On March 8, President Joe Biden directed federal agencies to coordinate their efforts at drafting cryptocurrency regulations in a first-of-its-kind executive order. According to a fact sheet accompanying the order, the “whole-of-government” effort to regulate the crypto industry focuses on six key priorities: consumer protection, financial stability, illicit uses, leadership in the global financial sector, financial inclusion and responsible innovation.
While the executive order sounds like a potential race to solidify the United States at the forefront of digital assets, it outlined no specific agency positions. That leaves the industry with regulation, no doubt, in the near future but with little firm guidance regarding the regulation’s look.
Cryptocurrency, also known as crypto, is a digital currency designed to work as a medium of exchange. At its core, cryptocurrency is decentralized digital money intended for use over 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 distinguishable 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, at their most fundamental, were intended to democratize finance the way the internet democratized content, opportunity and the spread of knowledge. Before the internet, only a few designated authors could create content. Today, anyone is capable of creating and sharing their thoughts with easy global access. Digital assets hope to allow democratized access similarly. Fractionalization and transferability enable equal access to investors of all sizes into the space. No longer is an investment in a market relegated to institutional or wealthy investors.
Currently, cryptocurrencies can be used to buy and sell goods and services. Their potential to store and grow value has made them particularly intriguing to investors and traditional businesses alike. But beyond simply exchanging products, crypto also allows for secured transaction storage on the blockchain, making larger purchases like real estate particularly appealing to those interested in making a secured exchange without the need for traditional paper documentation. A smart contract is a digital agreement that is stored and executed across all nodes in the network. The smart contract creator will define the agreement, and it will be saved onto the blockchain, where it will remain forever in an unchangeable code. A smart contract is automatically executed, and there is no central authority necessary to run the software to function seamlessly.
As cryptocurrency gains rapid global adoption, businesses are wisely beginning to explore the integration of crypto in their accepted digitally-based payments. E-commerce and cryptocurrency naturally work well together, given that they both appeal to digitally focused users. Accepting cryptocurrency is a natural progression given the continued transition to internet-based business. Crypto also allows a faster and more convenient way to pay for goods and services while protecting against data and information privacy concerns. Cryptocurrency furnishes specific options unavailable with FIAT currencies, such as the ability to enable real-time and accurate revenue sharing while enhancing transparency to facilitate back-office reconciliation.
With escalated adoption of digital assets due to international unrest in the financial sector, exposure to cryptocurrency is becoming less of if but when. Like all financial structures, fraud and scams are present with digital assets. The best way to protect from crypto-related theft is by exercising caution and conducting the thorough due diligence and research an investor would typically do when investing in a project. Continued education in the space is wise, and a must as our traditional centralized finance sector must make room for new technology and innovation to best serve customers and clients.
Allison Raley is a member at Mitchell, Williams, Selig, Gates & Woodyard PLLC in Rogers. She counsels corporate, blockchain, decentralized and centralized financial 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.