Startups have been quick to adopt cryptocurrencies, but governments and regulators have — so far — been less enthusiastic.
But new rules from the EU last month promising to “boost benefits and curb threats” in the form of fraud and environmental impact could mean a change in attitude.
In our recent Sifted Talks, we asked our expert panel what the future holds for the crypto. Our panel included:
- Pauline Foessel, founder and director of NFT platform Artpool;
- Keith Grose, head of UK at open banking data network Plaid;
- Szymon Sypniewicz, cofounder and CEO of Ramp Network, which helps companies convert assets into cryptocurrencies.
Here’s what we learned.
1. Rules for a new world
An increasing number of people are getting into cryptocurrency. Grose said the entire market increased in value from $180bn to $2tn in just two years.
He said that regulators now saw the potential crypto could have on financial markets, but that governments wanted rules in place to regulate the market, which take time to draft and enact. He pointed out that open banking was a response to the 2008 financial crisis, yet it took almost 10 years to launch.
Sypniewicz said that he was nervous at the idea of regulators trying to proactively mitigate risk. While they might mean well, their efforts could be misguided and the industry could end up with ineffective and unsuitable rules. He added that predicting the future is a hard task; these new rules could stifle innovation or even clash with existing rules like GDPR.
Regulation has to be reactive, there is an inherent lag which is fine. At the same time we need to eliminate bad actors. For that, I feel we have plenty of tools already. We have customer protection regulations, we have payment regulations” — Szymon Sypniewicz, Ramp Network
2. EU regulation could curb the crypto boom…
New initiatives the EU is considering could also affect the industry. The draft laws include reporting transactions over a certain value and banning "unhosted" wallets, which are held by an individual rather than an exchange or financial institution.
Grose explained that many individuals had set up “cold” wallets, which had not gone through anti-money laundering (AML) and know your customer (KYC) procedures. If an individual wanted to move money from an exchange into these cold wallets, exchanges may have to report the individual and take steps to verify their identity. If they are unable to verify the wallet holder’s identity or the wallet holder wants to remain anonymous, the exchanges may be forced to cut off these wallets.
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He added that there was talk of having to report any crypto transaction over a certain value to regulators, which doesn’t happen with fiat currency.
Sypniewicz said the new rules would also affect wallet developers. They would be unable to send the open source code used to store cryptocurrency as they would be classed as custodians. This comes with a set of legal requirements that Sypniewicz says none of the developers are prepared to meet.
Most people in the crypto ecosystem are looking at this and saying we might be moving a little bit too fast here and not thinking about the most important part — which is money coming into the ecosystem versus money moving around within it. This would certainly be a huge issue for exchanges if it comes to fruition” — Keith Grose, Plaid
3. …but sometimes, more regulation is needed
While some founders welcome a lack of regulation in their industry, Foessel is asking for more.
Artpool is currently based in Lisbon, but will soon move to Switzerland. Foessel said Lisbon is a great place for crypto investors and generally a wonderful city to live in, but there are relatively few laws governing NFTs in Portugal. Foessel said she was advised that if and when laws on NFTs are introduced in Portugal, they could disrupt the business she is building.
But in places like Switzerland and Singapore, she says, there are more rules and regulations specific to NFTs and an existing legal framework. Foessel wants the security of existing law rather than trying to guess which laws Portugal could introduce.
For companies there are grey areas, you still need to have proof of receiving payment, you still need to have invoices, you still need all of this. It is not simple, but there are no real rules so you navigate and you try to do the best you can” — Pauline Foessel, Artpool
4. There will be an NFT for everything
NFTs are mostly used for images and artworks — but how will we use them in the future? Foessel predicted that NFTs will be used everywhere, both commercially and non-commercially. Everyone will own one, not just big brands and companies.
Grose warned that there has been lots of speculation — not to mention scams — in the industry and people should tread carefully.
But, he said, there are some advantages to an NFT’s “provable chain of ownership” which could apply to other industries. For example, Grose mentioned royalties for things such as art and music could be written into the code and therefore easier to collect even after the artist’s death. In addition, some NFTs give owners intellectual property rights which allow them to be licensed.
There is a provable chain of ownership. For a lot of assets, that hasn't existed before and that is a big factor now. When something changes hands you can prove who owned it previously and exactly when that happened” — Grose
5. Bring everyone along for the ride
While cryptocurrencies bring new opportunities, the panel said there’s still a general lack of education on blockchain, crypto and NFTs.
Foessel said companies using NFTs need to incorporate them into their business step by step and build up customer trust slowly. People working in the industry need to help the general public understand what Web3 is and the opportunities it could give them.
Some perceive cryptocurrencies as a fraud risk because they’re new — but Grose said that as everything is recorded on the blockchain, cryptocurrencies are actually safer than fiat currencies. But, he added, people needed to understand what cryptocurrencies can do before they can be considered a long-term asset class.
NFT buzzwords should just disappear. Today you are not using the world wide web — you are using Facebook, Google and Zoom. The same should, and probably will, happen with NFT. We will forget this concept exists and will just have cool products such as Artpool” — Sypniewicz
Like this and want more? You can watch the full Sifted Talks here: