There’s no question that cryptocurrencies have become a policy hot spot, well beyond the scrutiny of speculation and volatile price swings.
Any number of federal agencies — and central banks, depending on how globally your view extends — have been examining the use cases, design and security implications of cryptos, stablecoins and central bank digital currencies (CBDCs).
Circle Chief Strategy Officer and Head of Global Policy Dante Disparte said there’s a balancing act here, where crypto needs to be a profitable, competitive business, while at the same time boosting financial inclusion.
The Benefits
Critics of cryptos may take it for granted that payments flow smoothly through the traditional financial system, but as Disparte said, in many countries, transactions are far from being a high-trust, low-friction experience. He noted that last year alone, Circle helped shave $200 billion off of global remittances, where legacy financial rails are not interoperable in many cases.
There are other pieces of the puzzle needed when putting together a crypto ecosystem, he said, noting that digital currencies are increasingly being used in high-yield instruments as well as in both centralized and decentralized finance.
“There’s a range of utility [for cryptos] around payments, digitally native financial services, financial inclusion and other endeavors that are also moving from abstract to very real,” he said, and which are scaling quickly, especially with the aid of public blockchains. “Out of necessity more policymakers and regulators and are realizing what these opportunities represent.”
Well-regulated, well-run companies are emerging and building on what is the financial equivalent of digital commerce, spanning peer-to-peer (P2P), remittances and commercial transactions.
He said that while roughly 90 percent of the world’s central banks are examining CBDCs in mostly abstract ways, they are one option for innovating the domestic payments landscape; there are also a “range of innovations” taking place with privately issued digital currency, such as USDC, which he said is “well within the perimeter of regulations.”
USDC, he said, has powered nearly $650 billion in on-chain transactions.
The Crime
The negativity and volatility surrounding Bitcoin — the marquee name in crypto and also a favorite of cybercriminals who extort victims with demand for ransomware — point to the fact that, with thousands of digital coins on offer, “not all cryptos are created equal,” he said. Painting all digital currencies with the Bitcoin brush is akin to saying that the failure of one bank equates to a failure of the banking sector itself.
“If people wanted to launder billions and billions of dollars, they have a lot of global opaque competing banks where that can be done at scale,” he said.
The recovery of the bulk of the ransomware paid in Bitcoin through the Colonial Pipeline hack earlier this year demonstrates that collaboration between compliance and law enforcement agencies show that “totally and completely” distributing cryptos so they can’t be traced is no easy endeavor.
The Future
Looking ahead, he said, “We don’t ask nearly enough questions about the state of the world, in which 1.7 billion people are on the margins of the formal economy. A billion people do not have access to a nationally issued identity. That would be the bottom rung to entering the formal economy. And yet trillions and trillions of dollars of assets, money flows and opportunities are stranded in financial infrastructure that was built 50 years ago.”
Against that backdrop, blockchain-based payments systems, trusted digital currencies and the broad case for public-private collaboration can extend the perimeter of payments to serve populations at scale around the world.
“We’re completing the financial system rather than really competing with it,” he said.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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