel discussion on regulation at Swell 2020 – the annual gathering of the world’s trusted leaders in financial services and blockchain technology – and said:
“Regulated financial instruments tend to attract regulated financial institutions. The lack of a legal framework, in my opinion, is one of the reasons why we have not seen any further development of it. “
One country that is making progress on regulation is South Africa. However, as special advisor to the central bank, Angela Itzikowitz admitted to the panel that figuring out how crypto fits into existing financial legislation is extremely difficult.
“First we had to consider: Was it just a question of the new wine in old bottles or should we go back to the drawing board?” she remembered. “Most of our laws regulating assets or securities require a central issuer [which] missing in the token or crypto room. A token can [also] change its nature. It can start as a utility token, but over the course of its life it will become a security token. How do you regulate this “
Kristen Smith, executive director of the Blockchain Association, of Washington DC, agreed that the changing nature of tokens contributed to the lack of an overarching legal framework for crypto assets in the US. However, she noted that the country’s policymakers are finally catching up.
“This is an ecosystem that has evolved so quickly and there are so many different uses for the technology,” said Kristen. “As awareness and understanding of these different types of crypto assets evolve, we’re starting to see some changes. We have a long way to go here in the US, but … recently some bills were introduced aimed at getting between these different categories. “
The European Commission is also developing an understanding of the value of crypto, particularly in relation to the performance of next-generation payment systems, to encourage greater financial inclusion. The regulations proposed by Peter Kerstens and his team aim to encourage this type of innovation.
“Instead of negatively applying our legislation to prohibit activities,” he said.[we want] to create a legal framework that enables it [innovation], but of course also … ensure market integrity, financial stability and investor protection. “
All panelists believe that real legitimacy will emerge for crypto assets when central banks publish their own digital currencies. Angela Itzikowitz is currently advising the Central Bank of South Africa on what to do to issue a digital rand. In contrast, Kristen Smith believed that the US is far from having a digital dollar. As the panel’s moderator, Accenture’s Ousemene Mandeng, suggested, the introduction of a central bank digital currency (CBDC) could have a profound impact on the industry.
“Central banks moving into the tokenized world with the possible introduction of CBDC … could change the perception … it will add credibility and legitimacy to this area … I’m very excited.”
Would you like to learn more? Watch the full Swell 2020 session today.