Up until this point, the U.S. governments view on cryptocurrency has been shrouded in uncertainty and contradictions, leaving many wondering where the future of the technology lies within the worlds largest economy. However, following the release of the 2018 joint economic congress report where an entire chapter was devoted to assessing blockchain technology, it appears positive sentiment is on the rise!
Entitled ‘Building a Secure Future, One Blockchain at a Time’, the report discussed the significant potential of the technology to improve cybersecurity and provide economic value. They likened the current crypto climate to that of the early days of the internet, where people realized the technology would revolutionize many aspects of our life and speculated heavily on new start ups.
The buzz surrounding digital currencies resembles the internet excitement in the late 1990s when people recognized technology companies could change the world. Many internet companies launched and their valuations took off in short order. Many failed, but a few succeeded spectacularly and challenged the conventional ways of doing business.
‘Are Digital Currencies Actual Currencies?’
The next part of the report discussed economists views on whether cryptocurrencies could actually be considered currencies. Based on the definition of a currency, being that it can be used as a medium of exchange, a store of value and a unit of account, the report concluded that in the current state they could not be considered true currencies in the traditional sense.
This was due to various issues, including Bitcoins skyrocketing fees and transaction times during periods of high network usage. Extreme volatility in value compared with fiat pairs was another example of why cryptocurrencies do not currently make good mediums of exchange.
However, they do talk positively about how if and when cryptocurrencies stabilize in the future, they could serve as money in the traditional sense. Additionally, the report also touches on the value of crypto as a store of wealth, much like commodities such as gold. The case of Venezuelans turning to Bitcoin during recent hyperinflation was the given example.
‘Initial Coin Offerings’
ICOs have been under heavy scrutiny in the U.S., largely due to a complete lack of regulation to protect investors. However, as KYC measures begin to become commonplace, we expect ICOs to become more prominent in the U.S. The report seemed to agree with this sentiment, citing how the funding method reduces costs significantly compared with IPOs.
Again, the current ecosystem was compared with the early days of dot come bubble. Raising capital through ICOs exploded by more than 10x in 2017 compared with the previous year, with developers generating over $5.3 billion. However, they believe that many of these start ups will ultimately fail, but the ones that succeed will become the technology of the next generation.
Many of these projects will likely fail, as most startups do, but the ones that do survive could transform the way the internet and technology works for decades to come.
Perhaps the most interesting and bullish section of the report was the part about recognizing cryptocurrencies value beyond negative headlines about criminal activity or its role in replacing fiat money. Finally it seems that the authorities are starting to understand the potential of decentralized systems and the almost limitless applications.
Yet, with all the headlines focusing on the financial applications, people may miss the digital revolution now happening with other blockchain applications. Even worse, people could be frightened about new developments with the technology as they associate blockchains with the negative headlines. Blockchain technology offers a decentralized, secure, and efficient way to store almost any form of data across multiple platforms.
Despite the reports recognition of the value of ICOs, how best to regulate this new capital raising method is still an area of great debate. They believe that current regulatory frameworks are ‘out of touch’ with the internet age and need addressing.
The question is how to classify digital assets. Are they securities, commodities, currencies, or a completely new type of asset requiring new regulations? The report draws on the example of the DAO, which following an SEC investigation was determined to be a security that should have registered as such. This led to further investigations into ICOs that may or may not be deemed securities.
The respone from the crypto industry was to develop what is known as a SAFT agreement, which acknowledges that tokens are securities and are only available to accredited investors during the pre-sale period of the ICO. After this period, the tokens may become utility tokens free of securities regulation. The report took a positive tone to this development, showing support for good actors within the industry.
Taxation was another regulatory hurdle facing U.S. policy makers. If cryptocurrencies are viewed as currencies, then investors should not be taxed if they appreciate in value, the same as they would not be taxed if the USD appreciated. However, if they are securities, then investors would be liable for capital gains tax. It all depends on how different cryptos are classified, but with such different use cases this is which is far from clear. The report recognized how regulators will need to work together to solve these issues productively.
Conclusion & Recommendations
Cryptocurrencies and blockchain technology present both challenges for regulators and significant potential for economic growth and increased cyber security. The final notes of the report summarized how the public and policy makers should further their understanding of these technologies, whilst governments and regulators should work with developers and entrepreneurs to protect, but not hinder, the industry.
- Policymakers and the public should become more familiar with digital currencies and other uses of blockchain technology, which have a wide range of applications in the future.
- Regulators should continue to coordinate among each other to guarantee coherent policy frameworks, definitions, and jurisdiction.
- Policymakers, regulators, and entrepreneurs should continue to work together to ensure developers can deploy these new blockchain technologies quickly and in a manner that protects Americans from fraud, theft, and abuse, while ensuring compliance with relevant regulations.
- Government agencies at all levels should consider and examine new uses for this technology that could make the government more efficient in performing its functions.
Despite the turbulent past regarding the U.S. governments view on cryptocurrencies and blockchain technology, the future looks bright!