Last Wednesday, March 9, the White House finally announced a much-anticipated policy directive on cryptocurrency and distributed ledger technology with an Executive Order on Ensuring Responsible Development of Digital Assets (Order) issued by President Biden.
On the same day as the Order was signed, Dr. Alondra Nelson, head of the Office of Science and Technology Policy and Deputy Assistant to the President, published a blog post that describes her priorities for cryptocurrency regulation in the United States.
Dr. Alondra Nelson, who penned the blog, is the Director of the Office of Science and Technology Policy (OSTP) since February 17, 2022. Nelson has served since day one of the Biden Administration and was instrumental in early directives such as restoring trust with scientific integrity and evidence-based policymaking and advancing racial equity and support for underserved communities.
Nelson’s role involves supporting a cabinet-level council of advisers on science and technology as well as serving as an adviser to the President on the scientific, engineering, and technological aspects of the economy. This means she could be one of the most influential person in the White House on the subject of digital assets. For the cryptocurrency industry, her blog is not to be missed to help decipher how leadership in the White House is currently thinking about the possibilities of digital assets in the United States.
Three key takeaways that are discussed in her blog titled “The Path Toward Responsible And Equitable Digital Assets Innovation” focus on the potential of digital assets in helping the unbanked population, the risk of predation by the crypto industry on vulnerable populations, and the environmental challenge posed by certain digital assets that require high levels of computing power. Over a number of years now, the cryptocurrency industry that has showcased the possibilities of how digital assets are a net positive for society now finds itself at a pivotal moment where a validation of such use cases will face the scrutiny of America’s top scientists and technologists.
Summary of ‘The Path Toward Responsible And Equitable Digital Assets Innovation
Nelson starts by noting that one in six Americans have either speculated on or used cryptocurrency as a payment, based on a study from the Pew Research Center in November 2021. Nelson describes how distributed ledger technology is already used around the world to support supply chains and in new ways to support artists. There is an optimistic tone to the potentials for digital assets in society.
“Fully and equitably realized, digital assets could be cheaper and more efficient than traditional financial instruments, thus more seamlessly allowing a father in Pennsylvania to send money to a daughter in Honduras, or a small business in Dallas to access the capital it needs to expand, with confidence and low risk,” says Nelson. Balanced against these opportunities, Nelson cautions the risks of digital assets in affecting consumers, communities, the climate, and both U.S. and global financial stability must also be accounted for. Even those most bullish in the cryptocurrency ecosystem will likely have to concur that Nelson nails it when she describes the danger in the volatility of digital asset investing for those with very little resources.
Nelson then lays out three key areas of national leadership the Executive Order can provide the U.S. with respect to digital assets. These areas include 1) advancing financial equity and inclusion, 2) curbing financial predation, and 3) understanding the climate impacts of digital assets. She expounds upon each of the areas in a way that is helping and revealing in terms of what is on the minds of those in the White House regarding digital assets.
Advancing Financial Equity and Inclusion
Nelson notes that historically, new technologies can result in benefiting the same group of people while those who can least afford it are forced to bear the highest costs. However, she says the jury is still out, in that, “…we don’t yet know enough about how digital assets could expand access to financial services, especially among communities that have been historically underserved by the traditional banking system.”
There is an acknowledgment that digital assets could help close the gap for lower-income and minority households; however, the argument is made this won’t happen by accident and must be done by design. Nelson describes that the U.S. government is committed to responsible digital asset innovation that prioritizes equity, inclusion, and other American values, and could be ‘designed’ within a central bank digital currency (CBDC). Nelson’s point highlights that high volatility of some cryptocurrencies may end up impacting those who can least afford it, which circles back to her original concern – that those who can least afford to end up bearing the highest costs. This should be a healthy reminder for the cryptocurrency industry that makes the argument around the ways digital assets assist the underserved and unbanked will need to also consider the importance of consumer protections.
Curbing Financial Predation
It is not often that a senior Administration official in the White House uses the terms that are often heard in the cryptocurrency industry itself, so for many in the industry, when Nelson says digital assets provide , “…new opportunities for scammers and grifters,” will definitely be relatable. Nelson explains her concerns around the risks of financial predation in the digital asset sector where she says, “For example, risks associated with cryptocurrency investments are not always appropriately disclosed, which can mislead, deceive, and ultimately harm consumers and investors.”
Nelson points to part of the Order that directs the U.S. Department of the Treasury to focus on potential harms to consumers, businesses, and investors as the way the U.S. can show leadership in this area. This second section makes it clear from a policy perspective just how high of a priority consumer protections are for the White House.
Understanding the Climate Impacts of Digital Assets
In what will likely be a lightning rod for many in the cryptocurrency community, Nelson describes how, “certain types of digital assets currently require so much computing power — often in economies that rely on carbon-intensive energy supplies — the growth of digital assets potentially presents an environmental challenge at a time when we need to shift to carbon-free sources in order to combat climate change.” With some recent news out of the European Union regarding potential restrictions around proof-of-work, those in the Bitcoin community will likely be very sensitive to Nelson’s comments.
Nelson’s transparency on sharing these concerns with the public now around the energy use of Bitcoin and the citing of the Cambridge Center for Alternative Finance as a source should be a signal to the cryptocurrency community that President Biden’s goals for climate change are mandatory and anything that creates friction in this effort could face an uphill climb against policy. Nelson did also note that the White House, “…will also explore how blockchain technologies could potentially benefit the environment, including by facilitating transactions related to liability for greenhouse gas emissions, water, and other natural or environmental resources.”
Ultimately, whether it is access to financial services, financial predation, or energy use of particular types of distributed ledger technologies, the U.S. public is given a front-row seat with her blog into the way Nelson is viewing digital assets as the Administration starts executing on the reports required in the Order. The positive side of the Order and what Nelson is sharing with the American public is transparency to how policies around digital assets are being developed, which could very well represent the future of global finance over the next few decades.
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