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President Biden has today signed the Executive Order on Ensuring Responsible Development of Digital Assets.
This executive order is the first "whole-of-government" approach to regulating the cryptocurrency industry, and it aims to target a plethora of issues within the crypto space, including consumer protection, illicit finance, financial inclusion, and "responsible development."
"Growing development and adoption of digital assets and related innovations, as well as inconsistent controls to defend against certain key risks, necessitate an evolution and alignment of the United States Government approach to digital assets," the executive order reads.
Crucially, today’s executive order does not itself introduce new regulations or provide regulatory agencies with the administration’s position on what regulations, specifically, they ought to adopt. Rather, the order asks for federal agencies, such as the Federal Trade Commission, the SEC, and the CFTC, to coordinate their efforts with respect to their oversight of the crypto industry. It also calls for the Treasury Department to “produce a report on the future of money and payment systems.”
What’s in Biden’s crypto executive order
President Biden’s crypto executive order is broken down into 10 sections: policy, objectives, coordination, central bank digital currencies, consumer protection, financial stability, actions to address illicit finance in digital assets, international cooperation, definitions, and finally, general provisions.
Under section two—"Objectives"—the executive order lays out six key objective aims of the government as it pertains to digital assets.
Front and center is the need to protect "consumers, investors, and businesses in the United States."
"The unique and varied features of digital assets can pose significant financial risks to consumers, investors, and businesses if appropriate protections are not in place," the executive order reads, echoing similar warnings made frequently by Securities and Exchange Commission Chairman Gary Gensler.
The second risk references protecting the U.S. from global financial instability, pointing out that the rapidly growing digital asset trading platform industry "may not be subject to or in compliance with appropriate regulations or supervision."
Third, the executive order points to the "illicit finance and national security risks posed by misuse of digital assets."
Biden’s order lists several illicit finance risks associated with cryptocurrency, including money laundering, cybercrime, ransomware, narcotics, human trafficking, and terrorism financing.
In recent weeks, the crypto industry has been under renewed scrutiny amid fears that Russia could use cryptocurrencies to evade economic sanctions, though there are individuals within the crypto industry that dispute this perspective.
1/ Russia can't & won't use crypto to evade sanctions.
Concerns about crypto's use for sanctions evasion are totally unfounded. They fundamentally misunderstand:
- how sanctions work
- how crypto markets work
- how Putin is actually trying to mitigate sanctions
I'll explain 🧵
— Jake Chervinsky (@jchervinsky) March 1, 2022
Rounding off the six key objectives, the executive order commits the U.S. to reinforcing its leadership in technology, promoting access to safe and affordable financial services, and supporting "responsible development."
In a prepared statement published by Treasury Secretary Janet Yellen—before the executive order was signed—Yellen praised the government's commitment to "responsible development."
"This approach will support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses," Yellen said in her statement, which can be accessed via the WayBack Machine here.
What about the climate?
While the crypto industry's climate impact does not earn a specifically dedicated section, the U.S. government is taking this issue seriously, too.
Within 180 days of the order, Biden has instructed multiple leading authorities—including the Environmental Protection Agency—to submit a report to the president that will examine the "potential for these technologies to impede or advance efforts to tackle climate change at home and abroad."
Specifically, proof-of-work blockchain mechanisms like Bitcoin's may come under fire. These blockchains are secured by high-end computers which perform complex mathematical calculations—which, consequently, demand a high consumption of energy.
Other networks—such as proof-of-stake blockchains and —do not require the same amount of energy consumption, and thus have smaller carbon footprints.
According to the order, "The report should also address the effect of cryptocurrencies' consensus mechanisms on energy usage, including research into potential mitigating measures and alternative measures of consensus."