National security at stake with Biden’s crypto executive order
Jthe White House would have will soon issue an executive order directing federal government agencies to conduct a risk analysis and ultimately a coordinated approach to digital assets as a matter of national security.
Adam Zarazinski is CEO of Digital Inca, a provider of digital asset data and analytics for cryptocurrency exchanges, financial institutions, and government agencies, including the Department of Defense. He is a Major in the US Air Force Reserve.
Digital assets like bitcoin (BTC) pose risks to the immediate national security objectives of the United States that require action and coordination by federal agencies, but there are deeper and broader national security opportunities that should prompt the United States to support the continued growth of the digital asset ecosystem. We managed to strike that balance with internet commerce in the 1990s, and it should be no different this time around with digital assets.
National Security Risks
Just like other technologies, digital assets are used for drug trafficking and money laundering. Digital asset markets face fake trading volumes, fictitious trading, and pump-and-dump systems as they mature. Larger geopolitical forces are also at play: China has been shown to manipulate the price of cryptocurrencies through its regulatory measures to gain a position of strength in the implementation of the digital yuan as part of its initiative. “the Belt and the Road”.
North Korea is stealing cryptocurrency to fund its nuclear weapons program. Putin’s regime has built Venezuela’s Digital Asset Ecosystem as a test to pursue their own goal of creating payment systems independent of Western financial infrastructure, and this will likely go beyond proof-of-concept in the long run with US sanctions coming online.
All of these pose risks to U.S. national security, and federal agencies need better tools to understand how digital assets work and how to leverage their jurisdictional authority in digital asset markets globally. .
National Security Opportunities
Digital assets also present an opportunity for national security. They can reduce the wealth gap by reducing global transaction costs. They empower people, globally and regardless of their socio-economic status, to control their own money. They can transform international aid and development, foster trade, and spur a new small business sector in the United States. They can reduce fraud and inflationary instability in global markets. And they can revolutionize the global financial system and drive innovation in digital assets will increase US competitiveness in this new era of great-power competition.
Russia’s invasion of Ukraine is a microcosm of these challenges and opportunities. While Russian oligarchs and sanctioned corporations could use cryptocurrency to shift value globally, Ukrainians have raised millions in crypto to support their country’s defense, and ordinary people on both sides – Ukrainians and Russians – are using crypto to mitigate the financial backlash of war.
In short: it is in our national security interest to support the development of cryptocurrency.
The United States should foster responsible innovation and manage risk as we have in the past. Twenty-five years ago, the Clinton administration put in place a policy framework for the internet, just as the Biden administration will soon do for crypto. The Clinton Administration go plan a clear articulation of an open, market-driven innovation vision for the early Internet. The policy introduced five principles for the Internet that are remarkably relevant to cryptography today:
- “Innovation…wider participation and lower prices will show up in a market-driven arena.” If the administration focuses on a market-driven approach, especially where there are partnerships between the private and public sectors to manage risk and share best practices, innovation will flourish and lower prices with wider financial participation will result.
- The government should avoid undue restrictions. “Government attempts to regulate will likely be overwhelmed by the time they are finally enacted.” The risks presented by digital asset services are simply new twists on the same risks presented by other financial services. Digital asset businesses should be subject to the same rules as financial services businesses in other asset classes. Same service, same rules, same legal framework, no more, no less.
- Where government involvement is necessary, the aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment. While many cryptocurrency startups bristle at the idea of government regulation and may speak out against any attempt to regulate the space, even more want clear rules for accessing US markets safely and in accordance. . Contrasting regulations, especially between federal law and state law, need to be streamlined.
- “The genius and explosive success of the Internet can be attributed in part to its decentralized nature and tradition of bottom-up governance. These same characteristics pose significant logistical and technological challenges to existing regulatory models, and governments should adapt their policies accordingly. Decentralization and bottom-up governance are fundamental tenets of crypto, and regulatory frameworks now face complex new digital assets and services, from decentralized exchanges to non-fungible tokens (NFTs).
- E-commerce legal frameworks should be facilitated globally. President Bill Clinton has recognized that the Internet is a global marketplace. Digital assets build on this theme by enabling individuals to transfer value globally in an instant.
These principles do not mean that federal agencies should not act to understand cryptocurrency, regulate the space, and enforce laws. They should, and most of them already do. From the Securities and Exchange Commission to the Federal Bureau of Investigation to the Secret Service, they are all striving to leverage their expertise in the digital asset ecosystem and have a key role to play in protecting the integrity of America’s financial infrastructure.
In 2018, I left the US Air Force to start Inca Digital with the goal of bringing major financial institutions and government agencies into the crypto ecosystem. In addition to market monitoring, we collect information on ransomware, hacker attacks, and distribution of blockchain nodes for banks and law enforcement. We even work with the Department of Defense to track the use of cryptocurrencies in illicit supply chain activities and support counter-nuclear proliferation operations.
Ira Magaziner, one of the main movers of American Internet policy, made an important point when writing the Clinton policy: the Internet “is also a force for the promotion of democracy, because dictatorship depends on the control of the flow information. The Internet makes this control much more difficult in the short term and impossible in the long term.
The Biden administration has a limited window of time, a unique opportunity to instantiate its core values of freedom and freedom in what will be a new global financial system. It will play into the hands of high-powered competitors like the People’s Republic of China and Vladimir Putin’s regime in Russia if innovation in digital assets is stifled here. It is no secret that China has already integrated digital assets into its economic and national security policy to increase their competitiveness, Launch of a “horse race” China believes it can win.
To maintain America’s national security and America’s place in the global economy, we must look to what is fundamental to America: an open society with bold thinkers and entrepreneurs pushing the boundaries of system through responsible technological innovation. That’s what we did at the dawn of the Internet age, and that’s what we should be doing here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.