This article is contributed by our content partner, Nexchange NOW.
“You can spend a tremendous amount of time and effort on building regulations, but you are actually looking into the rear-view mirror, as the industry has already moved on.”
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Olga Yaroshevsky: I like that you mentioned starting in the blockchain industry as early as 2013. I heard you have referred yourself to being the only blockchain lawyer in Europe in 2013 and 2014. How did you even get there? When did you decide to join this industry? How did you even find a legal base to work with back in 2013, when there was no, clearly no legal framework for things like bitcoin or an ICO?
Adam Vaziri: In the starting, in the first few years at least, it was not really much about applying, it was about applying law to the industry, but it was more in a theoretical way. Based on that theory, so to speak, of how the law would apply to the industry, then it was about interacting with regulators and government around policy. In other words, how the law should be shaped in relation to this new asset.
That’s why we founded the UK Digital Currency Association, it was to give a voice for the industry, in order for the voice to be heard by regulators and tax authorities. One of the primary areas where we concentrated our efforts in the initial phase was around tax.
OY: Speaking of UK’s regulatory environment for the crypto industry, can you, so far, honestly call UK the best place to set up a crypto company, comparing to other jurisdictions like Estonia or Malta?
AV: That’s a good question. I think, choosing your jurisdiction where you establish your cryptocurrency business is a matter of looking at different aspects. First of all, you have to look at the regulatory environment for the business activity. So in the case of an exchange, what is the business activity? Is it trading of cryptocurrency assets? What is the business activity and how is it categorised? What’s the tax environment in relation to that business activity, what’s the legal certainty that you’re operating in, and how things will change in the future? To me, those are the ways of determining where to situate your business. Now of course, there are other considerations like how close is it to wherever you live, but those to me are the central questions around deciding that.
UK, to me, versus say Malta or another jurisdiction, takes a very laissez-faire approach towards regulating the cryptocurrency industry. They don’t want to intervene at least from a financial regulation point of view, and to regulate cryptocurrency per se, and the activities associated with that. They just don’t want to do it, and they’ve been very consistent in saying that’s the case.
They just don’t want to be involved in any way in regulation. Of course things will change because of, as I explained, every country in the world is now going to enforce their regulations of cryptocurrency exchanges, but that’s only from the AML point of view, not from any governance or conduct point of view. So if you like that environment, if you like the fact that it has a laissez-faire approach, then the UK has been quite consistent. But at the same time, it’s also about providing legal certainty, saying “we’re not regulating that”. It’s not that it’s a grey area, we’re just telling you outright “we’re not regulating that”. If you like that, then that’s great.
Now if you want to embrace regulation and you want to deal with a proactive jurisdiction, then the countries like Malta, as you mentioned, Liechtenstein, these countries may be more suitable because they’re saying “we want to proactively regulate the industry and proactive set out rules” by which cryptocurrency exchanges need to abide by and adhere to that rule set in order for them to maintain their status within the country. So if you have a proactive regulator, then you need (to make) your choice. It’s essentially which one of those regulators do you like the most? And that comes to the relationship, um, how open they are to your business model, and other softer areas towards… in terms of decision-making. But from my point of view is, it’s not that one is better than the other in terms of countries. Every country has its own pros and cons, and it just depends what you need.
OY: What do you think would be the biggest fintech industry achievement at this moment, so far, in terms of regulation and compliance? Since, let’s say, 2013.
AV: To be perfectly honest, I’m not so interested in regulation and compliance, per se. I’m more interested in what regulation does to foster an industry and to allow entrepreneurs to conduct their business with certainty.
For me, sandboxes were very useful initiative by the UK, replicated in Singapore and Hong Kong. They’re useful for building a relationship of trust surround innovation between the regulator and the regulated.
I think that’s one achievement. The second is, it’s incredible how this industry has accelerated beyond comprehension. You can have businesses like Binance that can emerge in a few years, have a turnover of over a billion dollars, and essentially compete with JP Morgan as a business in terms of net profitability. And yet, to be regulated in a manner where it’s like 1/100th of the regulation of JP Morgan. So, let’s say 1% of the regulation of JP Morgan but the same net profitability. I mean, that to me is a phenomenal aspect, you’ve never even seen happen before really, I don’t think, in any industry.
But with that comes risk, of course. Even businesses that were in Japan were regulated, but that did not stop customers from losing their digital assets. CoinCheck was regulated by the Japanese FSA (Financial Services Agency), but that did not stop it from losing so many assets of customers. We can’t say it’s a small industry, it’s burgeoning, everyone’s learning as we go – no, that’s not the case anymore. The regulation gets more sophisticated. The businesses are far more successful, they are astoundingly successful. We can’t forget that reality, but at the same time we have to be very nimble, and move where the technology is moving. When I started, everything was about bitcoin and the payment system. The year after it was about the universal computer on a distributed ledger, essentially Ethereum. And then from that you have an incredible amount of innovations. You don’t know where the industry is actually going to go. So the regulations need to be nimble, and be flexible enough to change with the industry, as it’s morphing and changing.
For example, by the time Malta introduced ICO regulations, the ICO industry already burst the bubble, and everything shifted over to IEOs. You can spend a tremendous amount of time and effort on building regulations, but you are actually looking into the rear view mirror, as the industry has already moved on.
OY: Don’t you think that the fact that the companies actually have to comply with AML procedures contradicts with the whole idea of decentralization? And somewhat digital decentralized anarchy that was introduced back in the day together with bitcoin and digital cash. Trying to overrule the centralization they still have to keep up with these rules.
AV: To me everything is down to interpretation. When I started there was a lot more crypto-anarchists, who were fascinated by bitcoin, because there was no one behind bitcoin.
Technology is neutral, it’s the lens that we’re wearing that do the interpretation of that technology.
Same as with the Internet, artificial intelligence, gene editing – whatever the new innovation technology it is, it is neutral, it just depends on your perception, and how you project that perception onto that technology. For crypto-anarchists, they viewed it as the anti-state. For technologists, they view it as they can replace or advance database processing. It’s not just a private blockchain, it’s about collaboration between industries that could not collaborate before.
For other people, well, for myself it’s personally more about how you can create variation in a financial ecosystem. That you give people a choice, between choosing an optimised financial system that currently exists, the likes of Visa, Mastercard, that make payments faster, and then advances in fintech within that field, and an alternative financial system, where we create cryptocurrencies and blockchains to self regulate how these digital commodities are traded and how value can be transferred across borders. What I’m personally interested in is somewhere in the middle. This is a hybrid of the two, which allows people to benefit from the decentralised framework, but can also accommodate the world as it is today. It’s a spectrum, right?
People on one end of the spectrum, and on the other end, and in the middle. But that’s the point – it all depends on who is looking and influencing that technology. When you have a drift between Bitcoin core and Bitcoin cash – there are different philosophies that they were imbuing the technology with. Roger Ver is saying: bitcoin is all about transactions and payments, replacing the US dollar, allowing people to use currencies in free trade. For him technologically Bitcoin should increase the transaction frequency, 2-3 transactions a second is not good enough. His philosophical point of view is very different, to those saying that Bitcoin core is more like a store of value. So these are different philosophies, and there’s no unified view. In other words, all you have is variation.
That is the one trick about cryptocurrencies, and that’s what is so magical about it: if you disagree with the way that cryptocurrencies being managed – then you can fork it. That’s voluntarism within how this community is organised.
To me it’s all about variation, I don’t believe that there’s just one interpretation of what blockchain can and can’t do, what cryptocurrencies can and can’t achieve, whether they are stores of value, or currencies, or just decentralised payment systems.
Image via Nexchange NOW
Original Article: http://www.nexchangenow.com/news/71473/nexchange-interview-series-adam-vaziri-ceo-of-blockpass-part-2/