As Heraclitus said: “There is nothing permanent except change.”
Every innovation is met with suspicion if not derision. Planes and trains were seen as the work of the Devil, whilst some wanted the car outlawed- ironically the very early vehicles were battery not gasoline powered.
There was marked antipathy to UK commercial TV when launched in the 1955. Some thought it would not last and that all we needed was the BBC. Wind the clock forward and it’s the BBC having to find its niche in a world of multi-providers and new technologies providing novel ways to view programmes and pay for them. Content has changed exponentially courting questions as to what are the boundaries of free speech?
The internet and social media have yet to be tamed and regulated. The UK’s Online Safety Bill 2022 shows the tension between free speech and protecting the vulnerable.
Crypto and its supporting technologies are the latest to be under the gaze. Admittedly crypto has scored some own goals thanks to the gung-ho anti-regulatory mentality of FTX (and fall out consequences like Block Fi). Whilst ‘the fake it until you make it’ maxim now looks like a route map to prison food given the conviction of Elizabeth Holmes, founder of Theranos.
Whilst we can be scathing of crypto let’s not forget it is only about 14 years that established ‘analogue’ banking was under scrutiny and pushed capitalism to the brink. The effects are still being felt economically, socially and legally.
Crypto has the potential to be the fundamental catalyst in changing capitalism, and in the right hands (human and AI) the capacity to further democratise society.
However, to do so it needs several important elements.
The first important aspect is to ensure trust and transparency. Crypto using more acronyms than a tin of alphabet soup only antagonises matters and shrouds matters in mysticism when the sector should be earning trust as well as broad acceptance. Even Tesla’s Elon Musk resisted calling tyres ‘rotating mobility aids.’
Make sure the adults are in the room. And by that I do not mean tropes of yesteryear but like-minded people from all backgrounds, ages and nationalities who are willing to embrace change but not change for changes sake. Also, don’t regard regulation and accountability as a death knell to creativity and innovation.
The courts and lawyers accept that there is risk to everything. What you regulate is ensuring people know what they are letting themselves in for and that there is proper transparency and accountability. We should not protect people from failing but we should protect them from people who make failing inevitable whether because their approach to crypto business is fraudulent or just damn feckless.
Legislators need to understand blockchain and crypto. Also, regulation should be agile and responsive. Also, keep it simple. The more complex and unfathomable the laws the more chances of creating uncertainty and loopholes that undermine the purpose of the legislation. If existing legislation works then just adapt to crypto.
As with climate change and the Internet, crypto is a borderless market yet most legislation is derived from jurisdictions. There is already divergence on definitions of crypto assets, for instance between the proposed EU Markets in Crypto-Assets (MiCA), and the UK’s proposed amendments to the Financial Services and Markets Bill (FSMB).
The FSMB defines a crypto asset as:
“Crypto asset’ means any cryptographically secured digital representation of value or contractual rights that:
- Can be transferred, stored or traded electronically, and
- That uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
Whilst MiCA adopts a more forensic analysis and definitions will cover certain types of NFTs (non-fungible tokens).
Seemingly, the FSMB will not cover NFTs whilst the UK’s Digital, Culture, Media and Sport Committee launching an enquiry how best to regulate NFTs.
The US securities law such as the Securities and Exchange Commission (SEC) may treat certain types of NFT as securities.
NFTs play an increasing role in the creative industries but their application exceeds these valuable sectors.
Ideally, crypto needs international courts and universal standards- but given the NFTs examples above it is not likely to happen any time soon.
Common Law should provide consistency but variation occurs, for instance compare Australia and UK court decisions as to whether crypto assets are a form of property.
Ensure that blockchain and also crypto are green using renewable energy.
The biggest goal for crypto is to re-define the application of business and also give choice as to the type of money or unit of value we use.
We would be aghast if there was only one type of fashion, car, phone or cheese; we have choice and so it should be with money and its utility.
Central governments and banks fear that they will lose control over collecting taxes, monetary policy and so forth; an immutable blockchain should make tax collection easier!
The right utility weighting can ensure crypto money has real value and not something built on quicksand. The current mantra of we value it because we do can only be taken so far.
Currently, the wealth of a country or person is based on fairly crude profit and loss principles.
Smart blockchain technology can trace and account for specified qualities and once verified a value can be attributed, for instance, if a company has an excellent employment record then a value is attributed.
Likewise, if you can show that production does not include use of carbon or a supply chain does not exploit children then a value can be given. As such, profitability is measured in terms of additional identifiable qualities rather than just what is produced or services provided.
Such an approach helps productivity, help stem inflation as each crypto assets would be linked and valued against identifiable parameters not just on market whim.
The legal groundwork exists. For instance, S414 C (7) Companies Act 2006 says companies need to take account of factors such as such as environmental matters, including the impact of the company’s business on the environment. Also, requires consideration of social, community and human rights issues.
Whilst the Directive on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 will apply to EU and non-EU companies generating a net turnover of more than €150m in the EU in the financial year preceding the last financial year. The Directive is likely to be adopted by 2023 and take effect during the next three to five years.
Blockchain will be a significant driver in the application of these laws and influence how companies are perceived and valued.
This does not prevent central governments imposing rules of engagement.
It is easy to look backwards through rose tinted glasses and resist change. As Leo Tolstoy said: 'Everyone thinks of changing the world, but no one thinks of changing himself”
One way we could change ourselves is to embrace blockchain and crypto and, like a child, nurture them so they become inspirational and constructive adults.
Julian Wilkins of Eldwick Law
Consultant Solicitor and Notary Public
Member of the Chartered Institute of Arbitrators
CEDR Accredited Mediator