On March 8, President Joe Biden asked federal agencies to coordinate efforts to draft cryptocurrency regulations in a one-of-a-kind executive order. According to a fact sheet accompanying the order, the “whole of government” effort to regulate the crypto industry is focused on six key priorities: consumer protection, financial stability, illicit uses, industry leadership global financial institution, financial inclusion and responsible innovation. .
While the executive order sounds like a potential race to solidify the US at the forefront of digital assets, it didn’t define any specific agency positions. This leaves the industry with regulation, no doubt, in the near future, but with few firm guidelines as to what the regulation will look like.
Cryptocurrency, also known as crypto, is a digital currency designed to function as a medium of exchange. At its core, cryptocurrency is a decentralized digital currency intended for use on the internet. Cryptography is used to secure and verify transactions and control unit expansion. Many cryptocurrencies are built on a distributed ledger enforced by a network of computers.
This network is commonly referred to as blockchain technology. Cryptocurrencies are distinguished from FIAT, or currency backed by government decree, because a central authority does not issue the asset. This decentralization makes crypto potentially impervious to government intervention and manipulation.
Digital assets, in their most basic form, were intended to democratize finance in the same way that the Internet democratized content, opportunity, and the dissemination of knowledge. Before the Internet, only a few designated authors could create content. Today anyone is able to create and share their thoughts with easy global access. Digital assets hope to enable democratized access in the same way. Fractionation and transferability allow equal access to investors of all sizes in the space. An investment in a market is no longer relegated to institutional or wealthy investors.
Currently, cryptocurrencies can be used to buy and sell goods and services. Their potential for storage and value growth has made them particularly intriguing to investors and traditional businesses. But beyond simply exchanging commodities, cryptography also enables the secure storage of transactions on the blockchain, making larger purchases like real estate particularly attractive to those who want to trade securely without the need for paper documentation. traditional. A smart contract is a digital agreement that is stored and executed on all nodes in the network. The creator of the smart contract will define the agreement, and it will be recorded on the blockchain, where it will remain forever in immutable code. A smart contract is automatically executed and no central authority is needed to run the software so that it works seamlessly.
As cryptocurrency rapidly gains adoption globally, businesses are wisely beginning to explore integrating crypto into their accepted digital payments. E-commerce and cryptocurrency naturally work well together, given that they both appeal to digital-centric users. Accepting cryptocurrency is a natural progression given the continued transition to internet-based businesses. Cryptography also offers a faster and more convenient way to pay for goods and services while protecting against data and information privacy concerns. Cryptocurrency provides specific options not available with FIAT currencies, such as the ability to enable accurate, real-time revenue sharing while improving transparency for easier back-office reconciliation.
With the increasing adoption of digital assets due to international turmoil in the financial sector, exposure to cryptocurrency is becoming less and less if but when. Like all financial structures, fraud and scams are present with digital assets. The best way to protect against crypto-related theft is to exercise caution and conduct the thorough due diligence and research that an investor would typically do when investing in a project. Continuing education in the space is wise and indispensable, as our traditional centralized financial sector must make room for new technologies and innovation to better serve clients and customers.
Allison Raley is a member of Mitchell, Williams, Selig, Gates & Woodyard LLC at Rogers. She advises corporate, blockchain, decentralized and centralized clients on international and national regulatory compliance. She is a Certified Anti-Money Laundering Specialist (CAMS), Certified Global Sanctions Specialist (CGSS), and Certified Cryptocurrency Investigator (CCI). The opinions expressed are those of the author.