U.S. vs. China: How Regulation Will Define the Crypto Wars

COMMENTARY

More than 25 years ago, the internet revolution that was launched in the United States transformed the world. It changed how we communicate, how we shop, and brought the world closer together. Today, we are on the verge of another revolution that can be just as empowering for consumers, businesses, and economic growth. 

The rise of cryptocurrencies and blockchain technologies has the potential to fundamentally restructure financial services, making global transactions as simple as using an ATM. And blockchain can be used to create crypto ledgers that will reshape commerce more broadly by changing the ways contracts and legal documents travel and are signed.

But a quarter of a century has brought other changes as well, and the United States faces stiff competition in shaping the future of new technologies. China has emerged as a dynamic economy with significant investments in technology. China’s leader Xi Jinping recently announced that blockchain and cryptocurrency are core technologies that will have the support of the Chinese government. 

Indeed, China is set on launching its own cryptocurrency within 18 months. A crypto world dominated by China would be vastly different than a U.S.-led blockchain world. Policymakers in the United States need to understand this rivalry and avoid unnecessary laws or regulations that will hamper the cryptocurrency revolution that is underway.

It is worth noting the permissiveness of the Chinese government with respect to cryptocurrency. The nation is moving forward with what is known as DCEP—digital currency/electronic payment—relying on well-known institutions such as Alibaba and Tencent with more than a billion users to familiarize and popularize the DCEP. 

Unlike the democratized and distributed approach to cryptocurrencies in the West, the Chinese model sees the central bank as a key component of the DCEP. The blockchain information flowing through the bank will provide the government with unprecedented insights into financial transactions. Should the Chinese DCEP gain acceptance globally, it will provide powerful leverage to the Chinese government in the world’s markets.

While China has made deliberate movements toward the concept of digital currencies, the United States remains mired in discussions over how to classify cryptocurrencies for regulatory purposes and what compliance should look like under the eyes of the law. 

Rather than paving the way for innovation, these discussions focus on forcing new technology into old boxes, ignoring the larger contest over blockchain and cryptocurrency that is playing out on the world’s stage. 

The United States would do well to refocus its efforts on innovation and facilitating the development and application of these new technologies. Both federal and state regulators need to understand the urgency of advancing blockchain and crypto technologies.

There is no doubt that cryptocurrencies can generate economic benefits. The internet’s ability to link people together from across the globe will be furthered through the use blockchain and crypto technologies that allow consumers and businesses to transact instantaneously and securely anywhere in the world. 

Cryptocurrencies are gaining acceptance and their use is becoming more widespread. More than 36 million Americans own cryptocurrencies currently—double the number over last year. And cryptocurrencies are not just speculative holdings, they are being deployed in commerce: Moneygram, the second largest company providing money transfers, announced that 10 percent of its U.S.-Mexico transfers are facilitated with cryptocurrency.

Blockchain ledgers have wider uses as well. The ledger is public, which enhances transparency. It also allows the creation of smart contracts and can be used in supply chain management as a way to more accurately track products and reduce costs. The blockchain can also reduce labor costs both in the private and public sector. 

Mass adoption of these technologies will enhance commerce at home in the United States and globally. Given the public nature of the blockchain ledger, it can be especially beneficial in nations struggling with high levels of corruption.

The internet and digital technologies continue to evolve in ways that provide sweeping new benefits for both consumers and businesses. These changes can boost economic activity and enhance economic growth. In the past, the United States has been the undisputed hub for innovation and the adoption of new technologies. 

Today, however, the world has changed, and China poses a real challenge to U.S. dominance with respect to the adoption of new technologies. This is most evident in the emerging market for digital currencies, where China is aggressively pursuing the cryptocurrency policies. U.S. policymakers cannot ignore China’s push into this space, they need to focus on paving the way for the development and adoption of cryptocurrencies. 

Otherwise, China and its version of the digital future will shape not just global markets, but politics as well. Being an also-ran in the digital currency race is not an option.