Do People Not Understand What Regulating Crypto Will Mean?
By: Justin Honse
Tags: Economy, Bitcoin, Anonymity, Regulation, Cryptocurrency

I’m a bit agitated as I review the news about the Blockchain Innovation Act, and the Digital Taxonomy Act (both part of the update to the Consumer Safety Technolgy Act) moving forward. There are a multitude of crypto and especially XRP fanboys that seem to think this somehow equates with XRP becoming the official US currency, or else will push it’s price through the stratosphere. I can’t speculate on price — whatever happens to prices will likely affect many digital currencies, not just XRP. And not necessarily in a positive way. I do not think these bills will have a positive impact on crypto beyond possibly wider consumer adoption.

To clarify — I do not in any way work for any crypto exchange or financial institution, nor do I have any channel or other internet presence that advises and/or tries to excite people about the prospects of cryptocurrency. I simply do not have a horse in this race. I’m not bearish or bullish on anything — I’m just a consumer that enjoys the ability to use crpto from time to time myself.

As for XRP becoming the official US currency, I can tell you that will be very unlikely to happen. As for a world reserve currency? I think in the near future we will see multiple countries’ currencies, and possibly some digital assets, being kept as reserves around the world, pending how the US economy holds up.

The US has been exploring the creation of its own digital currency (Digital Dollar) for several years now. You can find white papers by entities such as the IMF or the BIS going back to at least 2015 exploring the idea of transitioning to a digital currency away from cash. In fact, all of the separate pieces needed are coming into place for the US to transition to a Digital Dollar, as well as the the governing authorities to be able to safely manager all it entails in cross-border payments, and more.

From the many documents I’ve read, I see almost no reason to believe that this “Digital Dollar” will be based on Blockchain — though it will likely be using DLT (Distributed Ledger Technology). These ledgers will be kept at the US Central Bank locations, and posibly various member banks (i.e., the big commercial banks). Your actual “Digital Dollar Wallet” account will be held directly at the Federal Reserve.

I know this a lot to take in — I will discuss this all in MUCH more detail in my next few articles, and I hope they will be useful in understanding it all.

The Digital Dollar will likely not be a cryptocurrency, just a digital asset representing dollars. Also it will be centrally managed by Big Daddy Fed — our fatherly central bank.

The plan thus far is to unveil a new CBDC, (which is a Central Bank Digital Currency), to be used at first, in tandem with the US dollar, and with plans to ultimately fully transition to the digital currency by placing rules, taxes, etc on physical paper money, or offering discounts or other incentives to use the new Digital Dollar.

These latest bills, in my opinion, are simply preemptively ensuring that the government will have enough control over Bitcoin and other cryptos to make them less attractive when the US Digital Dollar CBDC arrives. They do not want unncesary competition upon entering the digital currency space, or want people fleeing to, or temporarily utilizing Bitcoin or other crypto in place of the Digital Dollar, once it is implemented.

Regulation means that they will absolutely take away the anonymity of Bitcoin.

Although it is very possible that small, person to person (P2P) transactions in crytpo may not require full identification — but virtually everything else likely will. You can’t have “fraud protection” if you don’t know the parties involved — I’d hope that would be obvious, but apparently not.

If you know anything about banking and financial regulations, you already know that there are KYC (Know Your Customer), AML (Anti-Money Laundering), and CTF (Combatting Terrorism Finance) laws which must be abided by for money to travel over any payment rail that’s part of the main US financial network.

Any official recognition of cryptocurrencies such as Bitcoin, or other digital assets, will be no different. The government has already been working on proof of concept for Smart Contracts to travel over the recently upgraded “SWIFT gpi” network successfully. So sure, you might be happy that crypto is regulated so it can become more mainstream— but you are losing almost all of the key benefits that crypto provides - Decentralization and anonymity — two of its core reasons for being invented in the first place.

This will effectively result in a centralized layer to integrate with the current financial system, and all upstream and downstream user data will end up being required for transmission over the network.

There are multiple private consortiums and organizations that have already been partnering with the OCC and other governmental entities to create what is likely to become the basis for our Digital Dollar. Hyperledger and the Digital Dollar Project are among them, and it is far more likely in my opinion that one of these would become the basis for the next official US currency (under the name of the government of the United States of course), rather than XRP, Bitcoin, or even USD Coin.

Speaking of the OCC, this excerpt from a letter regarding bank’s being able to hold crypto in custody for customers should be somewhat concerning:

“Therefore, a bank “holding” digital currencies on behalf of a customer is actually taking possession of the cryptographic access keys to that unit of cryptocurrency”

I hate to be the bearer of bad news, I really do, because I love cryto and the whole concept behind decentralization — but I don’t see this as any reason to get overly excited about digital currency — we are going to have that soon enough in the US as our official currency anyway, and these Acts are simply going to lay the foundation to regulate Bitcoin away from the benefits that it now enjoys, under the guise of “fraud protection”. That is what these bills are about.

I’m currently in the process of writing several articles related to the Digital Dollar and its many implications — I just felt this was important to publish right now. The other articles I’m writing are not simply going to be venting, they are well researched. Some links are below, with coming soon — stay tuned.