On Tech, Business, Society.

Tag: regulation Page 1 of 6

What’s Wrong In The Blockchain Industry

No, I’m not going to write about what the naysayers are already saying about the blockchain. We have heard these objections ad nauseam: tokens are made out of thin air, it doesn’t do anything we can’t do already, no use cases, every token is a scam or Ponzi scheme, cryptocurrencies are not real currencies, crypto can’t become too big to fail, etc. 

Rather, I’m writing about a constructive critique in terms of weaknesses that need to be addressed if we want to see the blockchain/crypto industry prosper to greater heights. That’s why the title specifically says “IN” the blockchain industry, not “WITH” the blockchain industry.

Here are the issues that need to be fixed, in my opinion.

1/ Become Regulation Friendly 

I’m not saying the industry needs to blindly surrender to established de-facto regulation. The regulatory field is complex and nuanced. Whatever the end-game is, crypto needs to be compliant with it, and then prosper within those rules. Regulation shouldn’t be suffocating innovation. So, that doesn’t mean that the industry needs to stop lobbying for, and educating legislators about the right way to evolve some parts of the current rules or create new ones. Ideally, we need to see updated regulation that is more friendly to crypto. 

2/ User Experience Matters 

No technology has gained mainstream experience without espousing absolute simplicity and ease of use. Today, many products and services (including wallets) in the blockchain space have horrible user interfaces and user experiences. As if they were not designed with the mainstream consumer in mind. This needs to change. I am longing to see crypto products that generate a “Wow” effect from a user experience point of view. 

3/ Standards, Standards, Standards

There are two types of standards: de facto or industry ones. De facto standards just happen because of adoption success. Industry standards are developed by competing industry players that agree on common ground principles that are neutral to their competitiveness. Sadly, I do not see enough de facto standards emerging in the blockchain space (especially across chains), and I see no cross-industry initiatives at the technical level. That brings us to the next topic. 

4/ Inter-Industry Cooperation

Related to the point above on standards, the industry needs to collaborate more on important infrastructure or middleware related technologies because these are the enabling blocks for creating the ultimate applications that users will be attracted to. As it stands, there is too much competition, and not enough co-operation. In the non-technical realm, yes, there are some “blockchain associations” counting several industry members, but I firmly believe we can do better and more in this area in terms of effectiveness and results.

5/ No-Code Solutions

The reason we now have 5 billion Internet users is because it’s so easy to get in and start using it via the many on-ramps such the ones provided by social media, email applications or e-commerce. Behind the scenes, what also made this possible is the wide availability of “no-code solutions” that allow anyone via a few clicks and some common sense to create something worth attracting users to. For e.g., in the area of publishing, WordPress or Tumblr (previously) lowered the bar for creating a personal website by enabling anyone to do that without the help of a developer. Shopify allows anyone to start selling their products online, just like that, with a few clicks. We will need similar types of no-code solutions that allow anyone to create new experiences that depend on the blockchain.

6/ Better Industry Voices

Last year, the mainstream media was too heavily focused on painting Sam Bankman-Fried as the perfect poster boy of crypto. Today, we know where that story led, and we are still overhung by that unfortunate head fake from the previously (arguably) most popular crypto cheerleader. Industries need cheerleaders to advance, just as for example Elon Musk was that special charismatic voice for the Electric Vehicles industry. There are lots of good and smart people in crypto, but we need more of their voices to be heard, and we need the mainstream media platforms to find them, respect them and amplify their voices while they give less airtime to the promoters, speculators and wannabes.

These are all strategic issues that will take time to get fixed. But we need to work on them.

We Need to Let Crypto Come Out of The Closet

The crypto market just had a rough week in mid-May, like a hurricane or tornado hit it. 

As the overall market cap of cryptocurrencies shed billions of dollars in value, the doomsayers came out and repeated the same absurdities: this asset class has no backing, Bitcoin is useless, cryptocurrencies are going to zero. 

Amidst this backdrop, there is cause to wonder if the cryptocurrency revolution is progressing well or facing existential challenges? 

There is no denying that challenges exist. But a significant macro challenge has been lurking since the beginning:

the crypto industry and its participants are not getting enough acceptance or respect from the mainstream.

The sad reality is that many aspiring crypto businesses and participants are living in a closet, and it is time for crypto to come out of that closet. It’s time for the industry to be recognized and widely accepted as being credible, long-lasting, strong and fundamentally sound.

We are already in a vicious circle. Bad actors or spectacular failures continue to appear and give reason for the mainstream to disallow crypto to normally co-exist with the rest of the world. For these reasons, the establishment keeps pushing crypto to the edges of business and society, and forcing it to find refuge in jurisdictions with inherent lax regulation. 

A wild west of crypto is not the modus operandi we want, nor is it the desired final state for this industry. But the mainstream needs to start by being more welcoming. The best blockchain entrepreneurs prefer to operate inside more clement jurisdictions where certainty is not questionable.

Today, many businesses operating in the crypto industry are being discriminated against in more ways than one, a situation that is not stemming from their own making. 

Here are some data points:

  • Blockchain startups can’t easily open a bank account at established financial institutions

  • Startups have to choose legal constructs rooted in offshore jurisdictions, a situation that makes it even more difficult to be accepted by many Western financial institutions

  • Fiat transfers from exchanges to banks are scrutinized, often resulting in sudden account closures

  • The SEC has yet to approve a spot Bitcoin ETF, as they keep rejecting or placing on hold one application after another

  • Many exchanges are not US-based and rely on external jurisdictions that are more relaxed or offer little oversight on safety or risk controls 

  • US/Canadian consumers are often shut down from participating in token offerings

The opposite of this situation is exactly what needs to happen. 

Embracing or Repelling Crypto? 

I don’t understand why the US government keeps beating down crypto when the industry is at its doorstep begging for acceptance.

Bitcoin and the underlying blockchain technology are not a purely American invention, but it might as well have been. Most of the original core developers that worked with Satoshi Nakamoto were in the US. Nick Szabo, credited to be the original proposer of smart contracts is American. Ethereum took roots in Canada. Some of the most successful blockchain businesses are US-based. The largest and most successful VC funds supporting the blockchain are also in the US.

So why doesn’t the US government embrace an industry that can easily produce the next FAANG (Facebook, Amazon, Apple, Netflix, Google) set of companies, a fate that would hugely benefit the US economy at a scope of billions of dollars?

Instead, by pushing exchanges and blockchain projects to operate in less stringent regulatory environments, bad habits are being formed and excesses committed without adverse repercussions. 

Blockchain businesses should feel safe about being in the US. I regularly talk to smart US founders that wish they wouldn’t have to select offshore locations to concoct their legal structures, token offerings, or governance jurisdictions. 

Let’s Talk About Regulators

When it comes to regulators, there is a difference between protecting investors and preventing them from benefiting from available opportunities. When regulators get fixated on the bad side of crypto, they start to mold their frame of mind around protection at all costs, and that results in an unbalanced outcome and a self-fulfilling prophecy of negativity. 

Regulatory knee jerk reactions are not going to solve anything. This is a time when regulators need to be super smart and display a deep understanding, so they don’t throw the baby with the bath water. 

Actually, regulators need to let everybody in, to get closer to them, so they can regulate them better. Strictly practicing enforcement without clarifying the rules will only continue to frustrate industry participants and push many to jurisdictions that allow them to perpetuate bad behavior. The situation is not as simple as pounding the table while insisting the “tokens” debate is strictly about security vs. commodity vs. utility.

What if crypto were accepted and not discriminated against and became part of the normal business environment? Good things would happen. 

If you want to protect consumers, don’t scare off companies, people and projects. Embrace them and learn from them so you can regulate the bad parts but let innovation thrive in the good parts. 

Now that the last hurricane has passed by, the good parts that remain are what counts. 

The proverbial – what doesn’t kill you makes you stronger – applies here. 

There is no doubt the crypto industry will continue building with a stronger base than before. 

Cryptocurrency Needs to Go Mainstream

I wrote a blog post on CoinDesk a couple of days ago, Defining Cryptocurrency Is the Best Way to Kill it.

It’s a plea and a case for allowing cryptocurrency to become as pervasive as today’s money in all of its applications variety, plus much more. It’s also about the realization that the industry has tied itself in knots with various classifications and definitions trying to please regulators. Let’s stop playing that game, so we can let cryptocurrency become accepted as an alternative digital currency that is here to stay for the long term.

Cryptocurrency inherits all of money’s properties (as a unit and a store of value that is transferable, fungible, verifiable, divisible and scarce), in addition to adding unique functions that money doesn’t have:

  • its immutability is digital (the physical is gone)
  • it can be fungible or non-fungible (non-fungible is an innovation)
  • its policy governance doesn’t need to be centralized
  • it has very powerful programmable capabilities with imbedded logic (if-this-then-that)
  • its transferability is peer-to-peer (without central intermediaries)

If cryptocurrency is so much better than money, why are we erecting so many barriers for its adoption?

Please go and read this article, Defining Cryptocurrency Is the Best Way to Kill it.


The Benefits of Higher Crypto Market Prices

Scrap Prices Going Up Will Make You Happy If You Have a ...

Last September 2019, I tweeted a prematurely positive position on the overall cryptocurrency sector, with an end-of-year target of $750 Billion for the overall sector.


That tweet was loved and hated by an equal number of people, judging by the 362 comments received, despite an official 1K Likes, but what stuck with me is the fact that I was hammered for being very wrong in this prediction. However, to keep the record straight, it was more of a wish than a prediction.

That wish is driven by my strong beliefs that higher market capitalization as a whole is a good thing for this sector, for several reasons:

Frees-up new investment capital

New pools of capital (from gains) become suddenly available to projects and startups, some of which had been gasping for air in the past two years, stuck in the doldrums of cryptowinter. This also makes capital a bit less discriminating at funding new projects. In early stages, the quality signals are more difficult to find, even to the most discerning and experienced early-stage professional investors. That is why these investors typically choose a portfolio approach to increase their chances that at least ⅓ of that portfolio bears enough fruit to generate sufficient returns to offset the potential write-offs and losses coming from the rest of portofolio. As a side note, individual investors are also well served to follow a similar strategy. It is not easy to precisely pick one or two investments by putting all your eggs in one basket. Unless you are very lucky, you need to spread your bets across several pockets of opportunities, even if it means lowering individual amounts on a per investment basis. 

Good for the psychology of markets

The psychology of markets is a known factor and reason for rising or falling stock prices in the public markets, as it pertains to the general mood of the majority of investors. Cryptocurrency markets are not different from that perspective. With a positive mood, more investors (or speculators) believe that prices will move higher in the future, and they enter the trading dynamics, which drives prices higher.

More public awareness

As prices start to go up in a significant manner, media coverage about this development starts to increase not just within the crypto media sector (which is a niche media segment), but it starts to spill over to the general and mainstream media which is a much larger piece of the attention pie. 

The total market cap of cryptocurrencies is now flirting with the $300 Billion mark, and that’s another important psychological threshold. Once it crosses that barrier, it will be on its way to pass the most recent high of $371 Billion that was reached at the end of June. At $300 Billion+, that sector will begin to experience more broad media coverage, as it did previously when it reached the over 500 Billion mark. More general awareness about cryptocurrency and the blockchain are a good thing.

More regulatory seriousness

If you follow the logical path of the rolling ball effects, you land squarely in the lap of regulators who tend to be reactionists to market developments. As the cryptocurrency market size swells, regulators (especially in the US) will start to re-prioritize their actions, and many of them will start to move off their sitting ducks positions.

Today, during a Congressional hearing, Federal Reserve Chairman Jerome Powell acknowledged that Libra was an important development to the growth of digital currency. I sensed a streak of progressiveness, as Chairman Powell said “we support responsible innovation…” and followed by saying he believes that “the process for addressing these concerns should be a patient, careful one, and not a sprint to implementation.” Of course, Chairman Powell was taking a jab at the US Congress who seemed hyperactive on wanting to apply quick regulatory handcuffs to Libra. Today, Libra doesn’t figure yet in the total cryptocurrency market cap figures, but they are an important proxy for the development of regulation in this market, especially that the US Congress appears to be obsessed with regulating them one way or the other.

Here is a clip of the Q&A segment that covered cryptocurrency and Libra:

Overall, I’m encouraged that many positive and promising applications of cryptocurrency are entering a second phase of their evolution by building strongly on iterative learnings from the past 2-3 years. 

One promising sector that is jolting out of the gate, is stablecoins. Whether government-backed or not, they bring the novelty of programmability to money, a feature that didn’t exist before because we never had truly native digital money. As Fred Wilson pointed out on his blog today, USDC is one such example, citing the Venmo analogy. But let’s take that concept even further. 

Imagine that you can use cryptocurrency-based stablecoins to make large transfers much easier, and at the speed and convenience of blockchain transfers. Imagine a smart contract built into a financing round that automatically transfers respective funds in stablecoins when all signatures are in place. And if you take that vision one step further, imagine that we then have widespread stablecoin-to-stablecoin transfers with exchange rates, e.g. from USDC to Libra, or USDC to QCAD (a recently launched Canadian Dollar stablecoin), or any other combination.

I’d love to see the above scenarios play out in practice because all the pieces are already in place today.

There will not be one killer app for crypto or the blockchain, but there will be several of them. While there are undiscovered ones, many are advancing today in unisson, albeit with small market shares and usage numbers, which make them less visible to the naked eye, but with the passage of time, they will become gradually more noticeable.

Follow the rolling ball –> Higher prices, leading to mainstream headlines, leading to more projects being funded, leading to more positive psychology, leading to more regulatory certainty, and culminating in the solidification of a large global market of users, believers, and a solid infrastructure of services and capabilities to make it all happen at a significant scale.


There Is a Need to Modernize SEC Securities Laws For The Blockchain

As part of the CoinDesk Year End Series, I wrote an article that puts a reality check on where we are pertaining to blockchain regulation in the United States.

While We Wait for Laws, We Need Better Interpretations of Existing Regulation

Here are the key points of the article:

  • Since 1993, only 7 acts came into fruition affecting the SEC, so the chances are low for getting a new act in 2020, especially given it’s an election year.
  • The SEC has not created any Rulemaking pertaining to the blockchain in 2019, whereas it published 36 Rulemaking updates to other aspects of the securities law. Why? 
  • Hester Peirce has already communicated a number of ideas and recommendations. Why aren’t they being followed? 
  • 4 specific actions the SEC could have undertaken if they really wanted to modernize their existing regulation pertaining to the blockchain. 

The article concludes that nothing new will happen unless a leadership change occurs within the SEC. 

You can read the full article on CoinDesk

Happy New Year 2020! Let it be a good one.


Page 1 of 6

Powered by WordPress & Theme by Anders Norén