How regulation can stifle, or encourage, fintech innovation

Last week, protesters gathered in Amsterdam to speak out against the ongoing arrest of Tornado Cash developer Alexey Pertsev. Dutch authorities continue to hold Pertsev without charge in connection with his involvement in writing the protocols for the Tornado crypto platform, which was sanctioned earlier this month by US officials who say it has been used by North Korean hackers.

North Korean hackers, and any criminal or malicious hackers, are bad. But the protesters were right to demonstrate. This arrest sets a dangerous precedent and is a threat to continued technological innovation that is essential to our future society and economy, especially the crypto sector. It is a clear example of government regulation and supervision going too far.

While institutions and platforms can be asked to take certain steps to protect against their use by criminals, and such regulation will likely bring more legitimacy to the sector, there must be a stopping point. Law enforcement and regulatory authorities have not admitted this. Unless something changes, we are headed for a situation where government oversight risks becoming a kind of thought police and can stifle new business or technological ideas before they are even developed. Engineers and entrepreneurs will fear carrying out new and innovative projects.

There is no doubt that new technologies, especially those with creative potential that could disrupt the entire economy, present ethical and legal dilemmas as they can be used for good or ill. In most cases, blockchain technology allows the public to view a user’s transaction history, even if it is anonymous. Some, like Tornado, avoid this. It can be argued that this makes currency transfers as private as traditional banking transactions, which are not available, even anonymously, in the public eye. It can also help those who want to hide transactions because they involve laundered or stolen money.

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Technology with the potential for good and evil is not a challenge limited to digital currencies. Any technology with positive aspects can also be misused, in any sector. For example, technology like NSO’s Pegasus can, and many say has been, used for unethical purposes, but at the same time has also helped police departments and other authorities investigate crime and terrorism. Because so many new technologies embody this ethical dilemma, even those who don’t care about digital currencies, or take them seriously, should pay attention to Pertsev’s fate.

This does not mean that the use of protocols for illicit conduct should not be scrutinized and sanctioned. When technology is misused, especially in a way that harms lives or public safety, there should be legal consequences. But because technology, from spyware to blockchain to social media, can be used for good or ill, regulators and law enforcement officials should hold accountable those who use technology for wrongful purposes. illegal or unethical, rather than its developers. (Of course, if something is developed solely to cause harm, or if the developers encourage harmful or unethical use, that’s a different situation.) speech. But that’s not the case in most other places, and it’s not necessarily enough even in the US to put the blame for platform misuse on users.

There is no doubt that some regulation and guidance is needed, especially in the cryptocurrency sector, where crypto cowboys, naive business models, and inadequate custody of funds helped cause the recent $2 trillion drop in market value. Reasonable regulation can guide and encourage the development of new technologies and products, and give more legitimacy to a young industry. Examples of positive steps on the regulation front include the US Federal Reserve and the FDIC requiring banks to check with them before engaging in crypto-related activities to ensure they are legal; and SEC Chairman Gary Gensler recently explaining a plan to regulate cryptocurrency trading platforms. Additionally, the FDIC recently ordered crypto broker Voyager Digital to stop claiming assets on the platform were FDIC insured when in fact they were not, a positive example of regulatory compliance. Such steps or potential steps protect consumers, but are a reasonable burden on platforms.

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And law enforcement should be monitoring crypto and other online sectors for fraud and crime – crime and fraud here are a growing threat. But it shouldn’t be the developers and engineers who are in police custody; that should be reserved for those who actually misuse the technology for illegal or nefarious purposes.

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