Senators Treat Crypto Like a Digital New Jersey Turnpike


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Two U.S. senators, Republican Cynthia Lummis of Wyoming and Democrat Kirsten Gillibrand of New York, presented a 69-page bill last week to regulate digital assets. While the draft is unlikely to result in any legislation until 2023 or later and is likely to change, its key premise represents a bipartisan consensus in Washington. In the words of senators, “it’s important to create railings,” they added, “while allowing innovation to flourish.”

But you only build railings after choosing the path. The only “framework for innovation” is to change lanes inside the railings or choose a speed between the minimum and maximum published. No direction, path or destination innovation is allowed.

In 2008, Crypto jumped the existing railings and innovation flourished without waiting for federal permission. Before rebuilding the barriers, wise legislators should ask themselves what was the problem with the old ones so that they do not repeat the same mistakes.

The New Jersey Turnpike offers a useful warning tale. Government planners have teamed up with private interests to build a high-speed highway east of New Jersey, connecting the metropolitan areas of the East Coast. Only 15% of traffic was planned to connect points within New Jersey: departures were too far away and tolls too high for local transportation. The road ran through neighborhoods, cities, and farms, sweeping away what developers called “charming” properties (minorities, poor, rural). Owners were compensated for the area occupied, but not for the destruction of value when their homes were cut off from jobs and purchases or farmers were forced to travel miles of equipment to move from one half of their farm to another. Small towns where residents had lived, worked, and grown locally were destroyed to be rebuilt as dormitory communities for travelers to New York and Philadelphia. Highway railings have turned the “Garden State” – which still exists in western New Jersey – into communal housing, industrial concentrations, and transportation hubs.

Like highway planners who ignore neighbors, Lummis and Gillibrand don’t mention the cryptographic economy itself. The bill only applies to people who move traditional financial assets in or out of cryptography, such as truck drivers going from New York to Philadelphia without thinking about people who are off the railings.

Similarly, Lummis and Gillibrand convene an advisory committee of public and private sector experts. Although the proposed bill does not describe private sector voters, I suspect it means people managing cryptocurrencies and investment funds, non-innovators or users of cryptocurrencies.

Much of the proposed bill seeks to divide cryptocurrency into commodities (regulated by the Commodity Futures Trading Commission), securities (regulated by the Stock and Securities Commission), and currencies (regulated by the Treasury). This is good for building the Washington empire, but the proposed regime attacks a fundamental idea of ​​many cryptographic projects: that decentralized autonomous organizations can blur the distinctions between investors, customers, and employees. Like building a toll road that divides a county into residential, commercial, and agricultural areas, with railings restricting movement between them, compliance with rigid categories for tokens destroys the character of many cryptographic projects.

The proposed legislation requires that all stable currencies be 100% backed by traditional financial assets. This not only does not allow room for innovation, but it sends cryptography centuries ago into the premodern financial era before fractional reserve banking. This puts another key idea of ​​cryptography outside the barriers: that a better alternative to a single government-issued currency can be achieved by allowing competition between different types of exchange mechanisms and value deposits.

An important goal of many cryptographic innovators is to allow pseudonymous peer-to-peer transactions without centralized supervision or control. Lummis and Gillibrand have put this firmly outside their barriers with instructions to the Treasury to enforce sanctions – and presumably all kinds of regulation applied by restricting transactions – in the crypto economy.

A minor provision that is nevertheless revealing is a call to study the electricity consumption of working test tokens. I consider this a distorted and exaggerated problem, but regardless of opinion, it makes no sense to conserve electricity by regulating cryptography. To reduce the use of electricity, pay tribute to electricity and let individuals decide how to cut back. Let environmentalists with no interest in cryptography choose which use of electricity is justified and which makes no environmental or economic sense. This provision is an announcement to all political interest groups that it is the favor hunting season that is funded by restrictions on cryptographic innovation.

The Lummis and Gillibrand project is a manifesto for an alliance of Washington Empire builders and cryptocurrencies to divide the cryptocurrency economy into niches that are profitable for foreigners, regardless of the desires and interests of people who build or use services. cryptographic. On all 69 pages, I can’t find any sign that the authors use or value cryptography for anything other than expanding regulatory feuds or making profits in traditional currency, just as New Jersey Turnpike planners ignored life. of small towns in the Garden State.

More from other writers on Bloomberg Opinion:

• Coinbase made some Pets.com-level mistakes: Mark Gongloff

• The value of Crypto comes from the volatility of Crypto: Tyler Cowen

• The next collapse of the stable currency could be much worse: Editorial

This column does not necessarily reflect the views of the editorial board or Bloomberg LP and their owners.

Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of “The Poker Face of Wall Street.” You may have a stake in the areas you write about.

More stories like this are available at bloomberg.com/opinion



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