Richard and Reuben discuss how blockchain regulation differs across layers: protocols like Bitcoin face different rules than custodial exchanges like Coinbase. Jurisdictions like Switzerland and Singapore attract crypto firms seeking clearer rules, while the U.S. BitLicense has pushed some companies overseas. Clear regulation, they argue, signals good faith to investors rather than stifling innovation.
Chapters
Yeah, I mean, ultimately you've got to think about what these laws were designed to protect people from, and what were the conditions of, you know, in the environment that they're being protected from. I was talking earlier about how we crowdsource due diligence. I mean, something we do on the internet, you couldn't do that 20, 30, 50 years ago.
Yeah.
Or the organizations that are popping up that are doing due diligence. And, you know, I don't know, it's an interesting chicken and egg situation where You know, I'll also be interested to see what the next ETF, the Ethereum one, I believe, whether that's going to pass through the gates or not. And it's super important, I think, for the crypto community itself, but also for the innovation sector and the investment sector in the US to start addressing this sooner rather than later while the rest of the world is sort of running with it.
Hey, Richard, maybe it's helpful to just sort of frame this discussion In terms of the actual need for regulation, so when we talk about a company like Coinbase that holds people's money and that deals with the banking system and deals with fiat currency, a company like Coinbase needs regulation because it wouldn't be able to operate with banks and hold people's money without it. So that's a separate question as to regulation, as it is for a protocol token or an ICO or a project like Bancor. Because there's not necessarily the same need in terms of the operations of the enterprise.
And that would be the same for any kind of, you know, any kind of blockchain project working with Hyperledger around a healthcare product or building a private blockchain. They're not interested in ICOs. They're not even going in that direction. This is kind of a unique niche, actually. It's kind of erupted in the last 2 years. So there are many other cases in terms of regulatory issues, especially the financial side. You know, how is blockchain going to integrate, you know, what is NASDAQ doing in Estonia, what kind of architecture are they building with GuardTime to deal with the regulatory issues in the stock market, for instance, in their regulatory environment. But I think those are different cases. And a lot of what, you know, what's happening, what I'm finding is this certain level of lack of knowledge in the US, even about ICOs, or even about these issues, they're not being talked about as much as they are, I think, in other parts of the world. China certainly is— there's 2 or 3 million people investing in ICOs regularly now in China. I mean, those are small numbers for China. But the fact is, the government's just ignoring them. They're ignoring that whole situation, they're letting it ride, they want to see— I know I talked to somebody in Shanghai about what's going on in China, and she says, when they're ignoring it, it's good. You know, and it certainly seems like they're going to let this move further. But in terms of the other regulatory stuff, I think it's mostly focused around finance, I would say, wouldn't you? Or healthcare records. You've got privacy issues too.
Yeah, so with any application, there's going to be the specific laws about that application, whether it's medical, whether it's finance, whether it's, you know, media or whatever. There's going to be specific laws about the applications. And then they're separate to the laws around the protocol, right? So a protocol like Ethereum or Bitcoin doesn't need any legal structure to make it work, right? It just works because that's the way that the blockchain is designed. So having said that, the applications of— the different applications on top of those protocols, some of those need a legal structure to work. For example, identity, real estate, you know, using the blockchain assets to represent real-world assets, then you need a legal system system of some sort to connect those real-world assets to the blockchain. And that, I think, is the next wave of legal issues we're going to see in the space.
All right. And to follow on to what Reuben said, we're past the point— one, and I can get into the weeds on this stuff if you come see me afterwards, I'm happy to talk about it. But really, there was a period of time where there was Bitcoin and blockchain magical thinking. That's what a friend of mine refers to it as, which is that is to say that you could do things using blockchain, Bitcoin, or DLTs that would otherwise be subject to regulation with these new technologies and not be subject to regulation. That was the thinking. It was incorrect, and we're past that. stage, I would say, I hope. And so really, it's, you know, if you're holding money or raising equity using the blockchain, it doesn't exempt you from the applicable regulatory regime.
Yeah, maybe I'll just add to that, that from the entrepreneur side, obviously, A loophole can be a noose, right? And you're not looking— you're not saying, oh, there's no regulation here, yay, let's do whatever we want. This is actually what's causing teams to go to Switzerland and go to Singapore and try and operate in an area where there is regulation. We don't look at regulation as a bad thing. We look at it as a great thing because it actually tells you what you can and cannot do and how you cannot go to jail by trying to build your startup. And so going and operating in these areas is not a running away. It's actually a running towards. And this is why we'd like to see more regulation and more healthy regulation come out in jurisdictions. Obviously, no entrepreneur wants to go to jail. That's not why we do what we do. And your job is kind of to calibrate risks in these ways. And I think, you know, not being a legal professional, hopefully not being a person in jail, what we're trying to do always is sort of show, you know, Act responsibly. So obviously, if we're issuing a token which turns out to be a scam coin and defrauding investors, then you know those people maybe their place is in jail. And what you want to do when you go to Switzerland and open up a nonprofit, and we spent a lot of time and also money doing this in the best way possible given the way regulation is set up today, is really showing good faith, right? That we're going through the motion, we're doing all the research, we've got healthy legal. Legal counsel, we're looking at all the options, we've evaluated, you know, 30 jurisdictions, we've picked the one that's the most forward-looking at this space, and so you really want to be kind of putting your best foot forward for the time when the regulators start looking at what you're doing, not if they'll look at it.
Yeah, let me add to that. I mean, I think that it's sort of disheartening when people come into your office and they start talking about setting up companies abroad. Because you want, especially coming from Silicon Valley, right? This is the heart of innovation in the world. And you are seeing, I mean, just in this room, right, in all the sessions we've sat, how many people, how many times foreign countries have come up. And so it's sort of disheartening that people have to, A, create a construct of a foundation for a profitable, for-profit company in a sense, and they're doing it abroad. I'm hopeful that, you know, as everybody, I think, on this panel agrees, the guidance is good. You can deal with it. So remember, I mean, with Bitcoin, right, there was no rules, and then suddenly rules came, guidance came down, and at least people understood what they had to operate with. Didn't always like it. You know, the New York BitLicense has not probably worked out the way people thought it would, but at least there's regulation now. Unfortunately, some of that regulation continues, even the new regulation, like The BitLicense has pushed people abroad because a lot of companies have said, I'm not going to spend that kind of money into a startup, and I pivot every 3 months with what my company does, and am I going to have to spend $100,000 in lawyers— legal fees— every time you decide to make a small change?
