Read this before October 2021 if you’re in crypto!

For those of us who believe in the concept of decentralization that underpins Bitcoin, I believe we are shortly going to receive a shock in the form of new regulations. The wealthiest countries in the world are snapping at the heels of the crypto universe and are looking at ways they can use financial regulations to bring fintechs, exchanges and crypto owners into line.

What do governments want to restrict?

Here’s a list of ‘things’ they are planning to target:

  • Peer-to-peer transactions
  • Stablecoins
  • Private wallets (phone, desktop, cold storage)
  • Privacy (privacy coins, decentralized exchanges, TOR and I2P)
  • Former ICOs & future projects (NFTs, DeFi, smart contracts, second layer solutions and more)

What is their intention?

At it’s most basic, you could say that they want to know EVERYTHING!

They want to:

  • Businesses active in crypto to be licensed and regulated like banks
  • Ensure full transparency for all transactions
  • Have the ability to freeze crypto assets belonging to persons or countries they believe are a ‘risk’
  • Force the disclosure of user information for all transactions
  • Revoke licenses of any that don’t comply with regulations.

They want control of a space that emerged precisely as a reaction to government and bank controls on money, both of which allowed a global financial crash to happen in 2008.

Why do governments suddenly want more regulations?

The answer is fear. Wesley Thysse in his document “Government Planning Worldwide Regulation of Bitcoin”, he points to one event that suddenly made them sit up and take real notice of cryptocurrencies, and that was Facebook’s 2018 announcement that it intended to create and launch a ‘so-called’ stablecoin. As Thysse says, “Until then they didn’t see cryptos as a risk to the global financial system.”

Why did Facebook’s Libra coin, as it was called at the time, send a ripple of unease through wealthy governments? Because Facebook’s billion users would have access to an instant payment system that was faster and more importantly cheaper than anything offered by the existing financial system.

Governments and the central banks huddled together in talks about what to do, and engaged an organization called Financial Action Task Force (FATF). Its goal is “to protect the integrity of the global financial system.” A real Big Brother!

FATF has already passed similar legislation for global governments, and it is the organization behind the rule insisting that all cryptocurrency exchanges that exchange fiat for crypto have the same KYC and anti-money laundering requirements as banks. What they will do now is turn their attention to all the elements of the industry outside this kind of control and as Thysse says, “declare what is, and isn’t acceptable.”

In 2018 FATF set out to control money laundering and terrorist financing, but now it is going much farther, and they are making swift progress. The document anyone in the crypto space should be looking at right now is FATF’s ‘Guidance for a risk-based approach to virtual assets and VASPS’ (GVA). This is due to be implemented in October 2021. Furthermore, it is impossible to move FATF out of its powerful position, because the organization is protected by the Vienna Conference on Diplomatic Intercourse and Immunities, which means they enjoy immunity with regard to their actions and are unburdened by the rules the rest of us must live by.

The so-called public consultation on the GVA was a farce, as they only chose the feedback that suited their agenda. They have delayed the implementation of the GVA until October, but after that expect to see their recommendations being implemented at national level, and in our legal systems. You should also note that the GVA will not apply to central bank-issued digital currencies. So, the agenda is very clear!

It may not be all bad news

As much as those dedicated to crypto may be horrified by all this, let’s take a moment to look at a possible upside: regulations may just pave the way for mass adoption, something the crypto community has long been waiting for. But at what cost? However, I urge you all to read the FATF GVA, because in just a few months it is going to start affecting your life, and most likely it won’t be in the way you would like.

Dogecoin passion could prevent government crypto bans

Dogecoin, which has existed for a few years, is not a cryptocurrency of the usual kind. It’s a fun, ‘meme’ coin and Elon Musk, Gene Simmons, The Jonas Brothers and Snoop Doge have been having some fun with it recently. However, although it has no utility, Noelle Acheson, says “it embodies two key themes impacting institutional interest in crypto assets: the role of “fundamentals,” and the likelihood of successful government bans.”

Acheson asks if fun should drive value (Dogecoin is up 1,350% in 2021, and answers her own question with, why not? She points to GameStop (yes, again!) saying that the market’s understanding of ‘value’ is shifting. Matt Levine at Bloomberg summed it up: “Money and value are coordination games; what we use for money depends on the channels that we use to coordinate social activity. Once society was mediated by governments, and we used fiat currency. Now society is mediated by Twitter and Reddit and Elon Musk, so, sure, Dogecoin.”

Even Dogecoin’s founders have no idea why its success has continued some seven years after launching it. But they can’t remove it, or close it down, because Dogecoin runs on a public, decentralized blockchain that no one controls. So, it will probably continue to exist so long as people value its fun element.

It’s about passion

GameStop and Dogecoin both exemplify what community passion can achieve, and how it may potentially block government bans on crypto. For example, India tried to ban cryptocurrencies recently, but the community mobilised, created a hashtag and rallied its members to lobby government representatives. They pointed out that the country has 10-20 million crypto users, plus 340 startups and 50,000 employees in the crypto space.

Something similar happened in Nigeria where the central bank ordered banks to close the accounts of cryptocurrency users. There was a public outcry, and the central bank had to issue a press statement “reminding the public that the rule was not new, and that it was for their own good.” The central bank had to unblock accounts of 20 people involved in the #EndSARS movement, which was about the dissolution of a federal police unit with a reputation for fierce brutality. Acheson says, “The fact that the accounts were frozen in the first place is one of the many reasons seizure-resistant cryptocurrencies are rapidly gaining in popularity amongst Nigeria’s young.” It is also the case that Nigeria is gaining recognition as Africa’s Silicon Valley, and trading crypto assets is a way of life for many young people. They have new tools to work with and a growing disrespect for institutions. Because of the central bank directive, they are simply moving from exchanges to peer-to-peer channels. As a result, the politicians have taken notice,, and some prominent voices in government have spoken out against the ban. Other countries will be watching this with interest, because as Acheson warns, “the very act of attempting to repress cryptocurrency’s use could light a fire under a generational understanding of why it’s necessary.”

Biden puts crypto wallet regs on hold

Finally the inauguration of Joseph R Biden, 46th president of the United States took place on 20th January, and the whole event concluded without so much as a sneeze. He didn’t waste time when he sat down at the Resolute desk for the first time, signing a swathe of executive orders that overturned some of his predecessors more contentious policies, such as leaving the Paris Climate Agreement. As of yesterday the USA is back in, for which many are thankful.

However, there was something else he did that is of great interest to the cryptocurrency community. He put a freeze on FinCEN’s proposed crypto wallet regulations proposed by former Treasury Secretary, Steve Mnuchin, a known ‘hater’ of crypto. These rules would be detrimental to the crypto industry and were already seen as controversial.

Cointelegraph says: “The announcement came in a White House memorandum for the heads of various federal agencies, the Financial Crimes Enforcement Network (FinCEN) included.” As it remarks, the wallet proposal wasn’t specifically mentioned, but it comes under the general edict.

Mnuchin’s seldf-hosted wallet proposal, which alarmed the crypto industry, if passed, “would require that banks and money service businesses submit reports, keep records, and verify the identity of customers who make transactions to and from private cryptocurrency wallets.”

This goes against the basic philosophy of decentralization, and as Jack Dorsey said, “counterparty name and address collection should not be required for cryptocurrency just as it’s not required for cash today.”

Other critics of the proposal also pointed out that anyone using smart contracts, as one example, couldn’t comply with the proposed regulation, because “smart contracts do not contain name or address information.”

Now we must wait and see what Janet Yellen, the new Treasury Secretary will do. She is not known for being a massive fan of crypto, but some industry insiders see her in a positive light. Compound Finance General Council Jake Chervinsky is optimistic, saying: “We fought hard & earned the right to take a breath & reset. Janet Yellen isn’t Steve Mnuchin. I’m optimistic.” He believes that unlike Mnuchin, Yellen will be more open to learning about crypto and listening to its experts when it comes to making decisions about new regulations. Furthermore, as everyone has been pointing out for weeks now, Biden appointed Gary Gensler to head up the Securities and Exchange commission, and he appears to be much more sympathetic to the idea of decentralization than those who went before him.

It’s early days, but it would seem that we are entering a period of compromise, rational thinking and cool heads, and this may just be what the US crypto industry needs to progress.