In the next 5-10 years, sovereign and non-sovereign global digital currencies will surge, and billions of people will be able to use it on their own mobile devices; in addition, there will be a new set of Internet global capital markets based on digital assets. If the regulator implements the wrong regulatory measures, it will have serious financial and legal consequences, and will have a huge impact on the competitiveness of US encryption companies on a global scale. Without forward-thinking thinking, American encryption companies will fall behind. Congress should consider new laws to protect consumers, rather than using the definition of a hundred years ago to hinder innovation.
The world of the next 5-10 years: sovereign and non-sovereign global digital currencies will proliferate
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When it comes to the development of digital currency technology, I am often asked: what the world will look like in five to ten years. If policymakers, regulators, and other industries can successfully cooperate, we can solve many deep-seated problems in the financial system.
Here, I would like to give a brief overview of the profound changes that digital currency can bring in the next decade. These changes will benefit people and businesses in the United States and around the world:
1. Sovereign and non-sovereign global digital currencies will proliferate, and billions of people can use it on their mobile devices. People will become more accustomed to private currency and public currency. This "combination" will become ubiquitous. A global basket of currencies will develop rapidly and become the first choice for liquidation and storage.
2. Payment and value exchange will be commercialized and become a free service on the Internet, just like the free sharing of content and data on the Internet and online communication. In this case, it will eventually bring hundreds of billions of dollars worth of value to the real economy, as individuals and businesses no longer have to pay the middlemen, which in turn stimulates people around the world to generate more economic activity.
3. In the future, there will be a new set of Internet global capital markets based on digital assets. We believe that the capital market will also become a multilateral Internet market covering industries such as commerce, content, advertising and transportation. The Internet-based market can support an extremely diverse global supplier and buyer community, both individuals and large companies with unbelievable options and access. Our capital markets will become very much like e-commerce platforms like Amazon and Alibaba, or Google advertising platforms, not the current New York Stock Exchange or Nasdaq. In this case, the new capital market will open up a new model of capital formation for global companies, and people around the world will also store value in new ways and invest in companies that truly produce value.
4. In the future, enterprises, labor market participants and consumers will all be integrated into the digital business environment. Many traditional boundaries will be broken, resulting in higher security, efficiency, transparency, certainty and enforceability, economic and Business relationships will increasingly be adjusted through smart contracts that run on the public blockchain.
5. In the future, the public blockchain will build a set of decentralized, self-sovereign security identity and privacy protocols that enable people to use digital services more securely across the globe to ensure compliance with KYC / AML Regulatory rules fundamentally improve privacy and reduce data leakage, while also combating financial crime more effectively than traditional financial systems.
The five points mentioned above will all be achieved within a decade, driving us to the new business and financial architecture of the 21st century, providing greater economic opportunities for all, while also enhancing our ability to cope with the financial challenges and risks of the digital age.
Overview of the Digital Currency Category: What kind of world do we need to monitor?
Non-sovereign digital currency
Many blockchains with native digital assets can provide a decentralized, private, and secure digital currency.
This digital currency is secured by algorithms and is secured by an open network of computers that honestly validate transactions and share books through incentives. The most compelling and popular of these blockchains are the bitcoin network and the bitcoin-related native digital assets.
In addition to Bitcoin, there are many blockchains designed to compete with Bitcoin by increasing speed, scalability, security, and privacy features, such as Ripple, Litecoin, ZCash, Bitcoin Cash, BSV, Monroe, and newer assets. Grin.
Developers of these projects have almost a common belief: to create a non-sovereign, secure, private value storage and trading tool. These projects have clearly created a fixed or highly predictable money supply. These attributes make digital assets more attractive than fiat, gold, and other currency commodities. Digital currencies are beginning to emerge in the face of global economic volatility, increased nationalism, currency manipulation, and the risks of trade wars.
The most well-known and popular blockchain platform is Ethereum. Other well-known platforms such as EOS, Tezos, Wavefield, NEO, Cardano and Algorand are increasingly competitive in this area. The recently proposed Libra will also be a more distinctive blockchain platform.
These blockchains are broader in scope than pure digital currencies, and they want to provide a platform on which to build a variety of applications and financial assets. In some ways these platforms represent one of the infrastructure layers of the new architecture of the Internet, which will provide storage and exchange methods, facilitate transactions and enforce contracts under the principles of decentralization, tamper resistance and privacy.
The digital assets generated on these platforms operate as digital goods, often referred to as “fuel charges,” for the payment infrastructure to provide infrastructure services. Just as oil and gas are the foundations that drive the industrial economy, these blockchain digital goods will be the fuel for digital commerce in the 21st century.
One of the most important features of these platforms is to provide developers with a way to create digital assets, often referred to as "tokens," which are attached to code called "smart contracts," "smart contracts." "can contribute to and enforce the characteristics, behavior or economic incentives associated with tokens. This ability to generate token-based digital assets is the most profound innovation in the modern history of financial, economic, and Internet products, and is an important classification in topological digital assets.
Tokenized digital assets
A large proportion of the more than 2,300 digital assets that are open to the public are distributed on popular blockchain platforms like Ethereum. Some examples of tokenized digital assets are:
- New decentralized infrastructure services such as storing data and content, sharing files or streaming and coded video.
- A new identity infrastructure that gives people the means to control their data and privacy identity.
- Content creators, publishers, and content services, as well as end users of games, can be rewarded and motivated.
- The development of purely digital financial contracts in the form of code, including debt and loans in the form of tokens, tokens for voting and governance functions, and tokens that provide access to basic royalties and revenue streams.
- Tokens that digitize existing financial contracts (bonds and stocks) can enable companies to obtain funds more efficiently and provide investment opportunities for investors around the world.
- Tokens of suitable physical assets, such as real estate, property, and high-end art, open up these less liquid and scarce asset classes to investors around the world.
These digital assets cannot be easily classified as securities, commodities or currencies. In fact, one of the biggest benefits of digital assets is that they can have the characteristics of investment contracts, utilities, and payment currency. But it also brings new and complex challenges to financial regulators, but it also creates incredible opportunities for project companies looking for digital asset innovation, so I think this will be the most important policy and regulatory issue facing the industry. one.
At present, there are several types of stable coins: the first type of stable currency is endorsed by a single legal currency, and the assets of the endorsement need to adopt the form of bank deposits of M1 and M2. There are also other stable coins endorsed by French currency, including the proposed Libra, but it is endorsed by a basket of currencies and potential securities and bonds. There are also some stable coins that are not endorsed by legal currency, such as DAI, which is mortgaged by cryptocurrency and linked to $1.
Today I will focus on the types of stable currencies that are based on legal currency and asset endorsements, and sometimes refer to legal tokens. In addition to Libra's attention, the emerging digital assets are similar to the rapid development of the US dollar token (USDC), and the worldwide proposals for central bank issued or regulated digital currencies indicate that legal tokens are also worthy of attention.
In modern history, this legal currency was mostly used in the trading of digital assets and in the exchange market that supported trading strategies (hedging and arbitrage). In the crypto exchange market is very authentic, traders need to be able to easily hedge against volatile currency positions, and stabilizing coins will be a tool for this purpose. The advantage of Stabilizing Coins in traditional bank accounts over the US dollar is that they can be transferred at the speed of the Internet and have the same security and transactional persistence as other digital currencies, which can help reduce or even eliminate counterparty risk.
The United States should not use the law of 100 years ago to regulate technology in the 21st century.
On a global scale, each of the different governments and regulators takes a different approach and has a different impact on the development of the encryption industry. In the United States, because there are no clear regulatory rules, some laws have not considered or covered digital assets, resulting in the loss of many opportunities for US encryption companies, and even affect the entire national economy of consumers, enterprises, and even the future.
For example, the US Securities and Exchange Commission is still using the federal laws of the last century to regulate 21st century technology, and the judgment of whether crypto assets should be regulated according to securities is actually the Howey test set by the Supreme Court in 1946. If the crypto asset is considered a security, then the SEC and the team behind it are obligated to regulate it.
If regulators and employees implement the wrong measures, they will have serious financial and legal consequences, and will have a huge impact on the competitiveness of US encryption companies on a global scale. If there is no forward-looking thinking, the US encryption company will Become backward. Congress should consider new laws to protect consumers, rather than using the definition of a hundred years ago to hinder innovation. Although the United States has been trying to solve these problems, it has lagged behind foreign (mainly Asian) encryption companies. Overseas encryption companies have begun to dominate the market, and US companies have lost considerable market share.
Regulatory uncertainty, and even some regulatory initiatives that hinder innovation, can cause many digital asset projects and companies to flee the United States, and it is difficult for American individuals and businesses to access the latest products and technologies. In the case of Circle, we have begun to transfer internationally oriented products and services to Bermuda, where we have established an entity that has obtained local regulatory approvals.
Bermuda's Digital Asset Business Act is forward-looking and provides a comprehensive regulatory framework for digital asset financial services companies. We believe that the approach taken by the Bermuda Government can and should be followed by other countries.
Some of the positive aspects of the Bermuda Encrypted Assets Regulatory Framework are mainly reflected in:
1. They have developed a comprehensive national policy for digital asset business;
2. Instead of trying to incorporate digital assets into traditional banking, payment or securities and investment laws, they have established a new set of laws for digital assets, including a new definition of digital asset composition that reflects digital assets— – the dynamic and multi-faceted nature of this new asset class;
3. Their licensing and monitoring framework is extensive and covers many digital asset activities, including: storage and hosting, payment, redemption, trading, and exchange operations;
4. In the United States, the federal government and state regulators are more fragmented, and usually only one regulator oversees the encryption company;
5. Bermuda policymakers and regulators acknowledge that the encryption industry is a dynamic and rapidly evolving field, and that technology and business models are constantly innovating. As the encryption market continues to evolve and mature, they are committed to actively collaborating with the encryption industry to continue to optimize legal and regulatory requirements;
6. The core risks they are concerned with are also the most important risks we consider, including corporate risk, financial crime risk, cyber security risk and regulatory risk.
As the world's largest economy and the largest financial market infrastructure, the United States has established a strong regulatory and regulatory framework for financial institutions that have become a model for other countries and a for the US and the global economy. Huge assets, the legal framework adopted and revised over the past 80 years, is undoubtedly the basis for financial market stability and risk management.
However, just as the emergence of joint-stock companies and private banks has changed the economic activities and organization of the late industrial revolution, the development of the global digital economy and the new financial system based on digital assets will also bring about large-scale changes and even subvert financial and The core essence of economic organization.
More importantly, we should give more space for innovators and digital asset projects to grow and grow in the United States. Congress should adjust its national policy to define digital assets in accordance with new asset classes and develop appropriate rules and exemptions for digital assets. This is where legislators really should be involved because we need them to adjust existing commodities, securities and banking laws. Within the scope of sound risk management, the new policy will promote rapid technological advancement and bring good results.
Author: White Night, Chen Fang