Regulation

hi this is charles hoskinson broadcasting live from warm sunny colorado always warm always sunny sometimes colorado the topic of the day is regulation regulation is coming it's kind of like winter is coming although i hope this one has a more satisfying ending than game of thrones so fox news breaking report let me read off the tweet for you guys exciting tweet exciting tweet it says according to chris casparino joe biden administration is in early stages of developing a regulatory approach to the booming crypto biz sources tell fox business we'll discuss with liz clalman and what's being kicked around re-regulation sec enforcement activities and the possibility of a bitcoin etf okay so here's the line of the short there is no reality that a government as regulation friendly as the united states government will allow an industry with a market capitalization of over a trillion dollars to be unregulated or to live in this weird gray area of enforcement the only reason why we haven't already seen comprehensive regulation in the cryptocurrency space is because of the political molasses of the last five years six years of washington nothing is getting done and people have been fighting about everything from health care to immigration and there hasn't been party unity if we had a different republican president in 2016 there would have already been regulation it was trump was just an anomaly and had different priorities and focus and as a consequence they didn't get around if it was jeb bush or someone else regulations would have been passed in the first two years while the republicans maintained control over the house and the senate what does that mean means that biden as a creature of the swamp he's been in washington for over 50 years he knows where all the bodies are buried he knows how to pass legislation and if you look at how he's been approaching things he's been very systematic the last stimulus bill i think was 1.3 trillion dollars passed without a hitch he's negotiating hard with joe manchin right now about the infrastructure bill there's a very good possibility that's going to pass with the two trillion dollars he's asking for with some mild concessions looks they'll get a 25 corporate tax rate instead of a 28 percent but preserve the offshore 20 after that happens the very next thing they're probably going to go after is a tax increase for individuals not corporations and it's very likely that they're going to push cryptocurrency regulation in that bill as a consumer protection package just like with infrastructure they've rolled some parts of the green new deal in it it's very likely that that's going to happen now what is causing the urgency here the nft revolution the ryzen soon to be fall of dogecoin these types of things in the defy push that's occurred it's creating a perception of ponzi-like trading behavior where a copy of a copy of a copy can have a five billion dollar valuation where people overnight are becoming it's fabulously wealthy and the only way they can realize that value where many retail investors come in and purchase their tokens with the hope that the next group of people coming in will purchase their tokens for an even greater price that's where our industry's at in many cases for many products especially when we talk about products that are obvious copies of other products having high valuations this is not normal for markets there's an enormous amount of just craziness doge in particular 94 of the supply is controlled by the top one percent every minute over four thousand dollars worth of doge is just printed out of thin air i believe 2.2 billion per year and permanently it's persistent linear inflation 10 000 tokens are produced every minute there's no use in utility there's no real development team there's no vision mission there's no goal to go and do something over a five or ten period there's not this notion that people are buying a philosophy and they hope that that philosophy will be realized it's really just we're gonna push it to a dollar so we can all get rich well tell me who's in a better position to sell the retail investor who's doing it on a cell phone app or the insider who's well connected to the markets who has a large position and can trickle sell it as it hits certain major market milestones whenever you see market patterns like that what happens is the regulator gets involved because they feel they have a moral responsibility to get involved if you doubt me look what they did with gamestop and look what they've done with these other things the reason they have yet to do so is because they're working systematically through coveted relief was the first part of the agenda infrastructure is the next part of the agenda and corporate tax reform and the next thing will be personal tax reform and because georgia gave two senators to the democrats we're now in a position where they can run on party lines and because there's that unity in the house for the democratic party there's a very high possibility that these things will pass the other thing is gensler's new chairman of the securities exchange commission has a history of being very proactive with enforcement from his prior time i believe was the cftc and he understands our industry exceedingly well he taught a class at mit about cryptocurrencies so the sec is in a position where they through enforcement and through soon regulatory mandate will be in a position to be much more active on enforcement towards things that they feel are wrong it would not surprise me that defy is the very first target of that enforcement along with fincen and other branches of the treasury department because if you look at the utility of these things what they're actually doing they are right now standing in place of regulated organs in the market now this is not an endorsement of this behavior i'm not saying i agree with it i'm not saying it's a good thing i'm not saying it's going to help us all and it's good for retail investors and this is great what i'm saying is this is rhetoric this is history this is how these markets tend to act these are how these actors tend to act the republican party has historically been a bit more hands-off and libertarian in the way that they view regulations they let the free market do its thing even if agency failures happen the left has been a bit more we can't trust the free market it's not fair it's not equitable or evil capitalists are going to go and screw people so we need to be hands-on and we need to regulate now these are broad generalizations the democrats for example under clinton repeal glass-steagall okay and there was a lot of financial regulation that occurred under bush and under hw push and so forth okay so these are broad generalizations but in general that's the direction things go and this particular government has been very progressive and has progressive constituencies that they do listen to such as elizabeth warren and bernie sanders and so forth and there's certainly a very strong demand within that wing of government to address perceived inequities inequalities or unfair behavior by the very wealthy against the very poor if elon musk bought a few million dollars worth of doge that's not worth a billion dollars or two billion dollars and is found to be dumping on poor people kids who don't have a lot of money you better believe that that will be the catalyst to bring in a regulator who has that kind of inequality mindset that one of the world's wealthiest men manipulated a market so he could extract billions of dollars from the poor even if it didn't happen the perception of such a thing happening or the beliefs that such a thing could happen is a justification for regulation with this particular political mindset which does have at the moment a political monopoly there's nothing that can be done to stop it there's no filibuster there's no counterparty there's no other event and the other party to be frank was not very pro crypto that was the party that brought us the jay claytons and the stephen and and so forth who were not exactly the most broke crypto around and there were statements like bitcoin is bad deal amongst that administration so it's just inconceivable to me that we're not going to see at least an attempt to pass legislation this year which will contain a mandate about crypto now on the pro side this could potentially bring for the first time in our industry's history in the united states clarity meaning asset classification perhaps defining utility tokens perhaps clearly defining securities law perhaps clearly defining the roles and responsibilities of entities and how registration works and so forth i don't believe for a moment that it's going to be very positive i'm old enough to remember what happened with bitlicense and i remember when the people pushing bit license reached out to us in industry and we we all talked about it and they did the exact opposite and they created a situation where new york state is now one of the worst places in the united states to run a cryptocurrency business and very few people can qualify for bitlicense and get through that entire process despite having spent some cases millions of dollars chasing it the people who came up with that policy are now the same people who are kind of running the treasury department and follow that same philosophy i just don't believe it i could be wrong and perhaps my skepticism is undeserved but it is my belief regulations coming so what does this mean for the industry as a whole in particular us and how we approach things we built cardano in mind for having flexibility because the reality is global product and we say it's a global financial operating system wherever you sit on the united states you might not be from the united states you might be from canada or germany or china or from an african nation like senegal or ethiopia and it's impossible to build a protocol to fit the needs of all these different people so the point is you have an unregulated base layer that carries instead a philosophy a monetary policy a control philosophy a way to update and grow and then when you talk about activity which could be classified as regulated activity you create a toolbox for the people participating in that activity to escalate and be able to do that in a way that makes their government comfortable this is why in addition to constructing cardano we also worked on an identity management system prism and we worked on the standards process dids and we built all kinds of cool things and designed this to scale and enable kyc and aml so what does it mean is when you issue a dap when you create a transaction at some point in the life cycle of cardano hopefully soon you'll be able to integrate dids into that and those dids you can go to a kyc entity it might be a bank or an exchange or an independent company like accuain and you'll be able to upgrade that to carry an identity with it that's verified and a regulator would be okay with and you can encrypt it and store it privately you can leave it decrypted and store it transparently and you can use it to sign transactions sign metadata payloads sign addresses and so forth that is compositional once you have the capability you can talk about regulated defy for example you can talk about a dex where all funds then enter come from authenticated addresses or white listed addresses or so forth in addition to that we built our governance system to be flexible so right now it's focusing on ada and the evolution of cardano but if you create a native token you issue that native token on cardano at some point in the life cycle you'll be able to take that and have a voting system just like ada has a voting system so instead of trying to figure out how to build a dow or decentralization you get it right in day number one and the holders of it can control the fate evolution and purpose of that in addition to that we built a metadata standard that's been live since december and that metadata allows you to embed hashes representing contracts representing commercial understandings other such things pointers to off-chain artifacts that can assist in the escalation of regulation again i can't predict who you are or you're using this it's my job as an architect of a system and as a designer to kind of imagine a toolkit now the one good thing from regulatory clarity is it gives me business regulatory and technical requirements for the future editions of cardano and it's my belief that we can find creative ways of complying with whatever is coming that can still potentially preserve privacy and potentially preserve autonomy the worst case scenario would be the evolution of a system where everything is centralized and a regulated financial institution has to control your money and has to control your autonomy i think this would be one of the most damaging and catastrophically terrible outcomes for our industry and there is a chance that that could happen and as we get closer to whatever proposed legislation comes if it's clear that that legislation is being written in that direction we will do everything in our power as a company to lobby against such things from happening and try to rally the industry to lobby against such things unfortunately despite the fact that the entities in our industry have made many cases billions to tens of billions of dollars in the last few years off of the markets many entities in our industry spend exceedingly low amounts of money lobbying against bad legislation or trying to interface with regulators now there are some exceptions to this that are noteworthy but for the most part it seems to be an activity that they're either not interested in or an activity they don't think is important as if no one listens meanwhile the industry we seek to replace the legacy financial industry has line items allocated billions of dollars every year for lobbying campaign finance financing kind of backdoor stuff where these regulators when they leave they enter private industry and they end up working for these banks for example the current secretary of the treasury i believe received 7.1 million dollars from industry after leaving the federal reserve system so money talks and if our industry underspends or undervalues lobbying and understands and undervalues representing our industry's need and interests we can only expect that the outcome is the only group of people that the politicians are going to listen to are the people who are spending so in lieu of that you the people if you're in the united states can at least let your voices be heard so i suspect legislation when it comes i will not exactly its first instantiation be very favorable and we'll probably publicly lobby and in many cases ask for your support to let your congressman senator know that we think that this is counterproductive for innovation and counterproductive for our industry as a whole but let's be clear here this is not coming unprovoked and this is not coming as just out of nowhere there has been bad behavior in our industry market manipulation unstable exchanges lots of insider baseball things like dogecoin massively appreciating on in the nft marketplaces there's a lot of evidence that these are inside bidding where basically people are bidding amongst themselves to inflate the prices or create assets with artificially high prices this is behavior of an unregulated financial market we saw this exact same stuff happen in the 19th century during the baronial age and it led to the knickerbocker crisis in 1907 and then because there wasn't a proper response it led to another collapse in 1929 which led to the creation of the securities exchange commission in 1933 and so the pendulum tends to swing too far in the other direction when it's too far in this direction and it is my belief it is going to happen in that way so the next six to 12 months are going to be a very interesting i and they're going to be a little rocky in my view and i do believe that regulation is coming and i do believe clarity is coming and assets are going to be viewed very differently in 2022 2023 and it doesn't surprise me at all to see breaking news that something is being proposed and unfortunately because there's a political monopoly there's no way to negotiate this if one party is aligned so the best that we can do is build a better toolbox for compliance and the best we can do is to try to lobby for this industry to continue thriving i do believe that despite what america does crypto is still going to be crypto there's no greater example of that than what's happening with xrp at the moment despite the fact that ripple is being sued by the securities exchange commission for an unregistered security the network is still running and billions of dollars of xrp are still trading deals are still being made and infrastructure is still being deployed ordinarily when such an event happens the entire ecosystem rolls up and collapses for fear of the custodial entity disappearing but that has not occurred in that case now bitcoin is 10 times larger and has a 10 times larger ecosystem so if very counterproductive negative regulation comes that network is still going to function as it's written all it means is my life as an american entrepreneur is made considerably more difficult and my country is now left behind in one of the greatest innovations since the creation of the internet and we'll just have to sit on the sidelines as a country and watch other countries exceed this is one of the reasons for example why we're so committed to africa because as a whole that continent is committed to change laws are changing capital controls are coming down legal systems are becoming more accommodating and it's my belief that defy is the perfect solution for the continent of africa and the nations there are welcoming the innovations we're building with open arms nothing would break my heart more than having to offshore our entire fruits of our labors and draw a wall around the entire united states because very old people passed regulation to damage an industry that they don't understand very much about for the benefit of dying legacy actors and unfortunately there is a chance that that could come as a consequence of a lack of foresight investment in political acumen on the leaders of our industry so for our part we'll do what we can but we're only one of many actors i will continue making videos calling out bad behavior when i see it there's a reason why ada wasn't listed on certain exchanges for a very long time it's because i directly confronted the leaders of those exchanges and said that them listing big connect and other things was immoral and wrong amongst other things and they took it personally and decided to take it out on an entire cryptocurrency an entire ecosystem but i still stand by those decisions because i just don't think it was right to endorse and enable liquidity for a ponzi scheme analogously i see many things today that deeply concern me in the nft markets in the d5 markets i think these are legitimate markets and i think there's a lot of value that they produce but i also think it's unrealistic for people who do very little work or copy a copy and bring very little innovation to a table to magically wake up and suddenly be worth billions of dollars and those billions of dollars come from retail investors who have no clue what they're buying they're just chasing avarice believing that by buying it they too will become millionaires so this is a this is just where we're at as an industry and like all things there's an up there's a down and we move on the real players are here to stay i don't for a moment believe bitcoin is going to die i have my grievances in umbrage with the mining protocol it uses and i think it's an environmental catastrophe and we as a company put our money where our mouth is we spend millions of dollars every year in research and development trying to innovate our way out of such a regressive model i don't for a minute think ethereum is going to go away anytime soon or any of these other entrenched actors i think they'll be around in the next five or ten years i believe they all bring a lot to the table in that respect but i do believe that some of the excesses in the layer 2 and some of the excesses in the dapp space and some of the behaviors of leaders and key pieces of infrastructure have been counterproductive for the growth success promise and optics of our industry so that's all i got to say about this i'll of course make more videos as more things materialize but i figured i should just put a little asterisks on my my doge commentary it's my most popular video i ever made 167 000 views in under three days ratios are good eleven thousand upvotes versus a few hundred down some positive comments some negative comments but i think some people missed the point it's not about a particular cryptocurrency going way way up it's about a cryptocurrency where 94 of the holdings are controlled by a very small group of people who have no incentive to hold it and now that they've become fabulously wealthy have the ability to dump and asking well who's buying and why they're buying they're not buying a vision they're buying a meme and a belief that they're going to get rich from that meme that things are growing to the sky and whenever you see that happen when the bubble bursts it creates a catastrophic amount of brand damage each and every person who loses money from something like that we'll have a negative perception not just of doge but our industry as a whole and some of them will demand a refund or will demand some form of retribution for what they perceive to be an ill and if it is the case that a few billionaires on the inside were manipulating these markets for their own personal gain or be amusement that's all that is required to pass dangerous and damaging regulations for our industry as a whole and given that this is a commercial priority it is a regulatory priority of the biden administration it's not exactly they have to go out of their way they just get a convenient excuse and this is the same group of people that said no let no crisis go to a waste at a same group of people that are perfectly comfortable with a great degree of government control and regulation over markets in general that's just who they are you may agree with it you may disagree with it but they were elected into office and they have a mandate to do these things if they so desire so if our industry behaves badly or is perceiving to behave badly and we see a lot of people not caring too much about the consequences of what they do and a lot of people who really aren't well informed getting hurt it's just a recipe for disaster also ask yourself about proper use of a cryptocurrency a long time ago when i created my course for bitcoin bitcoin or how i learned to stop worrying and love crypto i went to great lengths to explain how to securely store bitcoin yourself back it up make sure that you're not you're not trusting it to an exchange because at the time we had a lot of concerns with mount gox and we believed the insiders in the industry that they were insolvent and it turned out that they were the vast majority of people participating in these spikes are purchasing them and leaving them on exchanges leaving them in cloud wallets their cell phones they don't really know how to use crypto what to do with crypto and they're only viewing it as an instrument for a vast appreciation if that's the case then what happens if one of these entities goes belly up all these people lose their money and they're of course going to blame crypto not themselves for that and so it always worries me when you have a huge surge of people with unrealistic expectations irrational thinking no domain knowledge or desire to acquire domain knowledge in our industry and use our stuff and then those people are likely gonna have a bad outcome and then because they've had a bad outcome people who seek power can use that as a symbol to gain that power and control and oversight and they never really give it back it takes a long time to undo damaging regulation and in some cases we've never been able to do that for example in the united states the patriot act was was passed right after september 11th pitched as a temporary collection of measures to ensure that we could win the war on terrorism 20 years later all of the things in the patriarch have not only been preserved but they've been enhanced and institutionalized even after the snowden whistleblowing showing you how pervasive things are financial regulation is no different in that respect the minute that a new regulatory agency is constructed the minute that a new standard is created a corpus of law gets formed around it special interest groups form around it why is tax laws so complicated because there's thousands of very well compensated tax attorneys and anytime you try to simplify tax law what you're inadvertently doing is putting them an h r block and the rest of these guys out of business so they lobby against tax law being changed similarly when regulations become more onerous and and arcane the incumbents it because they already know how to comply and it prevents startups from being able to enter their space so it actually creates a regulatory barrier to entry and then the accountants and tax lawyers and these other people love it because they can make untold millions to tens of millions to hundreds of millions of dollars helping businesses stay in compliance and the government likes it because they like power they like control our whole industry was built by someone who was afraid of the government why because he stayed anonymous why because look at everything that happened before bitcoin came out look at the liberty dollar look at all these other attempts to create private currencies the people who cried created them went to jail so it's a legitimate fear it's a legitimate concern and if people repeatedly publicly tell you what they think and what they're going to do you don't hand them the ammunition to go and do it unless you want to so just do understand that and understand where i come from where the industry is at what i've seen being a leader in this industry dealing with other leaders in this industry and unrealistic expectations what makes me most sad and why i say that my life's work in some way has been jaded by some of these events is that i honestly do believe that the things that we do are going to change the world i really do it just makes sense to say that you can build so much into the protocol to protect people from themselves or future problems just the other day i was having a meeting about nfds and a lot of artists they care about a social cause it could be clean water in africa it could be equal education for women in technology whatever that particular cause is imagine if when you sell your art every time the art is sold for the rest of time 10 of that transaction gets donated to the cause that the artist cared about imagine that imagine if every time a da vinci painting got sold there was some foundation that da vinci cared about and a cause davinci cared about maybe it was gay rights or maybe it was rationalism whatever it is that money would get donated imagine what that would do the systems were building are the first time in human history where that copy left of royalties towards a social good could be preserved and that's just tuesday for us it's a smart contract it's just built into the protocol the very same thing that could allow the automation of tax compliance can do the very same thing for royalties the secondary market and there's a billion other uses and utilities with one universal protocol this truly is the financial stem cell instead we're talking about a shiba inu instead we're talking about when moon instead we're talking about how we're all going to get rich and when lambo when this when that and that's that's the dialogue at the moment this is the belief at the moment lumber is up 117 from last year why in god's name would you want to go acro huge amounts of dollars they're not going to be around much longer if we keep spending this way look at europe we're at negative interest rates the world financial system is falling apart every major democracy is laden with gargantuan amounts of debt and some cases over 200 percent of their gdp i'm sorry the world financial system is sick if it was a human it has cancer and it may be terminal it may be treatable we don't know and no one is honest no one wants to admit that it's not good policy that every time you want something you don't have to make hard decisions instead you just print money out of thin air but yet inflation doesn't exist and that carries into the behavior of the people so the short term average on the government side and short-term avarice on our ecosystem side unfortunately creates a reality where when we look at the real use cases and utilities systems truly fair marketplaces truly transparent marketplaces contracts that can't lie contracts that give you a guarantee that you're treated fairly regardless of your last name or the country you're born into all of that takes second fiddle to where we would like to go as an industry this is why i take these things so seriously and this is why sometimes i have so much lament over what's happened so my belief regulation is coming it's my belief it's going to come this year it's my belief it's going to be a big discussion and that the industry as a whole hopefully will rally and get involved in these types of things and i think that we'll find a way to get out of it as we always do and i don't believe any u.