Offchain: East v West

Offchain: East v West

As regulators around the world scramble to work crypto out, some familiar divides are re-emerging.

CoinJar UK customers this week received an email informing them that something called the Travel Rule now applied to all crypto transactions in the UK. In a nutshell, this means that all crypto transactions must be accompanied by information about both the sender and receiver, including name, address and wallet provider. Just like Satoshi dreamed.

Meanwhile, in the US, the SEC’s regulation-by-enforcement campaign keeps being thrown out by the courts, while a bipartisan bill wants to regulate DeFi like a bank, which feels a bit like trying to regulate the wind with a butterfly net.

And in Australia, our only viable piece of crypto legislation is essentially DOA, after a Senate committee suggested that rather than putting it to a vote the government should continue to research the topic instead. And by research, I presume they mean “wait until America tells us what to do”.

After SBF and his merry band of polycules committed the greatest financial fraud of the post-Madoff era, we all acknowledged that a bit of regulation was probably a Good Thing. But this mish-mash of narrow-band solutions, hand-washing and won’t-somebody-think-of-the-children policy making suggests that government regulators still have no idea what to do with the techno-fiscal maelstrom of the crypto industry.

Well, they’ve had a decade. Surely they could have worked something out by now?


When enemies become friends

What makes these gestures all the more intriguing is that it’s coming at the same time as China, crypto’s traditional nemesis, has started bringing crypto in from the cold.

Hong Kong recently announced their intention to become a crypto hub, a place where web3 companies can enjoy regulatory certainty and people can trade crypto legitimately. This is occurring with the implicit support of China itself, who presumably see it as an opportunity for mainland companies to release the crypto pressure valve in a relatively contained ecosystem.

But even in China itself, the courts – who almost certainly aren’t making decisions without the backing of the Party – have started recognising crypto as legal property, while a tech government committee recently released a white paper on the potential of the web3 economy.

It’s a long way from full-throated support and slinging degen shitcoin futures, but it suggests the calculus among the CCP is beginning to shift. They can, in other words, see the potential of the crypto economy and they want to harness it, even if that’s just to de-dollarise the world.

You are what you regulate

These disparities are, in many ways, emblems of the cultures and economies that produced them. Western nations, governed by a laissez-faire, “let money be money” attitude, have a tendency to act when the cat is not only out of the bag, it’s sending postcards back from Hawaii.

As a result, regulation becomes a piecemeal, often futile exercise in band-aidery, rife with unenforceable provisions and dysfunctional policy making. Take, for instance, the Travel Rule, which can be circumvented by using a private wallet, a technique an 8-year-old could work out and which I’m sure most money launderers would be well aware of.

China, on the other hand, is perfectly willing to drown the cat while it’s still in the bag, and then bring a new, better behaved cat home to the family. Absent any great threat to one party rule, China can do things that Western governments could only dream of; in this case, banning crypto, pretty much in full, and then letting back in the pieces they feel they can control.

Suffice it to say, neither approach is ideal. But it’s fascinating to see these fault lines between East and West, in many ways the most consistent storyline in crypto, reasserting themselves once again. When China banned crypto, the West saw opportunity. Two years on and the tide may be shifting in the other direction. Will this be China’s bull market?

It’s a potent reminder of crypto’s profoundly transnational reach – how cryptocurrency is both everywhere and nowhere – and the way that it knots around and through the cultures, economies and societies it touches. Because whoever’s in the ascendancy right now and whoever’s cracking down and making the rules, one thing’s for certain: crypto cannot be ignored.

Luke from CoinJar

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