Every industry has actors good and bad. Crypto is no exception. The best actors should be left to innovate, while the worst should be held to account. A comprehensive regulatory framework that distinguishes one from the other is urgently needed, both federally and in New York State.
President Biden’s latest executive order directs his administration to examine both the benefits and risks of crypto. A federal framework for regulating crypto, especially one that commands bipartisan buy-in, will take time to develop because almost nothing in D.C. happens overnight. In the meantime, the president’s announcement presents New York with a historic opportunity to become a national model for smart crypto regulation.
The New York Department of Financial Services (DFS) has the dubious distinction of being the single worst regulator of crypto in the country. The process for obtaining a Bit License from DFS is cumbersome. It takes up to three years to get a license and only 30 companies have been approved for one. From June to January, not a single license was granted.
The state’s regulatory regime has the cost of inhibiting job creation and innovation without the actual benefit of protecting a single consumer or investor. It’s a classic case of bureaucracy trumping efficacy.
With a multi-billion dollar market capitalization, crypto is here to stay. It’s not going anywhere. New York City should and must embrace crypto if it is to remain the financial capital of the world. We no longer live in a world where our central place in finance can be taken for granted.
While Mayor Adams has been a cheerleader for crypto, famously converting his first paycheck into Bitcoins and Ethers, not everyone sees the promise of crypto, and many progressives seem especially skeptical. Some critics dismiss it as nothing more than a front for fraud and a windfall for ransomware. As the Vice Chair of the Homeland Security Committee, I certainly acknowledge that the pseudonymous nature of crypto can and has been exploited for illicit purposes.
But there’s more to crypto than ransomware just like there’s more to money than money laundering. No serious person would ever propose eradicating money in order to eradicate money laundering. Every technology is open to abuse, and no technology should be defined solely by the criminals who abuse it.
Here is a fact the critics are loath to admit: Crypto can and has been a tool for solving crimes. Unlike paper money, crypto is traceable on the blockchain, which maintains a secure record of every transaction. Law enforcement can easily monitor the flow of crypto from one wallet to the next, as it did successfully when it retrieved a multi-million-dollar ransom in the case of Colonial Pipeline.
Crypto has the power to create a better, cheaper and faster payment system for many transactions.
The traditional financial system is plagued by high fees and long delays that prey upon the poorest Americans. Those of us who live in underserved areas often see the infamous Western Union yellow sign listing all the fees that poor people have to pay just to transfer their own money.
According to a 2008 study commissioned by the city’s then Department of Consumer Affairs, the lowest-income New Yorkers pay more than $200 million a year in check-cashing fees. We know the financial noose around the poor has only tightened in the 14 years since.
Crypto, which facilitates direct money transfers without a corporate middleman, gives the lowest-income Americans, especially immigrants, more freedom to transfer their own money and send remittances to their loved ones abroad without the burden of long delays and high fees. The ability to move the dollar at the speed of the blockchain can be a game-changer if we, the policymakers and regulators, allow it to be.
My home, the South Bronx — the birthplace of hip-hop — is a culturally rich community with a deep reservoir of creative talent. Imagine a decentralized digital economy where creators from places like the South Bronx can not only collect income from the initial sale of their content but can automatically collect royalties from every future sale — all without the rent-seeking of a corporation.
Chris Dixon, a powerful thought leader on crypto, often points out that Apple takes 30% of a creator’s earnings; YouTube takes 50%; and Facebook takes 100%. You know something is profoundly wrong with our economy when Big Tech has a higher take rate than the mafia.
The power of crypto should and must be harnessed to create an alternate economy where individual innovators are no longer at the mercy of corporate rent-seekers.
No one knows for sure how the crypto revolution will unfold. But we should all be rooting for its success because decentralizing both finance and the internet would offer a long-overdue counterweight to the very concentrated power and wealth that has increasingly put the American dream out of reach.
Torres represents the South Bronx in the U.S. House.
