Will China beat the US to the first Central Bank Digital Currency? How soon might we see the first digital dollar? And what’s the role played by dollar backed stablecoins playing in the current financial system? How are policy makers and regulators in the US shaping the crypto story? Kristin Smith, Executive Director at the Blockchain Association answers all these questions & more in conversation with Forkast’s Angie Lau.
Angie Lau: The market for cryptocurrencies and digital assets is worth trillions of dollars today, and it's the promise of decentralization and self-custody of one's assets that's led to its explosive growth. But it is exactly because of these features that some call it the wild, wild west.
And how governments, regulators, policymakers are thinking about it will be critical to the next phase of growth. Question is, do they get it?
Welcome to the World on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It's what we cover right here on Forkast.News. I'm Editor-in-Chief Angie Lau.
Welcome, everyone. Well, today we are in conversation with the person who is leading the conversation when it comes to blockchain advocacy and education.
Kristin Smith, executive director at the Blockchain Association, one of the most prolific lobby and industry groups that we have in the industry today. And we really appreciate you joining us, Kristen.
Kristin Smith: It's great to be here, Angie.
Angie Lau: The crypto industry is really focusing on Washington. We have President Biden's crypto executive order released in March urging the government to research and develop a dollar based CBDC. We've been reporting, as you know, Kristin, we've been talking about it here at Forkast with you. China's already in the final stages of its CBDC pilot. Question is, can the US catch up? How soon could we see the first iteration of a digital dollar? How? How far along is the United States?
Kristin Smith: Well, the United States is going to beat China not by trying to out China, China with their central bank focused digital currency, but instead it's what we're already doing. We're seeing the proliferation of dollar backed stablecoins. So these are a digital wrappers that goes around the dollar. There's a real true dollar hidden away in a bank account, kept safe, and it's allowing people to take the advantages of crypto networks and digital assets with the speed, the near-instant settlement, the ability to do macro payments and micropayments, all of the features that we would want in a central bank digital currency already exist today due to private sector innovation, working hand in hand with regulators in order to, in order to find the right environment for these dollar backed stablecoin.
So I think we're actually winning. And I think today we have a pretty prolific marketplace where Stablecoins are the main source for getting in and out of crypto positions for crypto trading. But now we're starting to see these also be used for payments. And I think in the next 6 to 12 months there's going to be a massive shift in the way that we share money with our friends, in the way that we do payments in business.
Angie Lau: You know, you've been on the ground there in D.C. It really felt like this was off the table for a very long time. That was the language coming out of a lot of policy makers, including the Federal Reserve as well. How much did China's efforts in advance CBDC pilot actually hasten or speed up these conversations? What was the impetus or the catalyst from? No, we're just checking things out to it becoming an executive order.
Kristin Smith: Yeah. Well, I think listen, the executive order is interesting because it touches on a lot of different topics related to digital assets. And there are some where there are concerns like illicit finance that they want to make sure the right protections are in place to prevent that kind of activity. But then there are questions posed about how can we use this to make our system more inclusive? How do we get more? The government is really looking at the whole ecosystem to decide if one is needed, if so, what it would look like, what are the design choices. And even in Secretary Yellen's speech in April, she did not conclude that a CBDC was the right choice, that the government is definitely in the investigative phase
I think China was a little bit of a wake up call to the US as they were starting to move so quickly. I think when then Facebook announced the then Libra project back in 2019, that also really caught the attention of US government officials. We're at a phase now where there's a lot of smaller, individual, thoughtful companies that are building to provide these solutions. They're being built upon these publicly owned, decentralized networks. And I think the discussion we're having is one of how can we responsibly innovate in this space to allow this innovation to thrive while protecting consumers? And that's a real narrative shift, particularly from where we were in the last administration.
Angie Lau: Yeah. And certainly there was a sense, you know, we saw a lot of lawsuits filed against projects and there was a lot of sense that policy was being written by enforcement and there wasn't an opportunity to actually be at least even a sandbox at the SEC. Do you think that that's going to change with this executive order and the environment?
Kristin Smith: You have to feel a little bit sorry for all of these federal regulators, right? You have something so new that comes along like crypto networks, and they have a responsibility to enforce the laws that their agencies are tasked with, with enforcing.
And it's not always clear cut as to how this works. And so the SEC has tried to create a lot of policy through enforcement actions. From the industry perspective, that is not ideal. We would much rather see the rules of the road laid out clearly and a path, a pathway forward for figuring out how to do that.
I think the good news is that we're in a place right now where crypto policy has caught the attention of Congress, their members on both sides of the aisle and both the House and the Senate that have really become captivated with the potential of this space. And they want to be a part of the legislative solution. If you back up a year or more ago, Congress was, with the exception of a small number of champions, they didn't want to be bothered with this. They were like, this is too complicated. That has shifted, I think, with the, you know, development of these payment tokens, these stablecoins I think with the proliferation of non-fungible tokens or NFTs that we've seen this past year, they're realizing that this is not just the foundation for a new financial services system, but also the foundation for a new and better Internet.
And they want to figure out how to do it. They're excited by the innovation. And so I think what we're going to see is probably what we really need. We are going to engage through this executive order process and through working with Congress to get a new law passed that will clarify these gray areas that the agencies have had to work within. I think it's going to be a long process. I think it's going to take many years. But right now, because of the executive order that President Biden issued, there is a thoughtful process that focuses on key public policy objectives. There's no prejudging of what the outcome should be or how the regulation should work. It's really like, let's figure out the risks and find the regulation to address the risks in a way that doesn't unfairly advantage a new technology, but also is tailored for the risks that that technology provides.
Angie Lau: Yeah. And it's a ripple effect across the industry. And I'm really relieved to hear that there is a bipartisanship recognition that technology needs to be a concerted effort rather than a political one by political, you know what I mean by that? But obviously.
Kristin Smith: Yeah. I think maybe the only issue out there today where there's any consensus that that they actually want to work across the aisle with one another. It's a really special place to be.
Angie Lau: Maybe this is what will unite the country and the world. But look, I mean, big, big, little facetious, but hopeful and idealistic. Look, you talked about a lot of the policy makers who are starting to understand what is it from your point of view, from the industry point of view, that they must get right. They can't get this part wrong. What do they need to understand?
Kristin Smith: Well, they first need to understand that they're not just dealing with a replacement for the dollar. Right. That this space, as I mentioned before, is incredibly vast and it's going to bring an element of ownership to the Internet. It's going to allow people to take control of their finances. I think the biggest thing that they need to figure out is if there is an overreaction and the regulation is too onerous, this technology is going to be built and it just won't be built in the US. It will be built overseas, it will be built in Latin America, in Asia, in Europe. But it means that we need to actually evaluate and figure out what are the risks within the new technology, because you don't want to treat something differently. But when you're dealing with something different, you need to evaluate the risks and not assume that they're going to be the same as they were in a traditional world.
So, you know, I think that we're going to get to a good spot, but there is a tremendous amount of education that needs to get done. And it's, I think, incumbent upon the industry to be a resource and to help bridge that education gap so we can have more informed policy discussions.
Angie Lau: Yeah. I mean, to your point, last year's 1 trillion infrastructure bill was an example of that. It would have required network validators to provide customers details. Crypto community really mobilized against the bill, asking for an amendment for those who are new to the crypto space and listening right now and trying to figure things out. How would that have made the industry really, you know, really slow down to a standstill almost?
Kristin Smith: Yeah. No, this is a key moment, I think in crypto policy history last summer when the Senate was considering this infrastructure bill. And what was frustrating about it is there was a provision that was tucked in at the very last minute that was vetted with no one, no third party stakeholders, no crypto industry stakeholders.
And it really was based in a misunderstanding for how these networks worked. And it would have if you look at the broadest possible interpretation of this language, you can argue that if you're a Bitcoin miner that's facilitating a transaction or if you're a staking node validator that facilitates a transaction, or if you're a software developer and you're writing code for a decentralized finance application, you could arguably be considered a broker under under the language in in that bill. And, you know, the problem is those types of people don't have customers. They don't have customer information because what this bill was doing is requiring brokers of digital assets to report the name, the address, the Social Security number, the transaction information to the government.
These entities, these people don't have that information, nor do we want them to have that information. Right. These are you know, this is the equivalent of having, you know, the armed guard who's moving cash from one bank to the other, file a report with the IRS as to whose money he was moving around. Right. These are operators of the network. And so I think that what the outcome was, even though we actually never got the language change, we were able to get interpretations that the intent of Congress was much narrower than a very reasonable interpretation of that language is.
And so I think as we move forward with implementation, we'll be in a good spot. And because if not, all of these people who are working on these networks here in the United States would just have to cease operating because it would be absolutely impossible for them to comply. But I think the bigger moment was, as you mentioned, the crypto ecosystem, the community. It wasn't just the industry, it was users, it was developers, it was creators, apps they activated. And it all was done in the most amazing way. It was all really over Twitter and other sort of these community chat rooms and forums. And there were over 41,000 phone calls that went into the Senate in the course of five days supporting the amendment that would have fixed this language. And this wasn't because there was, some expensive grassroots consultants that had been working on a strategy for years now.
This all happened organically within the matter of hours. And we had celebrities tweeting about it. We had the industry tweeting about it. We had members of Congress. And it was the first time that I've ever experienced in my career where a policy issue really played out over Twitter. And it was really cool because if you recall, the world was not completely open back last summer. And so it was a really great way for people to still be a part of the process, even though they physically couldn't get on a plane and fly to Washington to have those conversations in person.
Angie Lau: Kristin, speaking of last month's executive order, it marks the US Government's first all hands on deck approach to regulating the crypto space. And now let's take a look at what we are seeing in Europe. Is there any sort of referral reference, concerted effort, collaborative effort between continents?
Kristin Smith: Smith: Well, at the Blockchain Association where I work, we have a pretty good network of similar organizations overseas that are trying to influence their local governments there. And a lot of the member companies of our trade association do have operations in Europe. And so there's a lot of concern about what's going on over there with their weaker regulation. There's concern that this is going to harm self-hosted wallets and have these sort of what they call know-your-customer, or KYC requirements, that again apply to entities that shouldn't be having that type of information.
And I think the challenge that we're having is that legislation really does seem to be on a fast track through the parliament. And the problem is, unlike in the United States, where there are sort of established organizations such as the Blockchain Association, but other organizations as well that have been engaging with government, the efforts in Europe are very targeted. They are not fully developed teams. It's maybe somebody who's doing it part-time, or it's maybe somebody who's hired as a consultant, like there isn't an actual organization. But there's definitely a real scramble right now to try to slow down some of those policies. So from the US perspective, we're sort of like, oh, well maybe that will drive more people over here. But that's obviously not what we want. What we want is to see sort of uniform regulation around the globe that supports this because it really is a global a global industry.
I would say, though, that I think a lot of the world has been waiting to see what happens here in the United States. And I think that if the US starts to move forward with a better framework for how to regulate this space that we will see countries around the world follow. So we're the government in the US is a little bit slow to the table. But I think, you know, now that President Biden's executive order is out and Janet Yellen has, you know, laid out the Treasury Department's position on digital assets, there really is a framework that's getting the ball moving. And again, it's going to take not months, but probably years for all of this to play out.
We're advising our friends in Europe. But, you know, it's really sort of incumbent upon the people there to, you know, express their voice and make sure that, you know, their local elected officials are accountable and and educated so that we can get better policy.
Angie Lau: You know, for the longest time, even among the G20, it was really Japan who was flying the flag for crypto regulations even in the early days, talking about whether or not it was even a thing, you know, and that nations should be talking about it. What about the role of Asia when it comes to crypto regulation in reference to how it should be laid out? We're seeing a lot of interesting things happening out of South Korea. Obviously, China and India are struggling and considering and a lot of policies coming down from the top. Your thoughts there on how Asia can be a reference?
Kristin Smith: Yeah. I mean, Asia is really interesting because you have some of the best examples of crypto regulation and some of the worst. I mean, there are a lot of companies, particularly out of Singapore. But also South Korea is very, very much a fan of crypto assets and trying to enable them to exist in a regulated way.
I think that on the flip side, as you mentioned, China, you know, because they have this digital currency of their own, they don't want to see the use of Bitcoin or other digital assets. There's been a big crackdown on Bitcoin mining in China, which, you know, worked to the advantage of the US because a lot of that mining capability came over to the US. But it's really, you know, they're really taking some drastic measures to force people into using their digital currency where they have total insight into, you know, every transaction of all of their citizens. I think. And I think that's a model we want to see here in the US. But India has had some struggles. I think that there's some progress there. You know, I think Coinbase just opened up an office there recently and operations and so I think there's some progress in India. But but yeah, Asia is very interesting because it's in some ways, you know, leaps and bounds ahead of where the US is, but in other ways, depending on the jurisdiction very far behind.
Angie Lau: You know, and you speak of so many headwinds politically and and policy wise, when you when you are talking to your constituents, which is basically everybody in the blockchain industry, what is how do you how does the industry navigate through through all of these really changing tides and changing tastes of of various jurisdictions? How, in an ideal world, what do you think needs to happen for innovation to truly grow alongside reference to policymakers?
Kristin Smith: Yeah. Well, listen, I think the people who are working, most of the people who are working in the cryptocurrency space are incredibly passionate about what they're doing.
They feel very strongly that the work they're doing is going to create better systems for businesses and consumers and individuals and that they're enabling freedom. I mean, this is an incredibly, incredibly powerful, powerful tool. I think that the biggest challenge we have is the industry is to better communicate what we're doing. I think there's a lot of communication within the industry and it wasn't really until about a year ago that industry decided that they needed to show up and engage with policymakers in a real and meaningful way. But now that I think that more time and resources are being devoted to this effort, I think even groups like the Blockchain Association, our team has grown, our budget has grown, our ability to influence has grown because industry has decided that this is a priority.
Angie Lau: Look, I think we're just two sides of the same coin, Kristin. At the end of the day, more people need to understand what's happening in this space.
You know, obviously the world is just watching with such a close eye and with such a heavy heart what's happening in Ukraine and the crisis that's happening there. What we at Forkast and clearly everybody else in the blockchain community saw was the role of crypto for the very first time. This was the first crisis, the first war, if you will, in the age of cryptocurrency. When you take a look at what's happening in Ukraine, how is crypto playing a part and how is also that role evolving and how we might be thinking about the use of crypto in future?
Kristin Smith: It's been a wonderful tool for quickly fundraising and getting resources directly into the hands that need them. And so some of this has been done through DAOs, others are direct contributions to local organizations on the ground. We even saw the government of Ukraine put out wallet addresses to receive funds. I mean, it's really amazing how people, individuals, even somebody sitting inside of Russia who doesn't like what's happening within their own country can fund directly the Ukrainian government. So it was really interesting to see how quickly those efforts were set up.
The other interesting thing is we've seen stories where people who've had no choice but to flee their homes have been able to retain their value, their savings, because they can take them with them on self-hosted wallets. You know, we saw lines at banks where people were trying to get their resources out. If you have those assets in crypto and your self custodying, you know, you can escape and still have something to rebuild your life somewhere else. And so that I think is also an incredibly powerful use. There has been some discussion about, oh no, with all of these sanctions that the US is imposing on Russia, will they be able to skirt the sanctions by using cryptocurrencies? And the answer to that is actually no.
There would have to be for the amount of money that Russia needs in order to do what they need to do. They wouldn't be able to pay and move those money, that money around blockchains without going detected. Because remember, these public blockchains are public. Anybody can go in and see the transactions. And so even a sophisticated money launderer would not be able to move the volume of funds that Russia needs for this for this war. And I think the good news is that the US Treasury Department and the White House understand this and recognize this. Crypto companies in the US have to comply with the same banking sanctions that traditional financial institutions have to comply with. So those entities, the US crypto companies, are all on board in blocking certain people from being able to utilize their networks. But, but, but this kind of broader concern about crypto being used for sanctions evasion, we're just not seeing it.
Angie Lau: And really a lot of people think that with activity in Stablecoins surging over 75% on the day of the invasion, that this could be the coming of age. And when you have stablecoins predominantly backed by the US dollar and it goes back to where we started this conversation that the race is still kind of middling, that it's being defined as the race goes on. And so where is the finish line?
Kristin Smith: Yeah. No, I like that. We don't know where the finish line is, but we're definitely in a race, that's for sure. No, I think that stablecoins have a tremendous potential. And when it comes to Russia, we want to make sure that the innocent people who are inside of Russia, you know, are able to live their lives and own their own assets and maybe even help their friends in Ukraine. And so we want to go after the billionaires. We want to go after Putin. But there are a lot of people that are trying to live their lives and raise their families and be with their friends. And we don't want to stifle the type of sort of human activity that can maybe help be part of the solution to this horrible problem that we're facing over there right now.
Angie Lau: And this might be completely idealistic, but if this is a system that can allow all of us to live together and interact and transact with each other in a way that is meaningful for the collective. Minus borders, minus jurisdictions, minus all of those old world lines in the sand that were drawn. This could potentially be that technology, which is exciting for a lot of people, for sure. Kristen, it's and thank you for helping us realize some of that potential today and helping us understand it. Really appreciate you joining us on the show today.
Kristin Smith: Yeah. Thanks. And thanks for. Thanks for having me.
Angie Lau: And thank you audience for joining us on this latest episode of Word on the Block. I'm Angie Lau. Forkask’s Editor-in-Chief. Until the next time.