Crypto Executive Order Explained

Cryptocurrency has seen dramatic growth since its inception in 2009. Around 16% of American adults have invested in cryptocurrencies. In theme with prior executive orders advancing US cyber policy, the White House recently signed an executive order on cryptocurrencies and other digital assets. Crypto enthusiasts view this as a win, but what does ensuring the responsible development of digital asset mean for the average American?

Key Measures of the Executive Order

Biden’s Executive Order entails several vital measures to help harness the potential benefits of crypto, blockchain, and other digital assets.

  • Protect U.S. Consumers, Investors, and Businesses

The stated protection entails developing an official policy to address systemic economic risks introduced by cryptocurrency. This entails developing regulatory measures for decentralized applications. Recent announcements from the SEC demonstrate that they are aware of the threats to investors and developers that exist because of rugpulls and other forms of scam.

  • Protect the U.S. and Global Financial Stability and Mitigate Systemic Risk

The Financial Stability Council will identify systemic financial risks imposed by crypto and develop policy to help mitigate identified risks. This includes risk related to moral hazard, the lack of know-your-customer controls, and other dangers introduced by the crypto ecosystem.

  • Mitigate the Illicit Finance and National Security Risks Posed by the Illicit Use of Digital Assets

Both the beauty and the dangers of crypto lie in its ability to transfer money without a central authority. Many have gained the change to leave oppressive regimes, safely fund activism, and perform reanactments of Fear and Loathing, however, cryptocurrency has also provided a route for funding terrorism. Mitigating the risks imposed by will only be possible with unity. This executive order pushes for federal policy and international policy to be developed and enforced.

  • Promote U.S. Leadership in Technology and Economic Competitiveness to Reinforce U.S. Leadership in the Global Financial System

This executive order directs the Department of Commerce to develop a framework to help promote research and secure the development of industry-leading solutions involving digital assets. This rapid-development framework will serve as a foundation for agencies and integrate this as a priority into their policy, research and development, and operational approaches to digital assets.

  • Promote Equitable Access to Safe and Affordable Financial Services

Crypto has made financial services more accessible, allowing access to those disenfranchised or otherwise excluded from traditional banking systems. However, this lack of Know your Customer controls introduces systemic risk.

Allowing the otherwise unbanked access to crypto services is important to supporting equity within the crypto space, which the executive order seems aware of.

  • Support Technological Advances and Ensure Responsible Development and Use of Digital Assets

The U.S. Government will take concrete steps to study and support technological advances in the responsible development, design, and implementation of digital asset systems. Their prerogative prioritizes instilling privacy and security into the management of digital assets while combating illicit exploitation.

Part of the stated responsibility of the US government is to reduce the negative climate impacts of digital assets. This may include investment in more ecologically sustainable energy sources to help power the infrastructure and proof-of-work calculations linked to cryptographically provable assets.

  • Explore a U.S. Central Bank Digital Currency

Exploring the potential establishment of a digital form of the fiat US dollar is the final key measure of the executive order. The Federal Reserve shall throughly research the prospects of establishing a national currency; should it make sense and be deemed in the nation’s best interest, the US shall move forward in developing a CBDC.

The Future of Ensuring Responsible Development of Digital Assets

This executive order is more descriptive than prescriptive, falling in line with guidelines such as the NIST SSDF. As the key measures are explored and mature, we can expect guidance to take a more solid form.

Often, the patterns of the past give clues about the future. The 1913 Federal Reserve Act, passed in the wake of the turn of the century banking crises, created the current Federal Reserve System and introduced a central bank to oversee U.S. monetary policy. This policy was deemed necessary because of the inability of the market to achieve stability in a laissez-faire environment.

Historians may compare Biden’s executive order on crypto to the monetary policies introduced a century ago. The most significant impact of this executive order will be the introduction of compliance standards and regulations design to hold institutions accountable.

While the introduction of crypto compliance standards may shock current digital asset service providers, this will also increase the number of older institutions that choose to enter the blockchain asset space. With 32% of crypto owners stating they would consider crypto services provided directly through their banks, these banks have an incentive to dip their toes into offering cryptocurrency amenities.

In the long run, the introduction of compliance standards will improve the accessibility of crypto and provide more protections for everyday users. However, we do not yet have outlined best practices available for web 3 development, which puts this ecosystem at heightened risk.

For individual asset holders, the optimal approach is to follow defacto best practices for digital asset security. These practices include:

  • Performing disaster recovery drills for hot, cold, and paper wallets.
  • Preventing physical access to hardware wallets.
  • Utilizing 2FA or MFA for authentication.
  • Maintaining separate hot wallet(s) for daily transactions while storing the rest of your crypto assets in a cold wallet(s).
  • Staying vigilant against socially engineered attacks, such as phishing emails, pastejacking attacks, and malicious ads.

Conclusion

This executive order demonstrates that necessary investigations are underway regarding how we can utilize blockchain technologies to maximize societal benefit. These compliance requirements will hopefully push web 3 builders to adopt secure practices in their application development and deployment processes.

 Date: May 2, 2022
 Tags:  blog

Previous
⏪ Maximizing the Benefit and Utility of Minting NFTs

Next
Disaster Recovery Drills in Web 3.0 ⏩