DC Fintech Week Kicks Off with Conversation on the Role of Taxonomy in Crypto Space
This week, the Georgetown University Law Center’s Institute of International Economic Law, the International Monetary Fund, and the Institute for Financial Markets brought together a host of policymakers, venture capitalists and technologists for DC Fintech Week. Spanning over four days, the event featured conversations on a number of topics in the financial technology space, the goal of which was to “demystify cutting-edge technologies, and to engage one another as to what those changes mean from the standpoints of both policy and market practice — all in a manner understandable to laymen.”
To kick the week off, the Georgetown University Law Center hosted a panel titled “Crypto-Law: (Re)Thinking the Nomenclature and Taxonomy.” Exploring why regulators have had such a difficult time defining crypto assets, the group landed on the programmable nature of the assets as the root cause. Panelist Alex Acree, Managing Director and General Counsel at Fenway Summer Ventures, expanded on this idea by explaining that the technology underlying the assets is malleable, and can be programmed to serve different functions, each with the potential for different regulatory treatment. Fellow panelist Maria Adamjee, Chief Executive Officer of Megalodon Capital, added to this point by offering a number of buckets into which she separates assets — ranging from categories like “mode of payment currencies” to “security tokens.”
Panelist Angela Welch, Associate Professor at St. Mary’s University School of Law, offered an interesting insight later in the panel when she shifted the discussion from definitions and regulatory frameworks to descriptors of the asset class. Challenging the crypto space to avoid hyperbole and idealism, she brought up terms such as “immutability” and “trust minimized.” For immutability, she asked the audience whether the ledgers that underpin blockchain based tokens are really immutable, or if they simply “hard to change.” And if you concede the difference between immutability and difficulty of change, what factors must be taken into consideration that immutability wouldn’t warrant? When would these ledgers become easier to change, and how can we maintain transparency such that all stakeholders in a token would be able to recognize shifts in this difficulty?
Second, she brought up the idea of trust minimization, asking whether ledgers updated through distributed consensus really do offer an upgrade in trust minimization from ledgers maintained by a sole proprietor (i.e. a financial institution). To this point, audience member Peter Van Valkenburgh, Research Director at Coin Center, pushed back on Welch’s logic. Explaining that in a distributed environment such as a proof of work consensus mechanism, the checks and balances in place between miners, users, and developers create a power dynamic fundamentally different from that of a sole proprietor. Van Valkenburgh noted that the open source nature of a network’s code allows for the forking of the network, keeping developers in check, while the distributed nature of the miners creates a dynamic in which no one individual or group of individuals can exercise any meaningful discretion over the direction of the network without majority approval. He even went so far as the point out that, in the event of a malicious “51% attack”, a situation in which an individual or group of individuals controls the majority of the hash power behind a network and would therefore have the ability to exercise some discretion without the approval of the rest of the network, the attacker still would not have the level of agency that a sole proprietor would, as they would not be able to manipulate other user’s balances.
As these discussions show, there is a lot to be left desired from the precision of language in the crypto space. Despite the early difficulties in narrowing in on precise definitions and sound regulatory treatment, this area of the space should not be ignored. Due to the reflexive nature of this developing taxonomy, Welch pointed out that how we think about and describe crypto assets will have implications for how they are used and regulated. Knowing this, members of the crypto space must make a concerted effort to be thoughtful in the ways in which these assets are defined.
Check out more highlights from DC Fintech Week on their website.