Crypto Policy Should Encourage Innovation – Lessons From Wyoming

Crypto Policy Should Encourage Innovation – Lessons From Wyoming

Blockchain and cryptoassets are one of the first, if not the first, decentralized global industry; it makes sense that the regulation of these sectors should evolve in an organic and decentralized manner.

Regulating and attempting to control blockchain and cryptoassets is a topic and trend that seems to be top of mind for regulators across the world. Examples include the Securities and Exchange Commission (SEC) seemingly wanting to regulate and control every cryptoasset in the marketplace, including Coinbase, the only U.S. publicly traded crypto exchange, alongside stepped up enforcement and collection efforts from the Internal Revenue Service (IRS). Additionally, recent statements and edicts from the People’s Bank of China (PBoC), which once again has proclaimed crypto activities – including trading and mining – illegal, indicate that regulatory appetite for free market evolution seems to be fading.

That said, there are examples of how more decentralized approaches – based on a robust dialogue between regulators and private sector actors – offer a more open approach to regulating cryptoassets. Much has been written about the efforts, and legislation, undertaken and passed in the state of Wyoming, spearheaded by Caitlin Long and a dedicated Task Force that has now developed into a permanent committee focusing on blockchain and technological adoption within the state and beyond.

Even with previous commentary, however, there is still more to discuss.

During this past week the Wyoming Blockchain Stampede 2021 was held at and around the University of Wyoming campus, attracting experts and insights from a worldwide audience. Several key points emerged during this week that can, and should, be used as a template for further attempts at regulation, especially as mainstream adoption of blockchain and cryptoassets continues.

Non-adversarial regulators. The Select Committee on Blockchain, Financial Technology, and Digital Innovation held two (2) days of public hearings – livestreamed and available on YouTube – that invited expert testimony, public comments from those in attendance, as well as general comments from the public. During these hearings the expert testimony – including some from the author of this article – touched on virtually every aspect of blockchain innovation. Topics that were discussed included the potential for an opening banking system, self-sovereign digital identity, non-fungible tokens, and how to best incorporate decentralized autonomous organizations (DAOs) into existing legal frameworks.

One thing that was not present, however, was an adversarial or hostile position on either side of the table. To be fair, this is after several years of collaboration and progress, but given the recent change in tone at the federal level, it was refreshing to see that the private sector and regulators can indeed have productive and comprehensive conversations. A key takeaway is that all participants in these conversations need to be informed and feel their opinions are being taken seriously.

A bigger tent. A trend that has always existed, but seems to be accelerating in more recent years is that within the blockchain and cryptoasset sector the individuals and institutions that have more expertise in this sector are quickly outpacing newer entrants to the space. As mentioned during the week-long event – including by the author of this article – many of the participants at events like this one almost exist in a bubble of blockchain and crypto conversation. If the sector is to ever truly expand to mainstream adoption there must first be a mainstream understanding of both the technology and its applications.

The Blockchain Stampede addressed this issue by offering multiple tracks including legal, finance, and business alongside more technical tracks and events centered around developers and miners. The end result of such as broad based approach was that the attendees, presenters and exhibitors present had a diverse and broad based audience with which to engage. Taking this outside of Wyoming, conversations with both regulators and the business community need to take place at all levels of expertise. In other words, simply because someone does not understand a specific application at a specific point in time is no reason to disengage from further conversations.

Leverage global insights. An interesting aspect of the Blockchain Stampede was that, in addition to the in-person presentations, exhibits, and demonstrations there was a significant international presence. In one were so inclined, there was blockchain and crypto content streaming nearly continuously during the event; a true representation of just how global this industry has become. Something that might be easier said than done given the current contentious geo-political environment is that global inputs and insights should be factored into further discussions and drafting of regulatory rules.

No one country, regulator, or private sector actor has all of the answers, nor the solution for how best to integrate blockchain and crypto into existing regulatory frameworks. A basic question, related to this, is whether or not this should even be attempted or if new legal frameworks should be drafted. This is not to say that a global committee, or global regulations, are needed, but taking the best aspects or lessons from the world over should result in the best and most innovative result.

Regulating blockchain and cryptoassets is a topic that has quickly moved from an issue that had approached with caution to an area that is showcasing vigorous enforcement and compliance efforts. Given the nearly constant stream of headlines, fines, and lawsuits it is easy to overlook the reality that there are real world examples of a better path forward. Wyoming might just be one state in the United States, but continues to show how regulators and the blockchain space can work together, collaborate, and create an environment that protects consumers, fosters innovation, and provides an example for others to follow.

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