The Influence of Crypto Regulation on Open Blockchains: Opportunities and Challenges

foreign [Music] we have three speakers Florian glass trained as a lawyer on software developer with many years of experience working full-time in the blockchain space Florian is aware of the key issues in the intersection of crypto assets and regulations Floridian glass has confound and lead the German blockchain associations has president for its first four years he advised political decision makers at the German and European level of blockchain Regulation Marina is the co-founder of aoec we change to propel UAE Revelation to become defi friendly since 20 2017 Marina has been advising crypto projects on governance and legal matters with focus on decentralization sorry please if you wanna any question to the speakers uh you can talk outside of the room sorry okay Define it she previously led the advisory team of blockchain accelerator co-founded co-found.it and co-found a crow investment platform and Simon Paul wrote educating on crypto and public blockchain since 20 050. um well welcome um please give it up to the speakers [Applause] so thank you everyone for joining our talk my name is Marina and together with Simone and Florian we're going to talk about the crypto regulation and its uh influence on the open blockchains so what we see today it's an increased activity of crypto regulation all around the world okay sorry we'll just wait for two minutes because the counter then starts so what I will talk today is basically on the um increased regulatory activities from all over the world we are coming from Europe and we're trying to talk about the trends that happen all around the world but basically what we're expert is in the European law and why this is interesting is because last week we had some new laws being finalized in Europe and they are I would say the beginning of what's happening globally so um as sir of course so Florence Simone and I started the European Crypt initiative which is a non-profit based in Brussels exactly two years ago when the first crypto assets uh draft for marketing grouped assets regulation has been issued so basically this has been leaked and we have seen it online and we said we should do something about it so immediately in the next week we basically started talking to The Regulators about this topic um okay sorry there's no presentation but I'm going to go uh on without it so basically what we are doing is talking to the regulators and trying to explain what is happening in the crypto area and trying to educate them on what we're doing and what blockchain is so what happens in generally in the last two years specifically is that there has been an increased regulatory activity from Regulators all over the world and what is very important is that this activity is coordinated so it is happening in Europe it's happening in the US but what is also very very important is that is happening on the international level on International organizations so basically organizations like farev ayosco and some other organizations are very actively looking into crypto and also very actively looking into D5 specifically in the next I would say one and two or two years we will see reports from all of those organizations being published and this will be a big influence not only in the world where we're coming from so the European Union but basically it is going to be a big influence also in Colombia in South America Asia and all over the world what it is important is that many times those Regulators they are very well intended and we are talking to a lot of them they are interested to learn more but the problem is that they don't have that much time so of course we have like an hour one hour talk with them and we need to be very precise on what we are discussing in this really short amount of time and the problem is that many times because they don't have this I would say knowledge or at least opportunity to learn more the outcome of this regulation is even more negative that they wanted to at the beginning and so I think that educating Regulators talking to them and even educating about crypto in general is very very important so besides what's happening uh I would say on the international level we have seen also a lot of bad news happening in the last year and this is not helping The Regulators are seeing and mostly reading news that are negative and this is then reflected in regulation we have seen in the markets in crypto assets draft edit a new article specifically talking and specifically being I would say a consequence of what happened with Terra Luna and we also can see this in the stablecoin bill that is written in the SEC so in a way it's also important of what is the image that the whole crypto Community projects in the world but also in the specifically for The Regulators so why this time right now is so important for all of us to talk about regulation is basically because we know that crypto exists for more than a decade but at the beginning it was really seen more as a toy for geeks I would say and it was not seen as something that would be problematic for the financial system which is right now so in from 2020 or for the last I would say a couple of years there is an increased concern from the regulator of what crypto is possible we have seen a lot of scams we have seen D5 being developed but also the increased usage of nfts and this is what is also concerning from The Regulators especially when it comes to consumer protection and so what we need to do in the future is think about really new options and New Alternatives and how to have an even more increased dialogue with The Regulators because the all the development that happened in the last years will most probably not be just copy pasted in the future because of specific limitations that we will we will see coming from the regulatory world so I'll just come up to date so this is what I was talking about an increased activity from The Regulators in the last few years as I said last week we have seen markets in crypto assets regulation and the transfer of funds regulation being finalized in Europe and what does this mean for this community what does this mean for the people that are building applications and they're building protocols for the people that are also using these applications and protocols and I will only give you a few examples that are I would say quite important and again those are European examples but it's in a way only the start because the markets in crypto assets regulation is the first worldwide overarching regulation for crypto so if you are a crypto asset service providers for example is an exchange or a wallet you will need to be incorporated in Europe and you will need to get a license from a European National competent Authority what is important is that you're also going to be need to be compliant with anti-money laundering rules if you are not you will not be able to issue or to offer services to the European Union which means that the European user is only going to have the opportunity to use services that are regulated and compliant are their marketing crypto assets regulation also an interesting part is the crypto asset issuance so if an entity wants to issue crypto Assets in Europe and offer it to the crypto us to the European users you will need to be incorporated again in the European Union but at the same time also write a white paper very similarly to like a very short very similar to an IPO and in this white paper there are a lot of rules around marketing but also there needs to be a report on the energy consumption of this specific crypto asset and the blockchain that it uses this is going to have a very important effect on the listing of different crypto assets so again the crypto assets that are not going to be compliant they will not be able to list it on exchanges they're offering their services in the European Union and let me come to the most critical part of the markets in crypto assets regulation so this regulation was basically written because of DM and so the aim is to regulate stable coins there is a big part in the regulation that regulates stable coins and this is I would say the most critical part there is a cap of 200 million transactions per day in the European Union that needs to be observed by the issue of the stablecoin but also by the regulator so there are obligations like reporting obligations that the crypto issue stablecoin issue needs to send quarterly to the regulator which means that they need to send all the information of the number of transactions the users Etc and if those limitations are not met the the basically it's not possible to operate in Europe anymore the license that this stablecoin issues would have they will lose it at that moment and there's another part the marketing computer assets regulation even talks about the stopping of issuance of stable coins from those stable coin issuers this is I would say quite critical and we're going to see how it will work in practice but the markets in crypto assets regulation is public so you can read it online and then form your own opinions the last part from my side is the non-fungible tokens door those are excluded from the regulation but only the ones that are unique and usually linked to an art and also each shoot in a very small collections so that's all for me I give the mic to Florian thank you thank you Marina oopsie Springer of bad news Okay um whether I click here okay perfect yeah so let's talk about the positive sides of this regulation because it's not just badge I mean that was pretty bad I agree but um not everything is that awful so the scope of Mika of this Market in crypto air regulation is limited in a sense to centralized uh applications of crypto technology meaning that decentralized Finance nfts are officially not in that scope yet so we expect in a sense a Mika 2 regulation to sort of follow up in I don't know a few years and that's something we'll address later self-custodial wallets survived a pretty pretty hard harsh attack from the European Parliament we were afraid for a few weeks like most of you probably that they may be banned so good news Europe still accepts uh South custodial wallets going forward proof of work also survived so there was a real chance that proof of work assets would be flat out illegal in Europe that also was this year and I think they got away with a slap on the wrist so proof of work assets have been labeled as unsustainable but there are no consequences yet tied to it but the foundation has been laid for a potential ban later on or very negative tax implications for holding them those kinds of things the result is in a sense sort of a white elephant so it's not as bad because it's sort of scoped to only regulate centralized applications not the decentralized ones however it's really framing everything in the terms of the status quo and in terms of financial assets so Europe does not yet really recognize on the legislative level that crypto is more than just money um and you know what we just celebrated as wins are really just temporary exclusions for The Regulators um the long-term impacts that we see of the regulation in Europe that has been passed now and that is you know following um is definitely um going to be looking at that it's going to be looking at defined nfts much more it's already on the radar of regulators data they're writing reports on this in the European commission and the Parliament and a big big question there is what is actually decentralization is this a real thing can we actually observe this in the real world can we pinpoint Regulators to assist them and say look at that this is true decentralization this is what we mean when we say decentralization is not the same as centralized services the energy crisis in Europe of course is real everybody knows that and so we expect you know more sort of restrictions around proof of work um it's probably not going to be a sustainable business or investment uh for Europeans um stable coins continue to be the most controversial and sort of most regulated topic going forward we expect the U.S for example to draft a stable coin bill in the next 12 months and Europe will definitely uh you know continue to be very strict on regulating them funny enough nobody talks about Facebook anymore and their stable coin because they shelf the project now it's just a Terra Luna as being the scapegoat um we've all seen what happened with tornado cash so privacy preserving protocols will be very very um highly regulated going forward so um this is uh definitely still something where we advise everybody to be super super um careful yeah thoughts on the future um right now the legitimacy of the crypto space the perceived legitimacy of the crypto space in the court of public opinion is pretty low it's maybe at its lowest point ever um the incumbents that we challenge with this technology are super active in spreading thought about crypto you can read their reports central banks of course Regulators on the international level like the financial action task force commercial Banks and National Regulators they are all sort of aligned on keeping this technology from reaching Mass market adoption in its current decentralized form and so you know there are two sort of problems we have to address as a community one is the fact that regulation is certain but the other one is that we do not have the support of the public right now we're literally a small Elite that's sort of growing but not fast enough and most people are not inside our bubble and they sort of follow what they read in the news and that's mostly bad so we have to somehow come up with a way as a community to surface the goodness and sort of label the bad stuff as what it is bad so scam sex money laundering paid chills and influences uninformed Investments by the public in things like you know stable coins that are going to explode next week we should sort of not do that and it's I think a collective failure of the whole space that we haven't come up with any effective means um to to do this and um I want to give it to Simon to to take this further thank you thank you thank you so yeah uh what do we do now and the future looks uh uncertain and the global perception of crypto is not ideal and maybe what we thought the crypto would would make as an impact to the world as not yet fully materialized so we are at a very critical moment because as you as we said all The Regulators are looking at us and the results that we are pushing forward and maybe not as wonderful as we want them to be so what we think now is that we have to be a photo proposal like as an industry as a community we have to somehow and we'll have a plan for that um create some form of proposal some form of initiatives that basically go from Trend The Regulators front-front institutions and explain what we can do what we are doing today in a very positive manner and with actual practical mitigation proposals for all the risks and all the issues that we see today and to do that one of the critical thing is to create some form of consensus inside of the community inside of the industry of what is acceptable and what we can push forward because we definitely don't want to give IDs to The Regulators that would be contrary to the values that we want to defend right so there will be difficult choices to make and there's a lot of potential solutions that we can think about both technological uh or in terms of initiative that the community can make but are they acceptable is this something that we want to push forward and this is an open question that we will discuss later so for as an example um the European commission launched an initiatives to study whether it would be meaningful to basically embed the civilians of the blockchain or real-time surveillance of public blockchain in in some form of of a system that would be used by The Regulators to basically be alerted and and act on potential issues happening on the public blockchains do we want that do we do we do we support this kind of initiatives do we regulate interfaces of course this is a very big subject and to another cache sanctions really make in China and this is still an open question do we regulate and if so how do we want to circumvent that by creating Shadow interfaces uh is it a long-term solution open question again do we want to Leverage The these in some form like creating identities that would be recognized by institutions in some way do we leverage on the the initiatives of the institutions on the IDS because there are some in Europe specifically um do we basically segment regulated and Degen space it's a potential solution and of course the whole sanction in general is it's it's a very big subject and still uh with a lot of different implications where there's a lot of also of open questions you've all seen the discussions recently about do we need to basically sanction address at the protocol level it's a very uh dangerous question to us but also a very practical one and the the answer has to be has to be given at some point so these are basically solutions that could be uh moved forward do we want that and basically to decide this we need to decide what are the non-negotiable values of of the the community of the of the industry today it could be a lot of things like uh credible neutrality of the the public networks is that is that the the most important thing that we want to protect is this like the composability like the openness so we want to basically fight every kind of you know kyc things that could limit this composibility uh is this the fight on self-custodian wallets that we have to to prioritize is it privacy preserving systems and it can be all at once it can be all those things but we need to to be sure that where we cross the line and what Solutions we can put forward or not um and for this I think uh it's very critical that we have a very clear Way Forward and there's a few things that can be leveraged to move forward with the with the institutions in general the first thing is that everything is not Bleak and there's a lot of people um inside of those institutions that know about crypto and that are interested by uh what's going on they are open to suggestions and those people we have identified a lot of them at the EU level but there are some of them at every single um in every single institution worldwide those people we need to help them and we need to feed them with suggestions we need to feed them with actual proposals and so this is the main uh leverage we have um then do we have all the the good Obviously good use cases of crypto that we need to to push forward and to move forward quickly um that we've talked a lot about with D5 about DSi public good fundings non-financial use cases of crypto all those things uh together they bring forward a very positive way of doing crypto and this is something we need to work on and of course there's the constant Innovation and Improvement in the space that is already happening and that that we need to leverage so being sure that there's the constant information transmission of information to the regulators and to the institutions um and maybe to do that I would like to end uh with a call for the for Community intervention so basically it's a call to you um in general and all the participants here uh you you came here so you you're basically interested by regulation and and what's happening in in the future you can help I mean all of you can help because we need to there's so many paths open today and there's of course the path of Regulation is bad uh per se and we want to be basically crypto to go dark and and just don't care about the regulation this is a way forward we want to fully Embrace regulation and basically cancel decentralization meaning you know abandon all the all the values that that we are trying to build today we can create new standards we can self-regulate um like creating entities that that bring rules forward that that are followed you know spontaneously by by the protocols when they want to be when they want to be compliant we can you know push to make gasps maybe the crypto assets always provider the gate keepers of crypto this is for now more or less the approach of the regulator but do we want to push in this direction um do we want to create a did standard for D5 altogether do you want to create that list for name and shames cameras hackers I don't know there's a lot of things that we can do we have IDs we have proposals of course at euci but we would like you to contribute and to help and so please join the conversation we have a telegram we have a Twitter account we have a website and we organize a big event in Lisbon from November 1 to number four feel free if you are in Europe at the time or on or nearby feel free to come and and walk with us on this on these Solutions thank you very much [Applause] I think we have time for a few questions so thank you so much I have one question so you've mentioned that nft is now currently exploded from micro regulation but um if we take a look and we just you know browse what European console says we see that European Council is aiming to do some assessment within the next 18 months so uh the revocation is coming uh but it's you know we don't know in which form yet therefore my question was um what in your opinion do you think in what shape or form the regulation on nft would be coming and perhaps if you could just share some insights what would be the best way in your opinion to shape that regulation on nfcs thank you thank you so for concretely on the nfts at the moment there is a loose definition of what an nft is in a Marketing Group does its regulation and then every time there is going to be a new issuance the national competent Authority will need to look into and do any analysis if this is really again unique enough and if it's issued in a small collection so it will not be regulated and it is excluded from from Mika what is coming next and we were just talking to one of the MPS from the European Parliament that is going to lead this effort into regulating nfts and we're also writing some uh positions on this topic but it is it has started already and there are a lot of thoughts and activities especially in the parliament at the beginning to just start with a general proposal an opinion on this and then I think in the next few years we'll see more activities as everywhere the European Union Works in Cycles in mandates the European commission that usually proposed the regulation will finalize their own mandate very soon in a year so we'll we'll wait for the new commission to have more ideas how to move forward do you think that the European Union is going to be at any time at Dao and I'm here in Florida Ah that's a beautiful question um I I do think that the idea of a Dao is uniquely aligned with European values so I for example I think Europe is the continent of cooperatives um I don't know if there is continent with more and I think cooperatives but also associations are sort of the old world equivalents of what dials are shaping up to become sort of inclusive Cooperative ways to work together um yeah so is the European Union itself uh fit to become a dow I don't think yet they are clinging to their hierarchical Design Systems design but I think citizens of Europe are ready for daos and so I do hope that they are going to front run uh the regulator on this one and then potentially you know just I don't know swallow the EU and it I have no idea but yeah I would I would support uh the EU becoming a doll for sure let's go okay there's another question over there oh many questions uh maybe a microphone to these gentlemen over there here sorry okay hi my name is Charlie um from a regulatory perspective um if a cryptocurrency exchange goes bankrupt what's the best approach you mean a centralized or a decentralized exchange both okay I don't know for a decentralized one uh for a centralized one there are no regulations in Mika that um you know the um the money custody by users needs to be protected from insolvency right so this is really important um so that so I think Mika as a regulation protects consume interest quite well vis-a-vis centralized business models and crypto asset service providers so in this case Mika really does help right the problem really is where Mika touches upon more decentralized applications and where the rules don't fit the use case anymore so um yeah I think solvency of a centralized Exchange in Europe is regulated now with the Mika regulation I'm not an expert on insolvency law so this is where I will stop giving advice I don't know if Simon has anything more to say on that uh no but I see that the time is is out so I think for the next questions feel free to reach out to us and and we'll be happy to help you thank you everybody thank you very much [Applause]