Interview: Yesha Yadav on ABC of Donald Trump’s new crypto world | World News

HT spoke to Yesha Yadav, a leading authority on crypto-regulation and an associate dean at the Vanderbilt Law School, about crypto, its underlying technology, legal challenges, financial implications, how various jurisdictions have dealt with it, the role of the industry in the 2024 elections, its intersection with global geopolitics, and what Trump’s arrival means for the world of crypto.

Q: Let’s begin with the basics. How did crypto begin, evolve and become as big as it is right now?

A: Crypto began as a project that really looked to create a structure for everyday people to talk to each other and send value to one another without having any government or any other kind of bank involved in that process. So it really began as more of a philosophical project, which gained a lot of enthusiasm from those who were feeling disillusioned from the political system and from the economic system following the 2008 financial crisis.

Now, what’s interesting about Bitcoin is that beyond just being a philosophical idea, there’s a great deal of really pathbreaking computerised technology underlying that. The challenge that Bitcoin faced in trying to create a value transfer mechanism that didn’t involve a bank or a government was how to create a system where people can agree and take decisions between each other without having any central authority involved? Now, normally when a bank sends money to you, they will check the information, they will talk to the other bank. So everything is done through that process. But if I want to send you money without having any of these processes involved, how do we agree what’s correct? How do we agree what’s right? And the challenge that Bitcoin faced is actually a very fundamental problem in computing. How do decentralised actors take decisions?

What Bitcoin did that was completely revolutionary and innovative is create the system of rewarding those that helped promote the decision-making process. So it incentivised and gave rewards to a subset of people within this community who would work to help create agreement as to what the right transactions are. So let me just try and break that down a little bit more concretely.

If you and I have to agree, we can go round and round in circles. We don’t know each other, we don’t trust each other. But there’s this group of actors that said, look, we will go into the Bitcoin system and we will produce a first draft of what we think is correct, and then you can then agree on our draft memo of potentially correct transactions. And that sped up and made the decision-making process easier. Now, these actors who helped the process along, they are called the miners. They are the ones that put a lot of effort into protecting the system by producing this first drop of transactions. And they are the ones that are rewarded in Bitcoin. So that’s how new Bitcoins arrive in the world. They are given and minted for these group of protectors. That system solves the problem of how to create agreement and consensus between two people in the world or many people in the world who don’t know each other, don’t trust each other, but can only communicate with each other through a shared computerised system. So that’s the kind of primer on what this is.

Q: So the miners were these group of people who acted as the intermediaries and provided a basis of trust to two different individuals who wanted to do a transaction. But to understand this right, you are still creating an intermediary, right? Or are we talking about a certain kind of technology there? What is that intermediary? What does that mean in specific terms?

A: They would balk at being called intermediaries. They are not like a pit stop that one has to go through. These are voluntary actors that are in the system because they are going to be rewarded by the system. All they do is they jump into the Bitcoin transaction pool, pull out the best transactions, tell the entire network, approve them, and that’s their job essentially. And it’s much more informal than say a bank or a government. But these are essentially voluntary actors who are motivated by Bitcoin to produce some level of security for this network as a whole. It’s a very competitive industry today because obviously Bitcoin’s worth is going up over time. And so this class of folks, these miners have gained incentives to be much more engaged in protecting the Bitcoin network. So over time, what that has meant is that this network has become much more robust, much more credible, much more accepted as a potential part of the future mainstream financial system.

How the crypto faith developed

Q: So to an outsider who does not understand this and deals with cash or deals with debit and credit cards and with what most would still consider real money, which is earned, which is kept in banks, which is used in whatever way that person wants, it’s not clear if crypto is real? Is this notional? Is this only virtual? What is its real value? What can I buy with this? What can I sell with this? So how did that psychological shift happen where people started treating this as something of value?

A: It’s a really fundamental question that you just asked. This goes to the fundamental nature of money itself. If you think about money itself, it is an institution that is born of faith. And the reason why the dollar has the value that it has, or the INR has the value that it has, is that it is backed by the full faith and credit of the government, that it’s backed by the political institutions, the banking institutions within that country. And so that’s the model that we have evolved. But fundamentally, money requires an element of faith to believe that this paper currency, which is really worth nothing by itself, has actual worth, and that it is infused of that worth by the dint of having this kind of larger institutional superstructure behind it.

Now, when you look at things like Bitcoin, for example, Bitcoin by itself doesn’t have that apparatus of the State. There is no State backing it. There is no central bank that will support its function. What it has is the power of the network. What it has is the power of the software, the Bitcoin software that connects different participants together. What it has is the power of the security of that network — in other words, how powerfully incentivised these miners are to protect the network. And what it has is gradual network effects. In other words, what that means is that more and more people see that this network really is powerful. They believe in the quality of its security, they believe in the project, and so they start to join it. As they start to join it, they can send Bitcoin to more people. As more people begin to see that Bitcoin has some viability, they also join it.

So there is this ability that Bitcoin has acquired potentially because it was the first mover here, the OG as it were, that it has acquired these very powerful network effects.

And what has happened over time is of course that Bitcoin as well as other cryptocurrencies have allowed for certain economies where the local marketplace is perhaps not as strong, where people don’t have faith in the domestic money supply, they have actually opted into crypto markets. So for example, you see that in countries where there’s a lot of sanctions activities; Venezuela, Cuba. El Salvador famously adopted Bitcoin as legal tender. The capacity of these networks to operate independently, autonomously, essentially has allowed for this optionality within the monetary system, which has meant that Bitcoin at least has acquired some level of credibility by virtue of that dynamic as well. So it’s been a series of different pathways.

The fundamental idea here is that money does require faith. We give you that faith by virtue of all the state structures. Here that faith is created by the power of the network, the technology behind it, the security behind it, and the growing network effects.

Q: So it would have resonance and appeal in jurisdictions where perhaps economies are volatile and sanctions exist. Which were groups started having this faith in crypto in jurisdictions which had evolved currencies with strong sovereign backing for those currencies? And where it would be a gamble to invest in it, especially because you don’t know whether it would fetch your returns or what you could do with those returns? So, for instance, in US or in the West, which were the constituencies that began to develop this faith and how did it grow?

A: It began as a technological project in the US. It certainly acquired a group of enthusiasts within that community. So for example, certainly there was much more openness to Bitcoin, on the West Coast, places like San Francisco, where it was possible in the early days to actually use Bitcoin much more as a payments device.

But what has happened over time is that Bitcoin has become much more of an investment asset. In other words, Bitcoin is becoming part of an asset class that people want to use as part of their investment portfolio as you might invest in oil or gold or something like that. Over time, with greater name recognition, with greater adoption, this has now become a much more financialised asset class in the US. Whereas in other jurisdictions, there is a greater propensity, or at least there’s more of a propensity, to think about Bitcoin as a payments asset. It’s not a very good payments asset, but it’s nevertheless more used in that context. But in the US, it’s definitely evolved as a financialised asset over time. But, initially, its adoption was propagated and motivated by some of the more technologically-minded sectors of the population who obviously have lots of cache online with digital communities, social media, and were able to push that using those dynamics.

Bitcoin has been in existence now for around 15 years. So this is not a fast process. It’s taken time for it to build up to what it is today, but certainly initially it was forwarded by the tech class, and now it’s much more part of the kind of a crossover Wall Street asset as well.

Q: What is the scale of the industry now globally?

A: It’s a hard question. Let me answer that in different ways. This is an industry that has gone through incredible amounts of tumult over the last two years. It had lots of froth in November 2021. There was a ton of excitement about the asset class, lots of enthusiasm, lack of regulated exchanges. People got into it, the largest of these being FTX. In May 2022, the entire industry went through a massive restructuring. Many intermediaries within the crypto markets, those that facilitated access to cryptocurrencies, these intermediaries failed. There was the Luna stable coin that first triggered things off. Celsius failed. FTX famously failed. There was a lot of fraud. And, so at that time, there was a feeling that maybe crypto would not survive, but it has actually come back and it’s come back in a way that has belied any kind of expectation for it.

What’s very interesting now when you think about the potential for the industry is that it’s not just about the valuation of Bitcoin, which is now around $100,000, something that was unthinkable two years ago. It’s what’s going to happen next. And the reason I say that is because the incoming US administration has adopted a visibly forward posture. We see that with Trump talking up crypto a great deal, suggesting the creation of a Bitcoin strategic reserve, picking personnel who are incredibly pro cyrpto for key positions in government – for example, the Treasury Secretary Scott Bessent is a known Bitcoin enthusiast. The many initiatives under consideration signal a highly institutionalised acceptance of crypto.

What that signals more broadly is just a huge potential globally for crypto assets to be seen as very much a part of a traditional financialised mainstream universe because of the position of US internationally. Something to watch and importantly see how is the G20 will now approach crypto as a regulatory priority given the embrace of crypto in the incoming administration.

Enter Trump: Regulation-politics interface

Q: Why has there been so much criticism about the regulatory structure, what created the room for so many crypto constituencies to become so enthusiastic about Trump, and what is the kind of legal regulatory structure that they are expecting and that you expect the Trump administration to bring in?

A: For the crypto industry, the last four years have been a period of enormous uncertainty and a great deal of worry as to whether or not they are going to face litigation. So the posture that has been adopted over the last four years or so, particularly by the SEC, (Securities and Exchange Commission) as well as other regulators, is to try and require crypto to fit into existing types of regulation that already exist rather than creating some kind of new tailored regulation appropriate to the crypto market. This has meant that the industry as a whole has faced a great deal of worry and difficulty operating because there’s been an anticipated view that they will be sued by a government agency.

In addition, there have been heavy restrictions on access to banking for crypto companies. There is a great deal of discussion right now around this purported policy where the banking regulators suggested that crypto should not get banking services and told banks not to service crypto. So industry felt that crypto has really struggled to grow in the US due to a lack of access to infrastructure.

Crypto then became a huge force in the US election, forming FairShake, one of the biggest super PACs (political action committees) in the country. And now there are elected representatives on both sides — Democrats and Republicans — who are supported by FairShake and are coming into the new Congress, supported specifically by their posture towards creating new crypto regulation that is tailored to the task of allowing crypto to gain mainstream adoption.

So that is where we’re headed in the new administration. The personnel at the top are very much motivated to do something positive for the crypto industry. Agency chiefs including Paul Atkins, Trump’s pick to lead SEC, are pro-crypto. Trump himself actually has a family crypto initiative called World Liberty Financial. You have lots of lawmakers who have been put there knowing that they will be primed to support new crypto regulatory initiatives. So it looks like the new administration is likely to de-risk crypto operations in the US, reduce litigation risk, and offer a lot of institutional support to bring crypto into the mainstream.

Q: What does this mainstream adoption of crypto mean? Does it mean the creation of the strategic reserve, access to banking services, reduced risk of government regulatory actions and inconsistency or more?

A: The strategic reserve is definitely an important initiative that is being put forward by Trump and others. It’s nevertheless quite controversial. Even those who are very, very bullish on crypto don’t always think that a full large strategic reserve is going to be a great idea, but it’s nevertheless an initiative that will be debated very, very seriously. So yes, it’s part of that mainstreaming of crypto. So if the US becomes a place where there is some strategic reserve, whether it just means the US will not sell its existing Bitcoin — the US is a massive Bitcoin holder by the way — or increases its holdings, that will be a big mainstream feather in the cap of crypto that would have been unimaginable five years ago.

Q: A point of clarification here. You mean the US government already is a big crypto holder?

A: Absolutely. The US government is a very large crypto holder. I believe they have around 200,000 crypto Bitcoins, which has come from seizing crypto from illicit actors. The US has obviously been very involved in ensuring that crypto is not used for fraud or pursuing sanctions busters. So that is the product of seizure over time.

Q: What are the other forms of mainstream adoption?

A: A comprehensive regulatory framework for crypto and for crypto related assets. And what that would mean essentially is that once there’s regulation around things like how do you safely hold crypto for customers — in other words, here’s how you safely hold customer’s crypto passwords — the customer’s assets will never enter bankruptcy. It will be fully protected. That means that everyday customers can start to give you their crypto to hold. And so as an institution, you become part of the crypto economy. This will include banks, mutual funds, and others that can then feel much more confident entering the crypto market.

Crypto disclosure rules is another one. The more disclosure you have, the greater insight folks will have into technologies. The more insight they get into the technologies, the more those technologies are required to improve because they’ll be much more accountable. And the more people understand these technologies, the more they will feel comfortable using them. So that process of creating a regulatory framework and ecosystem will increase comfort and assurance for everyday people. The more everyday people start to use it, the more financial institutions as a whole will start to get involved. And so crypto just becomes very much part of the furniture from the economic standpoint rather than being an asset that is potentially considered at the margins or at the fringe.

The regulatory framework is key to that because it makes it safe and allows regulated financial institutions to get involved for everyday people, including folks who wouldn’t otherwise — older folks or folks who would consider crypto — to feel more comfortable. So that’s the end goal in many ways.

The real economy and missing guardrails

Q: What does this mean for the real economy, for everyday general transactions on goods and services? Will crypto move beyond just an investment instrument to having an impact in different kind of realms? And what does that look like to you?

A: The goal here is ultimately that one can use these decentralised assets, decentralised networks, to be able to buy and sell real world assets. So instead of going to an insurance company, for example, to purchase your insurance, maybe you can get that using a decentralised network that operates using cryptocurrencies. So instead of purchasing a mortgage or going through a particular financial institution, you are able to use some of these decentralised networks to do that.

So there’s a burgeoning enthusiasm for creating options in the financial market that would allow folks to utilise decentralised markets where potentially they don’t have to pay fees to middlemen and to otherwise necessary institutions that may have charged too much for that service. And so that’s one goal here, which is to say that we want to make this decentralised system much more usable to service the real economy.

Now, to get there, you have to actually create wider comfort with these technologies. You have to create technological literacy about it. You also have to make sure these systems are safe from cyber hacks, from people policing other people, from taking their money but never providing the insurance, from taking their money but never giving the mortgage. So you have to make sure that all those guardrails are in place. Right now, we are in a moment where some of these technologies certainly exist, the networks exist, but the guardrails are missing. And so the goal really is to see what the guardrails will look like, put them in place, and then observe the potential of these technologies to really take root in a way that makes a case for themselves, that they really provide a benefit to the real economy to help everyday people to meet their needs for financial services.

Now, in a marketplace such as India where you have large populations that have been underserved in the banking system and the financial system, potentially, within a digital generation, decentralised marketplaces can have real value. Where people can trust these systems to just deliver financial services, but also to create modes of digital identification that can support the Aadhar card, for example, and allow folks to use digital identity on digital networks to then buy and sell different kinds of services, access different kinds of economies. So that can be something that has potential appeal, particularly for a market such as India, which is very young, digitally native, highly connected, highly financially and technologically literate, and trying to see how these networks might really serve their needs from a real economic perspective.

Q: What are the different kinds of crypto coins?

A: There are many crypto coins. So for example, you have Bitcoin, Solana, Ethereum, they attach to different kinds of networks. Each of these networks has different kinds of powers. So Ethereum is a network that is very programmable. What that means is that developers can create applications on this network automatically and use it. So for example, you have your iPhone. iPhone is like the Ethereum network in some ways, and people can develop apps for that network and send it out into the world. That’s different from Bitcoin.

So there’s a constant arrival of new kinds of coins of new networks. That’s the innovation that’s happening in this space to make these networks work faster, cheaper, more flexiby than Bitcoin does to make them much more useful for the mainstream. So for example, Solana is a network that is very fast, really fast. So where Bitcoin might take 10 minutes at least to approve a transaction, Solana will do it within a second or less even. So it’s super fast, which means it’s really useful for applications like gaming and finance where people love things to go fast. This is the kind of innovation that’s happening.

Q: So states and central banks, including RBI in India, are comfortable with the idea of a central bank digital currency. What is its intersection with the crypto world? Those are completely different things or there is some overlap.

A: Absolutely different. Let me just make the distinction in a big picture sense, which is the biggest distinction here is between public money and private money. Public money is money issued by the state, so it’s backed by the state. Private money is actually money where the claim is issued by a private entity. So when you have money in a bank, that’s actually not state backed money, that’s private money. So if the bank fails, you fail. That money is actually private money. But the cash that you have, the physical cash that you have in your pocket, that is public money. So that is money backed by the state. That’s the only way that us normal people get to hold public money, which is through physical cash and coins. Banking money is private money and therefore has credit risk.

When you look at crypto, crypto is this decentralised asset with no backing. And so it’s not public money, and it’s not necessarily private money. Stable coins is private money because stable coins are claims, obviously pegged to a particular hard asset. They are issued by a central entity that issues a stable coin. Stable coins are private money.

Now, CBDC is public digitised money, and is a reaction to the lack of popularity over time of holding physical cash. So people don’t use cash as much anymore. Post-pandemic, the trend has definitely accelerated. And in addition, where there’s a lot of private money and not that much public money, there’s a lot of credit risk in the economy with respect to money. So governments are saying, look, let’s have a CBDC where we issue a digitised form of our currency that is backed by us. Now that can sound like it’s using crypto technologies like tokenisation and so forth, and certainly that’s the case and some of that nomenclature is the same, but the principle is very different, which is we are issuing digitised money on a public balance sheet and it’s backed by the full faith of the state.

The skeptical case

Q: Let me ask two questions based on a degree of skepticism and maybe ignorance. One is at the broader philosophical and conceptual level. Money is money, a currency is a currency because it has sovereign backing. And if it does not have sovereign backing, it is not a currency and it does not have legitimacy. And that is the root of, I think, the skepticism about this decentralised network and the anarchy that may ensue. The second is the real concern about how terrorists will use it, how it will be used for illicit purposes, for narcotics, for a bunch of other things. And the concern that a place like India may not have the state capacity to be able to track, regulate, crack down on such decentralised wide networks, which can be used both within and across borders for various kinds of purposes. So both on the conceptual and operational level, how would you address that concern?

A: On the first issue, I think there are a couple of things to note, which is that strict cryptocurrencies like Bitcoin have a great deal of volatility that has made them till date not particularly useful as a payment asset. So when we talk about Bitcoin as a currency, I think that’s slightly off and is a little misaligned with really what Bitcoin is currently doing, which is providing a kind of investible asset like gold or bond or stock. This is really a kind of commodity based asset. In terms of folks looking at it as a competitor currency, that’s very far from the case. And it’s certainly not here to replace the US dollar or the INR; certainly it can be used in jurisdictions where the local state apparatus is very degraded, but that’s not the case for most economies that we are talking about here. It’s not competing for those well-regulated economies.

However, it’s important to understand what crypto technologies can enable today, which is a class of crypto asset called stable coins. So stable coins have become very popular as payment assets. Stable coin is a digital token whose value is pegged to a hard currency like the dollar, or it could be the INR. So one token is one INR, or one token is one dollar. And these stable coins are used in the crypto market to make everyday payments.

Stable coins are incredibly powerful today, not to undermine local monetary sovereignty, but potentially to increase it. In other words, if you see the stable coin being used that is very fast, very cheap to use, that provides highly reliable payment settlement technologies domestically, and internationally using INR assets, that’s a huge win for the Indian monetary system to the extent that the INR has the capacity to use this technology to propagate. Now for the dollar, for example, this is a huge benefit to have a dollar backed stable coin that is being used across Asia, that’s being used in Africa. It’s being used in different places because it means that the dollar system becomes even more institutionalised globally. The prerogative of the dollar is being this highly used asset that makes its currency so much more coveted. That prerogative remains much more embedded, notwithstanding monetary competition from rivals like China or the Euro marketplace.

So in many ways, these crypto technologies have the potential not to compete necessarily within the context of currency monopolists, but actually to support the monetary architecture to make it much more usable in ways that have not existed before. So it really depends on how countries are looking at it.

With regard to your second question, I don’t want to be a kind of defender of the crypto marketplace. But I just wanted to set out just to provide the kind of whole picture. Now, the traditional impression has been that crypto is a place that facilitates criminality. I think that’s a very widely held understanding. Certainly in the early days, Bitcoin was very heavily used in that regard. There are numerous financial studies from 2017 that speak to a pretty high use of Bitcoin by illicit actors such as drug cartels, sanction busters, and others. Now, what’s happened since then is that the level of illicit activity in the crypto market has decreased relative to the volume of crypto transactions that are happening. And there is a reason why this is the case.

The reason is that crypto is very trackable. So unlike transactions in banks or other financial institutions which are confidential and you cannot see them and you need subpoenas to get information about those transactions, the blockchain is completely transparent and readable. So even concerns about state capacity should be diminished here because this is a very low cost measure for the state to take. The technology for tracking these transactions has become much more available to states and other actors. So the advantage of the blockchain has become its transparency, which has actually been a disadvantage for those seeking to use Bitcoin for criminal purposes.

Now, what’s also interesting is that governments around the world have co-opted these exchanges that provide a way for crypto to then be exchanged for cash. So when you are within the Bitcoin system, and you are just using to it make Bitcoin into a dollar, you have to go to an exchange or some other broker that will then exchange your Bitcoin for cash. Now, these institutions are subject to monitoring. They are subject to laws against anti-money laundering and illicit finance. And so when the government wants to surveil who’s using crypto, they can attach regulation to these exchanges and brokerages. So for example, when the Russian invasion happened in Ukraine, there was a lot of fear that the sanctioned actors would take their money, put it into Bitcoin and leave, but that didn’t actually happen. That level of Bitcoin ownership following this didn’t happen because there was a fear that once they bought Bitcoin, it would be tracked and ultimately difficult to turn into cash because sanctions applied to these more centralised entities like the exchanges and brokers.

Q: Can you speak just for a moment on the energy and environmental kind of consequences of this?

A:Bitcoin is based on a protection mechanism that relies on miners deploying a lot of electricity. So there is a great deal of electricity consumption attached to this. I believe approximately two point something per cent of the US grid is being devoted to Bitcoin mining. That’s a potentially damaging reputational risk for Bitcoin. In addition, what it has meant looking forward is that Bitcoin mining is likely to compete with other highly electricity demanding innovations, notably AI. So that competition for electric grid space is going to be happening across the board.

But most newer blockchains following Bitcoin don’t use Bitcoin’s protection mechanism that needs electricity. So for example, Ethereum looks to those who have the most coins to protect the network to do that first drop of transactions for everyone to approve, and that uses little electricity, 99% less electricity. So the most newer blockchains have moved away from this model. That’s at least something within crypto space.

India, China and the global momentum

Q: So you have explained to us the concept and the technology, the regulatory structure and legal ambiguity that existed, the possibilities of mainstream adoption with Trump coming in, and why some of the apprehensions may be misplaced. Now, once Trump embraces it and there is more institutionalised backing for it in America, what does it mean for a country like India? How should India think about crypto now and prepare itself for what’s about to come?

A: India has to take a lead here as a regional superpower, a global superpower, as a highly growing economy that is looking to expand even further. India’s growth rate has been 7%. It has positioned itself as a potential alternative to China on many different metrics. It is positioning itself as a place to export services and goods. All of that requires payment systems. All of that requires the ability to engage with international financial systems and therefore with the cutting edge technologies that is going to be embedded within these different infrastructures. And so you like it or not, crypto is here, crypto technologies are here, stable coins are being used very widely in payments. In addition, there is clearly a financialisation of the crypto asset; for example, Bitcoin is being used in a variety of different investment products like exchange traded funds.

And so given India’s position globally, given India’s leadership as a technological superpower, it makes sense for it to really take seriously the possibility of how to create a space where it can get comfortable with crypto technologies as a means of facilitating its emergence and solidification within the global monetary architecture.

Now, one point here is to obviously think about how this benefits the local Indian population and in particular, what kind of advantages crypto might allow for the domestic market. And that will only come from the Indian state becoming more comfortable with crypto technologies, thinking about decentralised finance, thinking about the ways in which locals who don’t have access to banking can still get access to services using more decentralised technologies.

Now, part of this means that India has some responsibility as a regulatory leader. So to the extent that India would like, there is space here to create leadership in terms of standard setting on crypto, crypto markets, thinking about what kind of protective standards would be helpful in things like disclosure, custody, financial stability. So why shouldn’t India play a role here? Why stand back for a country that has such ambitions and that looks to be a bridge between the east and the west and that is really thinking hard about its position in the world? Why shouldn’t India take this opportunity in what is clearly a highly innovative, technologically exciting asset class where India should be naturally advantaged in pushing its leadership?

Q: What’s China doing on crypto?

A: China has traditionally taken a posture where it’s essentially banned things like crypto mining and not had a favorable national posture towards crypto. But that has changed in some forms. So for example, Hong Kong is being set up as a hub for crypto to invite new technologies, experimentation, sandboxing and so forth. In addition, obviously notwithstanding the ban on crypto mining, China is one of the top ten crypto users in the world.

The very interesting thing that China has done over the last five years is push forward with a CBDC. It has been trialed across hundreds of millions of people and it has been integrated into very usable phone-based interfaces across different merchants and other things. In terms of taking a lead in a particular segment on the digital asset market, China has definitely been at the forefront of the CBDC development. And China is positioning itself so that its CBDC can be used within the region to create the potential for China to really solidify its position as a trading hub by using the digital currency seamlessly across the region as part of its trading relationships.

Q: On crypto, is it inevitable that the nature of the US-China relationship is going to be competitive and antagonistic and adversarial as it is in other domains, or because of the nature of crypto and cross border flows, there will need to be a degree of accommodation between US and China and an agreement to set the global standards and global norms on this?

A: I think one place to look at here is the post financial crisis regulatory cooperation. Regulators around the world led by the G20 came together and developed standards that were promulgated around the world for banking, for derivatives, for all these other kinds of assets that were regarded as being problematic in the run-up to the crisis. Now crypto is the quintessential global asset class, there’s no doubt about it. And so clearly there is a lot of dynamic here for regions, countries to cooperate with each other to develop a consistent harmonised regulatory regime for the crypto asset class across the board.

At the same time, I think clearly there is also a lot of competition underlying this larger cooperative kind of posture; countries are looking to become crypto hubs, so they’re competing with each other to attract the best talent, the best technologies which can produce the best kind of networks, the best decentralised apps, the best interfaces for people to then engage with crypto. So there is also this underlying competition. For example, you see places like Dubai and Saudi Arabia try and become real leaders in hosting crypto companies. Singapore, for example, is pushing itself as a crypto hub. Hong Kong clearly is pushing itself as a crypto hub and now Trump is really forwarding the US as a place where crypto can feel at home. Trump also said that he wants crypto mining to all be done in the US, and so there is clearly some undercurrent of competition there too. In addition, there is also stablecoin competition here.

These are things that can create some level of monetary competition, but ultimately, these different kinds of competitive dynamics reflect the larger geopolitical dynamic that already exists. At the same time, there are lots of different reasons for creating some level of global level-playing field here on crypto standards and that feels like it’s going to happen. And it’s a good moment for India to think about leadership in this context as well as obviously the US that will be very much looking to play a belated leading role here after standing back for so many years.

Force for good or danger

Q: As someone who has studied this, for you, is crypto a force for good or a potential danger? What are the costs and risks that you would flag at this juncture for people to factor in when they are deciding on regulatory and legislative and legal structure?

A: That’s a really deep question, and sometimes I feel like I am really not intellectually equipped to even answer it. I think in terms of technologies, it is a force for good, but in many ways it depends on how it’s used and how it’s regulated.

When we think about crypto, we have to think about ensuring that it is safe to use that everyday. People who are engaging with this technology are not left standing with their pockets hanging out and nothing in it. If they put reliance into this asset class as a way to use for payments, using stable coins, for example, a stable coin issuer should be safe enough that that claim is robust, that the claim does not go bad. In other words, when they can’t come to trade that claim for a dollar, that person issuing that claim has not disappeared. So we need this technology to be used in a way that reflects high quality regulatory standards to protect everyday people, to protect those who see this as a place where they can keep their investible aspirations.

Equally, think about this from the global standpoint, as a technology that can then use some of its insights to then revolutionise other ways in which money and capital flow across the global ecosystem. For example, when we think about tokenisation, you can take digital tokens to represent assets such as houses or cars and to trade them. All of that depends on people being able to feel safe that these abstractions, that these legal creations actually make sense and are well done, well protected, technologically supported.

So ultimately, the question of how we can use these and how well we can see the potential for these depends on us doing the work to understand the potential of these technologies, really becoming literate to ensuring that these are safely, very safely rolled out the general public, to ensuring that we are monitoring constantly these technologies that are used — protection against use by illicit finance, for example. And then we just to have an open mind as to how these technologies can then revolutionise mainstream finance, which also has a lot of problems, to ensure, that mainstream finance delivery, inclusion, capacity to help grow people’s money can get even better because it’s using some of these technological cutting edge concepts in its own delivery.