Ethereum Co-founder Vitalik Buterin weighed the regulatory debate surrounding cryptocurrencies on Sunday, providing his thoughts on what industry rules should, and shouldn’t, include.
Regulation could make cryptocurrencies more attractive to traditional financial institutions and legitimize cryptocurrencies as an asset class. But new rules and policies could also alter the industry’s DNA, particularly when it comes to principles like censorship resistance and decentralization.
Buterin said he believes preserving the latter should be the priority.
“I don’t think we should enthusiastically pursue large institutional capital in full swing,” he said. “Regulation that leaves the crypto space free to act internally but makes it harder for crypto projects to reach the mainstream is far less negative than regulation that intrudes on how cryptocurrencies work internally.”
Basically, especially right now, regulation that leaves crypto space free to act internally but makes it harder for crypto projects to reach the mainstream is far less bad than regulation that intrudes on how cryptocurrencies work internally.
Buterin’s Twitter thread comes ten days after a controversial blog post by Sam Bankman-Fried, founder and CEO of cryptocurrency exchange FTX, in which outlined its normative vision for industry.
Bankman-Fried subsequently capitulated to Crypto Twitter afterwards receive rejections on potential rules related to DeFi, such as requiring standalone programs to comply with US sanctions and registering crypto websites as broker-dealers. He reviewed the post and said he will continue to do so.
Regulatory uncertainty is seen as an obstacle to institutional investing in cryptocurrencies, according to a new Fidelity Investments survey. The study on digital assets of institutional investors found that out of over 1,000 institutional investors, 16% said lack of regulatory clarity was a barrier to investing in digital assets.
On the other hand, more than 8 in 10 (81%) institutional investors surveyed believe that digital assets play a role in investment portfolios. Additionally, 43% of institutional investors said they are interested in a Bitcoin ETF.
Segments of the cryptocurrency industry have pursued institutional capital for nearly a decade, ever since the Winklevoss twins initially applied for a trust similar to a Bitcoin ETF in 2013. While futures-based products are traded on the Chicago Mercantile Exchange, the Securities and Exchange Commission has dragged his feet on the approval of an ETF on Bitcoin spot.
Not a bad thing, according to Buterin.
“I’m actually quite happy that many ETFs are lagging behind,” he said. “The ecosystem needs time to mature before it gets even more attention.”
Another perhaps controversial interpretation of mine is that I don’t think we should enthusiastically pursue large institutional capital at full speed. I’m actually quite happy that many ETFs are lagging behind. The ecosystem needs time to mature before it gets even more attention.
Buterin has divided the political goals he envisions for the cryptocurrency industry into two categories: to provide better protection for consumers navigating the nascent sector and to stem the illicit flow of cryptocurrency, which he believes is not exclusive to the DeFi space.
To address the latter, Buterin is skeptical of the need for DeFi protocol front ends to adhere to Know Your Customer (KYC) standards. While these standards are used by financial institutions to prevent money laundering, fraud and corruption, “hackers write custom code to interact with contracts,” bypassing the usual KYC barriers.
“It would annoy users but do nothing against hackers,” he said.
The idea “KYC on defi frontends” doesn’t seem very meaningful to me: it would annoy users but it does nothing against hackers. Hackers already write custom code to interact with contracts. Exchanges are clearly a much more sensible place to do KYC, and this is already happening.
There are DeFi regulations that Buterin said might be more useful, such as limits on the amount of leverage a user can trade with, transparency in code audits, and the requirement for “knowledge-based testing” as opposed to “plutocratic minimum rules for equity. “
Buterin said he is also in favor of regulating crafting in a way that allows for further use zero-knowledge proofsa cryptographic principle that preserves privacy.
The answer to the answer
SBF responded to Buterin’s points, stating that he thinks they are “reasonable enough” and expressed his willingness to take the Ethereum co-founder to Washington DC to give nuanced input on regulation.
“I think policy makers / regulators would find it quite interesting to listen @VitalikButerin, “said SBF.” He is Very different from the average person in Washington, but in a rather refreshing way, calmly and thoughtfully saying what he thinks.
actually I would love to do that – I think policy makers / regulators would find it quite interesting to hear about it @Vitalik Buterin
is * very * different from the average person in DC, but in a somewhat refreshing way – calmly and thoughtfully saying what he thinks