The Politics of Open Financial Systems With Director of Policy & Public Affairs at Bitcoin Mag
Twali Wrapped is a community-driven initiative to track the most important developments of the past week for policy, regulation, compliance, and legalities, related to web3.
In addition, we speak with experts toiling with how best to implement regulation and policy changes, while prioritizing simplicity in communication to ensure our reader’s complete understanding of the implication of such developments
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TL:DR;
Accountability and Sanctions on the Docket
Is the Crypto Community Ready for Broader Public Dialogue?
The Importance of Bitcoin Advocacy with Grant McCarty, Director of Policy and Public Affairs at Bitcoin Mag
The Docket
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed, or passed, in the past week.
Accountability for Cryptocurrency in El Salvador Act (United States)
The Accountability for Cryptocurrency in El Salvador ACES Act passed a Senate Foreign Relations Committee vote on March 23. The ACES Act was originally presented on February 17, Senators James Risch (R-ID), Bob Menendez (D-NJ), and Bill Cassidy (R-LA). Ultimately, it requests a series of reports that assess El Salvador’s adoption of Bitcoin as legal tender. The intent of the ACES Act is to, in Sen. Risch’s words, “understand and mitigate potential risks to the U.S. financial system…including any potential empowerment of malign actors like China and organized criminal organizations.” Let’s just say that El Salvador’s President Nayib Bukele had some pretty strong things to say about the passage.
The Finance Bill (India)
On the evening of March 24, the Finance Bill was voted on and passed in the Lok Sabha, India’s parliament. The accepted bill instates a 30% capital gains tax on any income from transfers of “virtual digital assets” (crypto trades). Additionally, the bill states that losses that occur while transacting digital assets cannot be used as compensation against other digital assets (i.e., gains in a different cryptocurrency). The Finance Bill goes into effect on April 1, marking itself as one of the strongest regulatory decisions on cryptocurrency we’ve yet seen.
Digital Asset Sanctions Compliance Enhancement Act (United States)
Last Thursday, Senator Warren (D-MA) introduced the Digital Asset Sanctions Compliance Enhancement Act. The purpose of this act was to ensure that Vladimir Putin and Russia’s elite oligarchs would be unable to avoid economic sanctions through the use of digital assets (i.e. cryptocurrencies). While this was Warren’s stated goal, specific language referring to “digital asset transaction facilitator” seemed to target more than just Russian oligarchs. A “digital asset transaction facilitator” was defined as anyone or any group that facilitates purchases, sales, lending, borrowing, exchange, holding, etc., of digital assets (which includes any communication protocol, decentralized finance technology, smart contract, or other software) on the accounts of others. Thus, this act supports placing penalties on non-US crypto exchanges used by sanctioned (and, don’t forget, non-sanctioned) Russian individuals and entities, and give the Treasury Department the authority to ban crypto companies that engage in such actions.
Is the Crypto Community Ready for Broader Public Dialogue?
Last week, we covered President Joe Biden’s Executive Order (EO) on digital assets. The EO represented the opening shot of what will certainly be a long-march toward federal cryptocurrency regulations in the U.S. And you can bet that the twists and turns of the coming regulatory story will be captured in the U.S. Federal Register.
The bane of existence for many U.S. regulatory analysts, the Federal Register publishes official documents, public notices, and requests for information (RFI) from across the federal government. The forum will serve as a perfect tool for federal agencies who must follow the Biden EO’s directive of broad public consultation.
Until now, requests for public comment concerning digital assets have been limited to narrow finance industry topics. The Securities and Exchange Commission, National Credit Union Administration, and Financial Deposit Insurance Corporation have all received public input, but only through the lens of their specific regulatory responsibilities. As a result, the comments have tended to coalesce around familiar themes.
For example, nearly every organization highlights the regulatory risk and uncertainty involved with the use of digital assets. Financial institutions operating under existing regulatory frameworks are unlikely to make any quick moves toward adoption. A quote from StarOne Credit Union is representative of this view: “[the credit union] is opposed to any involvement in digital assets because they are risky and could cause significant losses to consumers, individual depository institutions and the greater financial system.”
Several other commenters focused on potential benefits and drawbacks for consumers of financial services. On the one hand, we see financial institutions and individuals who voice concerns about widespread participation in risky or speculative digital asset investments. On the other hand, we see industry advocates and financial technology companies that portray blockchain and cryptocurrency as a promising way to support those who are excluded or underserved from the current financial system.
For avid crypto watchers, these debates may seem familiar and routine. In many cases, they are. However, the public record in existence will set the foundation for future policy developments.
That being said, in the wake of the Biden EO, the scale and scope of public information requests is likely to expand dramatically. Just this morning, the White House’s Office of Science and Technology Policy published an RFI on the energy and climate implications of digital assets. The decidedly non-financial aspects of the RFI demonstrate the federal government’s policy machinery is starting to think more holistically about blockchain and cryptocurrency.
The new reality entails risks and opportunities for the blockchain sector. An enhanced focus on the applications of blockchain and distributed ledger technology outside of the finance world could help rally support from new groups of stakeholders. Still, a broader examination of crypto’s impact on society could attract fresh criticism (on the amount of energy used by blockchain networks, for example). The brave new world of public comment on crypto and web3 is coming. All of us better be ready!
The Power of Open Financial Systems: The Grant McCarty Interview
Last week, I had the opportunity to chat with Grant McCarty, Director of Policy and Public Affairs at Bitcoin Magazine. Grant is also the co-founder of the soon-to-be-launched Bitcoin Advocacy Project — an organization dedicated to educating the public on Bitcoin and building a grassroots coalition of advocates who use their voice to protect the financial freedom of every American.
We discussed the most receptive narratives of Bitcoin both socially and politically, the importance and empowerment of open financial networks, and potential attack vectors for government’s to clamp down on cryptocurrency.
David: What’s your history with Bitcoin? And how did that lead to the Bitcoin Advocacy Project?
Grant: I got seriously interested in Bitcoin back in 2014, started investing in 2017, and have just been keeping up with the industry, and these macro trends, since. Back in 2021, I had the opportunity to break into the industry. After working in startups — first Ed Tech, then I ran a digital marketing agency and digital marketing consulting firm — I was hired at Bitcoin Magazine as the Director of Policy and Public Affairs. Since then, while doing a lot of cool things at Bitcoin Mag, I started building a nonprofit advocacy organization for Bitcoin along with my colleague, David Zell, because we recognized some whitespace in the industry. Right now, Bitcoiners are more passionate than just about any other group that I’ve seen. They take more digital action than almost any other group I can think of. But there’s a disconnect between that digital action and real world political action. Politicians need to see that their constituents care about these issues, and the way to communicate that is through targeted, coordinated action. We have been building the Bitcoin Advocacy Project to do just this: be a nexus point, a conduit, for all the incredible voices within the community that are fighting for change. To be clear, passing all those voices through a platform is different from boiling them down into one single view. No one person or group should attempt to be the voice of the Bitcoin community. BAP is all about advocating for a technology that we care about without trying to speak on behalf of the network itself.
David: What have you found as the best way of communicating the need for bitcoin and to what audience does it register most with?
Grant: When speaking with politicians, I think one thing that we’ve learned and one of the reasons we’re going to push certain initiatives and push for high quality data is that politicians don’t necessarily hate Bitcoin. A lot of people think that politicians have something against Bitcoin, and in some cases, that may be true. But in our work, we’ve realized most people, including many politicians, don’t know enough about Bitcoin to form any strong opinion about it, let alone to hate it.
We’re still at this point where we do have to describe the value of Bitcoin, though it is one of those things that is much easier to understand once you’ve held your own hardware wallet, once you understand how Proof of Work works, etc. So we’re trying to focus on foundational education with people so that they understand what bitcoin is and how it works before they fully try to wrap their mind around all of its various implications.
Once you get past that base layer of education, probably the most common thing we’ve heard from politicians is, “Hey, this all sounds incredible. We see the value. We think this technology is amazing and we want to support innovation, even if we don’t fully understand all the mechanics of the technology.” I think there are a lot of politicians that are in line with that. But when it comes to industry, when it comes to leveraging this for America, politicians basically say, you know: “Where’s the data? How many jobs is it bringing? How much money is this providing to Americans? What’s the average pay for a job in Bitcoin?” Right now, that data doesn’t exist, so we’re working on compiling that data and research to demonstrate its benefit. I think once we can get more concrete data around that, Bitcoin adoption will continue to grow from a politician lens.
On the other hand, I don’t think this is going to be a novel point here, but one of our partners is Black Bitcoin Billionaires. They’re an incredible group. As continues to be painfully obvious, black Americans have been routinely and historically disenfranchised within the United States. One of the biggest forms of this systematic disenfranchisement has been through banks. African Americans have been denied loans, held to different standards for mortgages. You can go down the list.
I will not speak for this community, that’s not my place. But in speaking with Black Bitcoin Billionaires, and speaking with a bunch of black Americans who are in Bitcoin, it is easy to understand how a community who from generation to generation have been screwed by our financial system is drawn to the open, financial system that Bitcoin provides as an alternative. I don’t want to misquote the exact data right now. But African Americans, as well as Latino Americans, are disproportionately highly represented in Bitcoin ownership compared to white Americans.
Such data demonstrates how, in communities who have been historically disenfranchised within our country, the wounds from that discrimination are still very much there. They don’t heal easily — they last generations and are passed down. Ultimately, we’ve seen Bitcoin as a rejection of our current systems whose attempts at integration still lag so greatly behind the suffering they caused. And I think this is a particularly compelling argument that proves the value of Bitcoin to a lot of people, even if they have never faced those kinds of hardships themselves.
David: What are the biggest hurdles in terms of issues? I’d imagine the environmental impacts.
Grant: First off, I would say the general consensus from people in the industry is that the US government is very unlikely to go outright and ban Bitcoin. Adoption is too high, especially within large institutions. What is much more likely to happen is the government bans fundamental aspects of what makes Bitcoin Bitcoin. A couple of those attack vectors that we’re seeing are 1. the environmental impact. We’re seeing attacks on proof of work — politicians asking, “Why does Bitcoin have to run on proof of work when it uses all this energy? Why can’t it just run on proof of stake?” This shows a misunderstanding of proof of work right from the beginning. I could go on and on, but I digress. The point is that regulating consensus mechanisms is up there in terms of issues to watch out for.
Second is self custody. One of the biggest issues right now for the government is consumer protection. While lot of people who are into Bitcoin don’t want the government involved at all, I think a lot of normal, everyday Americans are still worried about getting into Bitcoin because of not just the volatility, but the scams, the hacks, and the relatively high barrier to entry to get involved. Even with Coinbases, Krakens, and Geminis — my grandpa, for example, is going to have a really hard time buying Bitcoin with his retirement fund and feeling comfortable that it is not going to be stolen from him within the year.
As a result, we’re seeing calls for increased regulation of exchanges, and increased regulation of the industry as a whole. This could escalate to a push for essentially banning self custody where, to keep this as regulated as possible from the government perspective, they would want to keep everything on the exchanges.
These are the battles I think we face and that we’re already seeing. There was a piece of legislation in New York calling to put a moratorium on proof of work. Representative Warren Davidson just released a piece of legislation called the Keep Your Coins Act. It’s valuable to check out if you haven’t already. The act is designed to preserve the right to privacy when you’re transacting with Bitcoin and keep the right to self custody, because the self sovereignty aspect is a core component of Bitcoin. It’s really important for Bitcoin to stay away from complete and total regulation in the United States. At this stage, I personally think that the government can’t kill Bitcoin, but they can take these backdoor approaches to severely impact the way we use the network in the United States.
David: What regulations or bills could be passed to incentivize adoption? Which are you most excited about?
Grant: Senator Lummis has been working on a piece of legislation for a very long time now. She’s getting ready to unveil the finalized language very soon. We’re definitely looking forward to that, although we can’t fully talk specifics right now. But I can say that we will support legislation that specifies a transaction limit to avoid taxation on Bitcoin. That is a huge part of it. In order for Bitcoin to be used as money, removing the capital gains tax, the tax burden for transactions, is vital in order to take that next step.
One of the other popular manners of increasing adoption, pushing for Bitcoin as legal tender, is really interesting, but I’m not 100% sold on it yet because it does not necessarily result in all the things that people think it might result in. One of the assumptions is that making Bitcoin legal tender will remove the capital gains tax from Bitcoin. It is unclear if that’s the case. Even though that fight may be valuable, and it’s something we’re keeping an eye on, ultimately, we need to better understand the implications of a lot of proposed legislation.
And so that actually brings me to a more nuanced point, I guess, which is that, you know, in the search for legislation for Bitcoin, the types of regulation we should be looking for are regulation that does not impact the network itself, but may impact the way we interact with the network. By this, I mean legislation regarding the taxation, consumer protections, regulating exchanges — not regulation of the consensus mechanisms or block sizes or things like that.
Another point is that a lot of the legislation coming up around Bitcoin is happening, and will happen, at the state level. We’re already seeing amendments to money transmitter laws that allow businesses to transact Bitcoin. A lot of this is going to be unsexy. That is to say there won’t be a 100 page bill that establishes all these amazing things for Bitcoin and single handedly saves Bitcoin in America. It’s going to be courts, financial institutions, and government agencies agreeing on definitions for what digital assets mean, what proof of work is, what Bitcoin is, etc. Again, it’s not sexy. It’s minutiae. But it’s what we need and, currently we don’t have a lot of people in the industry well equipped to handle it. We need constitutional scholars. We need legal experts really digging into these things. Bringing this together is what I’m excited for.
David: What do you envision as the route bitcoin adoption will take?
Grant: Interesting. This does lead into the partisan aspect of Bitcoin, I think. Right now, we are seeing a push from the right for Bitcoin adoption. Some of the states that have been the kindest with Bitcoin have been red states. It’s this bottom up push on a state level that we’re seeing an increase in, because it’s really hard to get things done in Congress. As a result, we’re going to see more autonomy within the states, and a big bottom up push over the next couple of years. It is really going to be fascinating.
And while we are currently seeing a lot of adoption from the right, we’re also seeing a number of people on the left really step up and become interested in the space. They are pushing back against some of the narratives or, at the very least, latching on to this idea of supporting innovation.
To circle back to what you asked earlier about what argument has been particularly helpful and valuable, one of the things we’ve had success with, is likening Bitcoin to the internet in the 90s. The internet, in its infancy, wasn’t useful for a lot of people. Maybe you were on a chat board. Maybe you were using email, but it wasn’t as ubiquitous or as far reaching or as advanced as it is today. I look at Bitcoin the same way. It is a little over a decade old. A lot of people, they don’t see the value of Bitcoin just yet because they haven’t had circumstances in their lives that have caused them to see that value. But, as the war unfolds in Ukraine — along with the many other global conflicts that arise every day – the need for Bitcoin and its true value is made clear. Being able to flee Ukraine with your hardware wallet, rather than having to go to an ATM or carry bars of gold with you, is a real use case that we’re seeing in real time. The world will catch on sooner or later.
To wrap up, I want to clarify why I brought up bipartisan adoption. I really think that this is where we are going to make huge strides with Bitcoin in the US, once people are all fighting for the same thing. The infighting going on right now is distracting. It distracts from educating the people who support crypto broadly, but don’t support proof of work. And thus, it distracts from elucidating regulation through education. This will keep people away.
The more clarity we get, the more adoption we are going to get. The more work that states put in, the more aligned we are going to get across party lines. One of the worst things that could happen for Bitcoin adoption in the US is for it to become a partisan issue. That’s ultimately why I brought that up because, if it turns partisan, Bitcoin adoption could stagnate not only on a state level or national level, but even on a global level as well.
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