Rebecca Rettig
Contributor
Rebecca Rettig is the chief authorized and coverage officer at Polygon Labs, the place she oversees all world coverage issues and usually meets with policymakers and regulators throughout the globe. With distinctive and deep-rooted experience representing corporations on the forefront of the monetary service trade’s digital transformation, Rebecca spent over 4 years advising blockchain purchasers on authorized and regulatory issues. In 2019, Rebecca was acknowledged as one of many prime 100 ladies legal professionals in NYC.
Final winter, I discovered myself at a cocktail party within the metropolis. It was a blended crowd, by which I imply individuals who understood my work, those that didn’t, or those that have been skeptical of it. I’m a crypto lawyer and coverage advocate, so I’m used to questions like: Are you a lawyer for Bitcoin? And do you even use a financial institution?
As everyone knows, the crypto trade had been rocked on the finish of 2022, which meant I fielded extra questions than common. At one level, a buddy pulled me apart and requested, “Is that this the tip of crypto? Are you okay?”
Now, a yr later, I can reply with confidence: Not solely was it not the tip, however 2023 was additionally truly good for crypto. I’m extra dedicated to this area than ever, and going into 2024, I’m assured that the expertise will persist — that crypto is right here to remain — even within the face of repeated detrimental press, continued naysayers, and protracted world regulatory stress.
The optimist’s case for crypto is straightforward: Technical maturity is going on in tandem with regulatory headway and wider adoption.
However to be an optimist in crypto is definitely to be a realist, to acknowledge not solely the thrilling developments we see coming into 2024, but in addition the challenges we should take head-on within the yr forward. I name this strategy “crypto optimist realism”: an acknowledgment of each how far we now have come and the way far we now have to go.
Even when 2023 exceeded the expectations of optimists like myself, it doesn’t imply that 2024 shall be a cakewalk. In actual fact, within the three points that matter most to crypto — technical development, regulatory progress, and adoption — the tailwinds taking us into 2024 shall be met with continued headwinds we should overcome to progress right into a mature trade.
The expertise superior quicker than anybody imagined. Now we have to present why that issues.
Within the wake of centralized “crypto-in-name-only” monetary collapses, 2023 bore out a vitalized recommitment to advancing sustainable, hardened, decentralized networks. The expertise, throughout various networks, is lastly attending to a spot that may deftly deal with what “normies” would anticipate from the web itself, whether or not or not it’s for monetary, social, communication/messaging, or informational functions.
Final yr, the trade obsessed over zero-knowledge expertise, zkEVMs, and scaling options, rightly so. Huge technological leaps got here to life at scale, defying the expectations of many who believed that if such expertise have been potential outdoors of mathematical theorems, it wouldn’t be potential for many years.
Throughout almost any vertical you may think about, some component of blockchain has begun to seem.
There are actually quicker, extra inexpensive, and extra environment friendly methods to transact and work together on the web, secured by decentralized databases hosted by computer systems globally that enable people to protect and management their very own information, worth, and content material. The present state of blockchain undoubtedly looks like one thing out of “Neuromancer.”
However right here we’re, dwelling it.
Now the problem is guaranteeing that thousands and thousands of individuals worldwide can dwell this future, too.
The primary chasm to cross is tips on how to discuss accessibly about what blockchains truly do and why they’re higher, at the very least for sure use instances, than what we now have now. The usage of insider phrases (“rollups,” “sensible contracts,” “oracles”) with the normal world is usually counterproductive. Jargon makes the tech and the trade esoteric, isolationist, and inaccessible. A lot of the lexicon related to blockchain developed for a small, developer viewers, which implies to develop alongside the increasing attain of the tech, we should change how we speak about it, too.
With some tech challenges nicely on their option to being solved at scale, a main hurdle stays to make the why of blockchain higher understood.
This implies explaining how the expertise gives actual, tangible advantages in a fashion simply grasped on a worldwide foundation and throughout techies, normies, and industries.
“Regulatory readability” superior in sudden methods, however the AML quicksand requires an answer
For these of us participating on coverage issues, the tip of 2022 was existential. It was exhausting to fathom how regulators and policymakers may interact meaningfully after the trade writ massive had been plastered with integrity points that arose from the downfalls of companies that shall not be named (and that you already know nicely by now). A lot to my nice shock, final yr noticed important engagement by policymakers across the globe on crypto issues, in lots of constructive methods I couldn’t have anticipated. Globally, 2023 noticed:
Japanese lawmakers printed a “Cool Japan” whitepaper in April. It proposed a regulation for decentralized autonomous organizations (DAOs — one other phrase to make accessible!) as methods for much less linked cities and communities to be engaged with the federal government and speak in confidence to non-yen-backed stablecoin (with stringent stablecoin regulation)
The EU formally handed and started implementing the Markets in Crypto-Property regulation (MiCA). A primary-of-its-kind complete laws centered on centralized companies and repair suppliers within the crypto area, MiCA units out stringent necessities for crypto companies within the EU whereas additionally permitting for continued innovation on the tech facet.
The U.Okay.’s Treasury Division issued a complete proposal for crypto regulation.
In France, policymakers started fascinated by frameworks for decentralized finance (DeFi), taking the expertise significantly sufficient to contemplate rules that received’t stifle innovation whereas additionally defending shoppers and preserving market integrity.
Hong Kong and the UAE created crypto licensing regimes for centralized crypto companies and repair suppliers, together with — in Hong Kong — a brand new proposed regime for issuance of stablecoins.
Within the U.S., two main items of proposed laws, the Monetary Innovation and Know-how for the twenty first Century Act (FIT Act) and the Readability for Cost Stablecoins Act, made their approach out of the Home Monetary Providers Committee in a bipartisan method, with potential preparations to maneuver to the Home flooring in 2024. And final June, the U.S. Home Committee on Power and Commerce carried out a serious listening to on nonfinancial use instances for blockchain. This was a firsthand demonstration that policymakers are starting to know the in depth scope of what may be completed utilizing blockchain.
In parallel, developments on crypto coverage within the U.S. additionally got here in hoped-for however sudden selections from the courts.
Quite a few federal judges — appointed by presidents from each events — confirmed a selected understanding of the nuances and variations offered by the expertise and the way in which the trade features. The Ripple, Grayscale and Uniswap courts all acknowledged a lot of the arguments round decentralization and self-custody that the trade has been making for years. In doing so, these courts confirmed that sure regulators’ positions actually attempt to match the crypto sq. peg into the TradFi spherical gap, with restricted outcomes.
The choice in Risley v. Uniswap Labs et al. is especially noteworthy for 2 causes. First, the choice dives deep into the expertise round decentralized finance. It acknowledges that software program builders innovating with new expertise can’t be accountable for the actions of unknown, unaffiliated third events who might interact in “dangerous acts” through the software program (a corollary to the selections in Napster and Grokster greater than twenty years in the past). Second, the choice acknowledged that we don’t know what crypto belongings are right now — “securities, commodities or one thing else.” Making that distinction is a choice in Congress’ purview. This latter recognition can also be noteworthy because the SEC’s case towards Coinbase, which hinges largely on whether or not “tokens are securities,” is earlier than the identical courtroom.
Regardless of these developments, the trade doesn’t have the “regulatory readability” for which it has been asking. In actual fact, the problem for 2024 is bigger than ever: How will we work with regulators and policymakers globally to fight dangerous actors utilizing crypto for illicit means? This query, one which’s usually known as the AML (anti-money laundering) situation, is essential for crypto to not solely flourish, but in addition to outlive.
How the trade can and will handle the query of AML requires its personal article (or articles!), however our problem on the regulatory entrance is obvious. The trade should band collectively to offer viable options that talk to the regulatory objectives of detection and deterrence of dangerous actors.
Broader use instances now abound, however we have to make them extra helpful
It’s going to come as no shock that I might dub 2023 “the 12 months of the Use Case.” It was a yr through which I used to be concerned in serving to launch an open, interactive web site, The Worth Prop (thevalueprop.io), to showcase use instances for blockchain expertise all around the world. This website aggregates novel blockchain-based functions already in existence.
Suppose avatars on Reddit, digital sneakers on Nike, or loyalty NFT reward applications with Starbucks. Suppose main manufacturers experimenting with what it seems wish to let go of complete management over loyalty applications and factors, as a substitute relinquishing these into the custody and possession of customers. The California DMV appeared into tokenizing automobile titles; there are experiments with placing land registration on-chain in Peru; and round half of Indian states have begun to include throughout completely different companies, together with police complaints.
Suppose tokenization of off-chain belongings within the monetary sector and past, the place JPMorgan, Franklin Templeton, BNY Mellon, Mirae Asset Securities, and plenty of others have already begun tokenizing belongings, with some estimates placing the variety of complete tokenized belongings already at $3 billion. Initiatives like Courtyard and Regen Community enable for tokenization of belongings like Pokémon playing cards and carbon credit.
Whereas the previous group will enable our present monetary system to maneuver extra shortly and effectively, the latter will remodel who can take part within the financial system, and the way.
Throughout almost any vertical you may think about, some component of blockchain has begun to seem.
Though an increasing number of persons are interacting with some side of some blockchain day by day, many with out even figuring out it, the problem now’s focusing the trade on use instances which might be probably the most impactful, probably the most sport altering. Builders have to preserve constructing, however in ways in which have highly effective enchantment. Which means considering past the long-standing narrative of “banking the unbanked,” which, for higher or for worse, is a narrative we now have moved past.
With the intention to make sure that adoption proliferates and the worth of this expertise is accepted, particularly within the face of very loud crypto pessimists (the doomers!), builders ought to lean into product-market match (PMF) that’s already robust with some crypto use instances, like stablecoins. Constructing and innovating on this success means considering past previous narratives, with PMF in thoughts.
This shall be a problem. A lot of this area has been centered on worth and quantity for quite a lot of years, indicators of adoption.
This winter, I skipped the dinner events, opting to work and plan for among the challenges mentioned above. The momentum of 2023 has led to a rising sense, even amongst associates and acquaintances who don’t observe the area intently, that the trade and I are okay, that crypto is right here to remain.
Whatever the challenges the trade faces going into 2024, I’m as optimistic as ever: Those that are nonetheless constructing are the most effective, most passionate individuals who will enable the trade — and this expertise — to achieve its full potential.