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Sprinkles from the Left

The Left has mixed feelings about cryptocurrency regulation.

Currently in the works is the construction of Ethereum 2.0, designed to lower transaction costs for such ventures. Attempts to regulate these platforms could impose stringent reporting requirements, create capital requirements, cap their growth or force them to find a place within the structures of currently regulated mainstream entities, including banks. But those new costs would probably stop their growth altogether, as these are hardly proven successes.

A more general principle is that the platforms easiest to regulate also tend to be the most legitimate and the least likely to engage in or encourage wrongdoing. Again, the net effect will be to make crypto, at the global level, harder to monitor and control.

The better strategy would be to encourage the ascendancy of American-based crypto firms, and slowly allow them to evolve into a more traditional part of financial markets…

If regulators are looking for something to do, how about requiring that “stablecoins” — typically pegged to the dollar — advertise more prominently that they are not likely to be very stable? If the Bretton Woods currency pegs could not hold, the stablecoin pegs probably will not either.

In the meantime, crypto still needs room to grow and develop. If regulators really think they know where this sector is headed, or what it ought to be, that is what economist Friedrich A. Hayek called “the pretense of knowledge.

Tyler Cowen, Bloomberg

The idea that regulation chills activity in innovative new markets is intuitive, but not necessarily accurate. Sometimes the opposite is true, because clear rules promote market trust. Look no further than Coinbase, which is poised to become the most valuable cryptocurrency exchange in the world, even though it operates in the United States, a country with significant regulatory hurdles. Our findings show officials that concerns about the effects of their pronouncements on trading markets should not get in the way of needed regulations.

Hard choices remain about how policymakers can support the legitimate aspects of cryptocurrency and financial technology markets while reining in their excesses and abuses. Several federal agencies and departments will be considering significant cryptocurrency regulatory actions in the coming months. Those decisions should be made on the merits — not assumptions about market reactions.

Brian Feinstein and Kevin Werbach, professors of legal studies and business ethics at the Wharton School of the University of Pennsylvania (published in the New York Times)

Sprinkles from the Right

The Right also has mixed feelings about cryptocurrency regulation.

Ransomware [like what was used in the Colonial Pipeline hack] can’t succeed without cryptocurrency. The pseudonymity that crypto provides has made it the exclusive method of payment for hackers. It makes their job relatively safe and easy. There is even a new business model in which developers sell or lease ransomware, empowering malicious actors who aren’t tech-savvy themselves to receive payment quickly and securely. Before cryptocurrency, attackers had to set up shell companies to receive credit-card payments or request ransom payment in prepaid cash cards, leaving a trail in either case. It is no coincidence that ransomware attacks exploded with the emergence of cryptocurrency.

Banning anything runs counter to the American ethos, but as our experience with social media should teach us, the innovative isn’t always an unalloyed good. A sober assessment of cryptocurrency must conclude that the damage wrought by crypto-fueled ransomware vastly outweighs any benefits from cryptocurrency…

Any solution must at least reduce the use of cryptocurrency….

We can live in a world with cryptocurrency or a world without ransomware, but we can’t have both. It is time for the adults to tell the children: Party’s over.

Mr. Reiners, executive director of the Global Financial Markets Center at Duke Law (published in the WSJ)

Expanding government financial surveillance is obviously horrible for privacy. It also saddles cryptocurrency users with a massive security risk. Just a few weeks ago, we learned that the Treasury Department had succumbed to a major cyberattack. The government can’t keep its systems secure, yet it wants to have access to even more of our data. Want to keep data safe?

Don’t collect it in the first place.

Andrea O’Sullivan, Director of the Center for Technology and Innovation at the James Madison Institute in Tallahassee, Fla. (published in Reason)

The Coinbase [IPO] is the apotheosis of the past year’s much-heralded “institutional adoption” of crypto — PayPal and Mastercard adding Bitcoin to their offerings, Tesla adding it to its balance sheet. While many see the Coinbase listing as a vindication of crypto, it underscores a paradox: Bitcoin, devised as a tool to emancipate the masses from corporate and state power, now depends on the imprimatur of the institutions it is meant to take down…

If Bitcoin is still what [Satoshi Nakamoto, its inventor] envisioned, institutional adoption should worry the HODLers.

Daniel Tenreiro, National Review