The U.K. as Crypto's Frontier & the Politics of Anonymity
Twali Wrapped is a community-driven initiative tracking 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;
The U.K. as a Global Crypto Hub
U.S. Bipartisan Bitcoin Initiative to analyze El Salvador
The Politics of Anonymity
The Docket
by Lucy Pappas
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed, or passed, in the past week.
Crypto Global Hub Announcement (United Kingdom)
This week, in a keynote speech by John Glen MP, the UK announced itself as the “leading European fintech hub,” coming right after the EU’s hard stance on crypto regulation and compliance. The announcement laid out a series of measures the UK will be taking in order to support innovation and adoption of cryptoassets for the general public, as well as international investors and creators. Those measures include 1) a “financial market infrastructure sandbox” to promote firm innovation and inform any necessary legislation, 2) the Cryptoasset Engagement Group comprised of high-level industry professionals and regulatory figures to advise the government, 3) enhancing the tax system to be more inclusive of DeFi loans and staking, and 4) an NFT launched by the Royal Mint to demonstrate the UK’s devotion to the future of fintech innovation.
ACES Act (United States)
The Accountability for Cryptocurrency in El Salvador (ACES) Act was introduced in the House of Representatives on April 4 by Representative Norma J. Torres (D-CA). If ACES sounds familiar to you, it’s because a similar act by the same name was proposed in the Senate in mid-February. This bipartisan act is yet again another proposal to further research and analyze El Salvador’s legal adoption of BTC, and “mitigate potential risks to the U.S. financial system” that BTC adoption poses.
Financial Services and Markets Bill (Singapore)
On April 5, Singapore’s parliament passed the Financial Services and Markets Bill. The bill establishes additional regulation of virtual asset service providers that conduct business outside of the country. Key aspects of the bill include 1) increased scope of prohibition orders on actors in the financial sector, 2) increased regulation of virtual asset services providers under Singapore’s Anti-Money Laundering and Combating the Financing of Terrorism requirements, 3) increased regulation of technology risk management, and 4) increased statutory protections for mediators, adjudicators, and employees identified in liability disputes.
The Politics of Anonymity
It is one of those lines that sticks with you: With great power comes great responsibility. The classic adage, made famous to recent generations by the Spider-Man movie, certainly applies to the world of cryptocurrency.
Blockchain and other distributed ledger technologies have vast potential to provide individuals with more direct control over their finances. However, cutting out the intermediaries also means there is nobody to call when something goes wrong. The cold logic of peer-to-peer transactions is often on display when exploits and hacks result in lost personal funds.
Increased regulation in the name of consumer protection is a predictable policy response in such an environment. U.S. policymakers have already indicated an interest in clamping down on the “Wild West” of crypto. Senator Elizabeth Warren (D-MA) has taken one of the more vocal stances on the need for more regulation, drawing the ire of the crypto enthusiast community. But she is by no means alone. The U.S. Treasury Department has specifically called out self-hosted wallets and is revisiting the idea of enforcing know-your-customer (KYC) requirements on crypto transfers from digital asset exchanges to private wallet addresses.
In a recent interview, Grant McCarty, the Co-Founder of the Bitcoin Policy Institute, identified restrictions on self-custody as a major policy risk for cryptocurrency. (Highly recommend reading the whole interview, it is a doozy!). He is not the only one reading the tea leaves. Earlier this year, U.S. Representative Warren Davidson (R-OH) introduced the Keep Your Coins Act, which would prevent the U.S. government from implementing restrictions on crypto transactions and self-hosted wallets.
Representative Davidson’s bill takes an important step toward defending individual rights that are important to the development of cryptocurrency and decentralized finance. However, a more comprehensive policy response will be needed to fully combat the “regulate-to-protect” impulse. Crypto advocates can play offense by offering an alternative approach to promoting consumer well-being.
In the U.S. context, two immediate needs stand out. The first is internet access. Despite making some strides in recent years, Pew Research Center repots that only about 80% of American adults have broadband in their home. That number drops to 72% in rural areas. It should go without saying that access to high-quality, affordable internet is a critical enabler of decentralized finance systems.
The second is financial literacy. According to some estimates, less than 60% of Americans can be considered “financially literate” – a figure that puts the U.S. at 14th globally. In the U.S. and around the world, gaps in financial understanding are observed on socio-economic fault lines, such as income level and gender.
Even small financial steps, like investing in public stock markets, can seem out of reach for many. A 2021 Gallup poll found that only about half of Americans own stock. The other half are effectively shut out from what has traditionally served as a reliable source of asset growth. How can we expect to onboard millions of users onto decentralized finance systems when many are struggling to understand the conventional systems in use today?
Hamfisted restrictions on cryptocurrency transactions are certainly not the answer. But policymakers who are keen to “do something” need alternative solutions. The crypto community needs to articulate the baseline support systems that can provide everyone with the opportunity to understand, use, and benefit from cryptocurrency.
Twali Wrapped
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