From Bitcoin miners to Dogecoin enthusiasts, cryptocurrencies have become an object of wonder, speculation and more than a little confusion for some.
Basically, it is a digital asset based on a network distributed across a range of computers. The decentralized nature of cryptocurrency gained a number of investors and speculators attracted by the lack of governmental control of the medium of exchange. But that could be changing.
The Federal Reserve Board, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, recently conducted a series of so-called policy sprints focused on cryptocurrency. The “policy sprint” idea brings together staff from the various regulatory agencies to conduct preliminary analyses of issues related to a specific topic – in this case cryptocurrency. According to a Fed news release, the result of the policy sprint “provides a roadmap of future planned work.”
That could be bad news for crypto fans who see the digital asset as a better alternative to government-regulated money.
For now, the Fed and its partners are focused on the risks and opportunities cryptocurrency presents for the banking industry, but the fact that regulators are not only looking at digital assets but announcing it publicly sends a strong signal that this is no passing fancy on their part.
According to the release, “It is important that the agencies provide coordinated and timely clarity where appropriate to promote safety and soundness, consumer protection and compliance with applicable laws and regulations” in the digital asset realm.
But that is not necessarily a bad thing for cryptocurrencies or consumers.
While the more libertarian-minded crypto investors will likely see this as yet another government intrusion, providing a level playing field and established standards of conduct and exchange are necessary pieces to a sound monetary system. With so many new cryptocurrencies emerging, it is becoming increasingly difficult to separate the wheat from the scams in this brave new world of currency.
The federal agencies are starting with the basics, including developing a common vocabulary using consistent terms for cryptocurrency, identifying key risks for banks and determining how cryptocurrencies may result in becoming part of a bank’s balance sheet.
If the traditional banking industry is going to jump on the cryptocurrency bandwagon, then banking regulators are going to have a role to play. And while it may take some of the bloom off the cryptocurrency rose, if digital assets are to become a widespread medium of exchange, it is a necessary and important step.
Perhaps it will encourage greater appreciation and use of digital assets and open opportunities for a new class of entrepreneurs looking to take advantage of new technologies and banking systems.
Of course, all of this begs the eternal question: If a person pays for an NFT with a crypto coin and nobody hears it, did the transaction ever take place?