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Ep 15: What do policymakers think about when they think about blockchain?
130 Plays1 year ago
As blockchain reshapes finance and data interaction, understanding its regulatory landscape is crucial. Join us on the Owl Explains podcast for an in-depth discussion on blockchain policy with experts Thomas Tindermans (Hill+Knowlton Strategies), Norma Krayem (Van Scoyoc Associates), and Scott Mason (Holland & Knight LLP), moderated by Emma Pike (Hill+Knowlton Strategies). This episode delves into current policy trends and their impact on the blockchain ecosystem. Ideal for enthusiasts, policymakers, or anyone interested in the future of blockchain, don't miss this insightful exploration of the policy dimensions driving this digital revolution.
Find out more in our explainers at owlexplains.com
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Transcript
Introduction to Avalanche Summit
00:00:06
Speaker
Hello and welcome to this Owl Explains Hootenanny. I am Silvia Sanchez, Project Manager of Owl Explains, and I am super excited to share this special episode with you. This episode comes from one of the panels we recently hosted at the Avalanche Summit in Barcelona, our first in-person event as Owl Explains, in which we gathered many wise owls from all over the world seeking to build a better internet. We hope you enjoy it as much as we did.
Focus on Blockchain in EU and US
00:00:36
Speaker
So the last session, we were looking beyond the EU and the US. In this session, we're coming right back to the EU and the US. So my name is Emma Pike. I'm a consultant with H&K Strategies in Brussels. Thomas over there is my colleague. I've been working closely with Lee Schneider and the AvaLabs team on Al Explains.
00:01:00
Speaker
Hopefully you all know what Owl Explains is, but if not, please go to our website, which is owlexplains.com or follow us on Twitter at owlexplains.
Lobbyists on Blockchain Policy
00:01:09
Speaker
So in this session, our owl is going to fly right up to like 10,000 feet and give us a really broad overview of the discussions happening on blockchain in Washington and in Brussels, and crucially, the kind of political and economic context in which those discussions are taking place.
00:01:30
Speaker
So who better to walk us through this than three very experienced, seasoned lobbyists. We have Norma and Scott from the US, Thomas from Brussels. So just quickly introduce yourselves, please. Sure. Norma Cram, Vice President and Chair of the Cyber Privacy and Digital Innovation Practice at Vansquig Associates.
00:01:53
Speaker
We work with companies like Ava on really hard policy issues. Now I will say that I started working on distributed ledger and blockchain in 2018. So I'm glad that we're finally here and maybe we can solve some of those problems today.
00:02:08
Speaker
Yeah, hey, good afternoon. Scott Mason, I'm a senior policy advisor at Holland and Knight. We're about a 2000 lawyer law firm. Our offices in Washington focus primarily on public policy and lobbying. I'm a part of our lobbying team. I've been there for seven years. A long time ago, a bit of trivia. I spent seven years in the beer business as a lobbyist for the beer industry. But blockchain and the energy around this conference is amazing. And for anybody that has sat through now three straight public policy sessions, you deserve an award.
00:02:40
Speaker
Thomas Tenderman, I'm chairman of Hill and Noldland Strategies in Brussels and I lead the pan-European public affairs practice. I'm a lobbyist and I'm a great supporter of beer lobbyists as a Belgian.
00:02:54
Speaker
Thank you all. So our Al, even from 10,000 feet, has kind of laser vision and is able to see into the minds of policymakers, both in Washington and Brussels. So my first question, and Thomas will start with you since we're in Europe, is what, in your view, what are policymakers thinking about when they start thinking about blockchain and crypto and this space?
EU Blockchain Focus and Security
00:03:17
Speaker
Well, the first thing that struck us when we started talking to policymakers and brussels about these themes is that they have no clue about the technology and that they are not really interested in understanding the technicalities. But what fascinates them is what can be done with blockchain or with artificial intelligence or with crypto, how it manifests itself in reality. And the second big
00:03:44
Speaker
concern they immediately voice is and what is European industry doing in this space? Will there be room for domestic EU champions in this sphere or will we depend totally on American Chinese giants? And the third issue that has popped up with the war in Ukraine going on
00:04:08
Speaker
is the security aspects of these technologies. And that is really increasingly coming at the top of the agenda. Thank you, Thomas. Now we're going to fly back, fly over to the US, Scott.
US Legislative Scene on Digital Assets
00:04:23
Speaker
I, you know, Norma's heard me say this before, and so is Lee Schneider, who moderated the last panel, and Norma loves the answer. But if you ask a lot of US legislators, you know, what they, what they know about blockchain, the answer is Bitcoin.
00:04:38
Speaker
and it stops there. I think there's an increasing curiosity and an interest, which I think is greatly encouraging. Chairman Patrick McHenry of the House Financial Services Committee is actually passionate about this industry, and he's a very strong supporter of the industry. And I think we've seen with the establishment now of a subcommittee on digital assets specifically, specifically on digital assets,
00:05:05
Speaker
in the Financial Services Committee, that's a great step forward. And the folks that are leading that subcommittee are bipartisan, so there's Republicans and Democrats involved, which is hugely helpful in Washington. That is not to say that it's universally supported by both parties. There's still a long way to go. There's a big education ramp, but I think we're getting there.
00:05:27
Speaker
I think that's right. And we're seeing, I think, two systemic changes when we say policymakers in the United States. One, we've got the Congress. And we do have a challenge in having the digital divide with members of Congress just understanding the basics. And they do conflate, as Scott said, blockchain with a lot of other companies. And now they conflate it with meta.
00:05:49
Speaker
right? They conflate it with FTX. And so we're still trying to explain to them that blockchain is really just that tech layer, the platform that you're building other things on, and then distinguishing from the use cases. And I think we're getting there. It is important that we have a bipartisan approach. And I think we're seeing more of that. And then the second piece of our policymakers are really the regulators. And I know you've heard a lot about that. So I won't talk a little bit too much about that. But in the United States,
00:06:17
Speaker
On our agency side, we do worry a lot about the security piece. National security tends to lead for a lot of issues for the United States. So anything in that tech stack, whether it's blockchain, AI, 5G, the security piece is a big issue. And I know we'll talk a little bit more about that.
00:06:36
Speaker
So thank you. Thank you all. It sounds like there is a lot of explaining that still needs to happen. So Al explains has it has its work cut out. So now I just want to come to another question. I think it's fair to say that Brussels, the EU, they tend to they like to get in early with regulation.
00:06:54
Speaker
and anticipate things whereas Washington takes a more laissez-faire approach perhaps to begin with and then reacts. So I'm interested to hear from each of you how those different dynamics have played out in terms of blockchain regulation.
EU vs US Regulation Approaches
00:07:12
Speaker
So Norma, let's start with you this time. Sure.
00:07:14
Speaker
Again, I think in the United States, especially in the regulatory side, we've seen maybe two overall approaches. The first is that our regulators are simply saying the existing structure should cover everything that we have, and we know that that's not true. The second piece, though, on the actual regulatory side has really been coming again back on the national security side. We've seen our Treasury Department and others moving forward.
00:07:39
Speaker
to focus on the illicit use of digital assets. And that's where we're seeing quicker mandates, quicker enforcement actually coming, again, out of Treasury and the Department of Justice. Yeah, I think, and some of you have heard me say this, Congress does two things really well, nothing and overreact.
00:08:01
Speaker
I mean, that's a fact. I mean, that's oftentimes we legislate by crises. And I was actually a little bit surprised. I mean, for instance, in the wake of FTX, and everybody understands that that really had nothing to do with any of the technologies that have been discussed over the course of this conference. It had to do with fraud.
00:08:19
Speaker
I mean, it starts with fraud and it ends with fraud. But I think Congress reacted accordingly. They've held a number of hearings in the wake of FTX. They're now holding hearings in the wake of Silicon Valley Bank and Signature Bank to try to get to the root problem. I think we've done a pretty good job at deflecting a lot of the attention or at least some of the perceptions that it was all crypto driven. They weren't.
00:08:46
Speaker
And so we'll see what happens in the course of the next six months, 12 months. But I think the SEC's approach of regulation by enforcement, where you all that are domiciled in the United States sit either in fear or looking for opportunities to leave the US, is unacceptable. And I do think that we will see some action from the House and possibly even the Senate on this.
00:09:13
Speaker
The European Union, and especially the European Commission, as the initiator of legislative and regulatory regulation, has been looking at these digital developments very early for several reasons. One, I mentioned competitiveness reasons. Is there, by means of regulation, space to be created for European champions? Two, the security part we discussed, but three, and that's
00:09:40
Speaker
also a very fundamental driver of regulatory initiative is the integrity of the single market. What the Commission absolutely wishes to prevent is that 27 member states each start regulating on their own or 27 regulators start enforcing in very different ways.
00:09:59
Speaker
So they want to be first, if you want, and harmonize before there is too much divergence. And on top of that comes an important aspect that we haven't mentioned yet, but in European legislation in general,
00:10:14
Speaker
there is a drive to preserve what we call, with big words, European values. You're all familiar with data protection, privacy rules, security integrated rules, all that sort of stuff. And the fear is that technology could fundamentally undermine the protection of those values if there is no regulatory regime in place before the technology takes over the world.
Optimism in US Policy Progress
00:10:43
Speaker
And that's another motivator at EU level. Yeah, thank you. So I think everybody agrees that the EU so far has got a head start in terms of beginning at least to create a coherent framework for blockchain and crypto. Given where we are now in the US, Scott and Norma,
00:11:04
Speaker
Do you see a path through the kind of deadlock that exists at the moment, through to a path towards some greater coherence and some greater certainty for the sector? I'm going to go with the positive yes. No, I'm an American. I'm overwhelmingly optimistic about everything.
00:11:25
Speaker
No, in all seriousness, I think the answer is yes. I think the US is seeing so many other nations around the world moving forward with the coherent framework, and the US doesn't like to be last on anything. So I think that sort of external push hopefully will bring at least the regulatory community together. We do know that the White House and our agencies, SEC, CFTC, the Alphabet Soup, are starting to talk together. And it may be that we have just a few of our agencies
00:11:54
Speaker
like the CFTC, which focuses on the derivative side, it's a little easier, a little more niche. They may be able to come out first and then they could sort of pull the SEC back. And to Scott's point in the Congress, you're seeing a greater coalescence in a bipartisan way, where members are starting to understand that this is not a Democratic or Republican issue.
00:12:15
Speaker
It's not like democrats want to shut down technology and only republicans want to help expand it but we have to make sure that we're explaining it the right way so that members understand these issues so it's also easier for them to help the business community. Yeah i think that's right i mean i think you know if you go back to the the last congress we had elections last fall and
00:12:36
Speaker
Now we're in a new Congress. But the 118th Congress, we were tracking over 55 different bills related to digital assets and blockchain and cryptocurrencies. I can tell you that in the 116th and 117th Congresses, those were almost unprecedented. So we're seeing an increasing uptick in interest and education from members of Congress on these issues, which I think is good.
00:13:02
Speaker
We won't see digital asset specific legislation. Washington doesn't really work that way. But I think there are other issues moving that if we see legislation come out of the house on market structures stable coins some of the other things that we're looking at. I do think there's an opportunity
00:13:27
Speaker
and a chance that they could get through the House this year and then go to the Senate and we'll see what happens. We have two-year Congresses, so we'll see what happens. But I am an optimist, and I do think that at the end of the day, while we may be playing catch-up in the United States, we're pretty good at playing catch-up. So I think we'll get there.
00:13:47
Speaker
race is on then. So Thomas, Brussels is in a very different place, you know, Mika is now adopted and actually the EU is coming to the end towards the end of this current five-year term so it'll be all changed in 2024. A couple of questions, number one, do you see
00:14:13
Speaker
that blockchain now has some competition from other technologies that policymakers are fascinated by, worried by artificial intelligence, for example. And the second part of the question is, how does blockchain kind of stay relevant and stay a high priority as we go into the next five year term beginning in 2024?
Post-2024 EU Digital Transition Shift
00:14:37
Speaker
Those are easy questions because you're asking me to predict the future and nobody can check that for the moment. If anyone can, you can do it. But yes, European legislators are looking at other technologies.
00:14:51
Speaker
I repeat what I said at the beginning, it is not so much the technology of blockchain that is the concern of the regulator, it is where it is applied in financial services or in e-health applications or in educational and so on and so on.
00:15:09
Speaker
that's when they get fascinated as regulators because that's where the motto what is illegal in the real world should also be illegal in the digital world and what we have protected by legislation until now should continue to be protected regardless of what new technology comes up. So yes there is
00:15:32
Speaker
the hype of the moment, but there is an underlying philosophy that remains the same. Now, what do we predict for the next term after the elections for the European Parliament in June 2024? People in Brussels are starting to think, what should be the program of the next commission? This commission have two pillars, the digital transition and the Green Deal. And whilst events have taken over the headlines with COVID and with the war in Ukraine,
00:16:00
Speaker
and things like that, the regulatory and legislative machinery underneath has continued to push for those two pillars and has produced a whole range of legislation that we know now. Certainly in the digital sphere with the Digital Markets Act, with the Digital Services Act, with culminating in MICA, and if you were to stand in the pipeline, the CHIPS Act, the Data Act,
00:16:26
Speaker
My prediction for the next commission will be that the focus will no longer so much be on the digital transition as a generator or a justification of legislative intervention, but rather that these digital aspects will be included in other legislations. And let me emphasize there that the integrity of the internal market is very high on the agenda of the legislators, so we'll keep
00:16:55
Speaker
hammering on that nail, not allowing divergent regulation to pop up in opposing member states against each other. So we want to have this 450 million consumers market with the highest disposable income. We want that to function also in new technology spheres.
00:17:21
Speaker
But then secondly, the great concern is definitely competitiveness and translated into open strategic sovereignty of the EU. That is to say, shall we be champion free traders as we used to be as the EU? The whole world was welcome on our market, even though the markets of the rest of the world were not always open for EU companies. Or shall we say, no, we are going to work only with like-minded
00:17:48
Speaker
people who respect the same standards, the same values, who have the same legal certainty built into the systems, and shall we therefore have our own regulatory regime built so that others can imitate it and facilitate the exchanges between us. And I think that is going to be a highlight of the new commission. Some say it's going to be clubs and fences in the world rather than globalization. Okay, interesting.
00:18:18
Speaker
And so, again, I think kind of as all of us up here are lobbyists, so I think
00:18:26
Speaker
we probably all would agree that policy and laws are best made when there's a real dialogue, a really open dialogue between the lawmakers and the industry and indeed other stakeholders as well. So I just want to go around each of you and get one thing that the industry should be doing saying and one thing that policymakers should be doing saying in order for us to
00:18:52
Speaker
get some sensible regulations in place in your various territories.
Industry Communication with Policymakers
00:18:57
Speaker
Norma.
00:18:59
Speaker
I'm going to say this. I think one of the things that the business community can do for policymakers is not to perpetually do what I say is talk to them and text speak. You really need to help explain what you're doing, why you're doing it, and where it has benefits in a way that your audience can understand. And that's just a basic communication tool. You may think that the people you're talking to are just not
00:19:23
Speaker
nimble enough to understand your technological innovation, but if they don't understand you, they're the ones with the bully pulpit for regulation and policymaking, and we need to manage that dialogue better. We talk about blockchain as the cure to all evils or the cure to provide transparency and greater digital inclusion, but there are risks that go with that, right? There's a difference between a public
00:19:50
Speaker
blockchain versus a private permissioned one. You have to explain that. And for purposes of policymakers, we have to make sure that they understand that everything is not one ubiquitous block of technology. And so if we need to regulate, we do have to regulate for the use cases overall. And I'm going to add one other, sorry. You know, when we talk about technology issues, the US and like-minded countries are now very concerned about how technology is being used
00:20:20
Speaker
for authoritarian regimes to further their goals. We want technology to really empower democratic ideals and greater inclusion. And actually the United States is about to announce a new strategy today to talk about how there should be global standards for technology. And I think that's important for everyone to participate in. That was deep.
00:20:44
Speaker
Thank you. That was good. I'm good like that. Thank you. I'm going to say use cases. And I think one of the biggest takeaways for me this weekend or this week has been in talking with so many of you about what your companies do. There's a perception in Washington, I think, and I've referred to it and fall into it as well, that the single use for blockchain and all these technologies is financial driven.
00:21:09
Speaker
And it's not. It's a part, it can be, but it's not the single use, right, for these technologies. It's not the single use for blockchain. I mean, yesterday I went to the, Ron, I forget his name, with Lemonade, the Lemonade Foundation. And he was talking about, you know, they're using the blockchain for tracking weather systems in Africa and feeding the world at the end of the day. And that's amazing stuff. And I think it's incumbent upon us to help legislators understand that
00:21:37
Speaker
Yes, there are financial uses, and the blockchain and digital assets, absolutely, it's part of the financial world in which we live.
Embracing Regulation and Risk Management
00:21:45
Speaker
But it's also so helpful and so beneficial in so many other ways in our daily lives. And I think they need to gain a better understanding of that, and that's incumbent upon us as lobbyists, and quite frankly, you all as companies, to highlight those use cases that help us tell our story, that help us tell your story. And I think that would go a long way.
00:22:09
Speaker
I think that the companies listening to some of the discussions here as well should embrace regulation rather than deny or ignore or fight it. No is not an amendment.
00:22:26
Speaker
Most of the regulators are trying to take away danger and risk by regulating. Nobody knows better where risk sits in a new technology to what risky situations it leads. Therefore, nobody is better placed than to suggest what would be appropriate regulation to de-risk that technology. And that's for the industry to do. So apart from explaining the wonders of your technology and apart from explaining what we just heard here that
00:22:53
Speaker
It's the applications really that make it fascinating. It's also about thinking about what would be the right regulation for the industry to flourish, for risk to be taken out as much as possible, and for cooperation between like-minded regimes.
00:23:10
Speaker
That's really what you want. Yeah, let me just add to that, because I think there's a crucial difference there. And that is that we cannot and do not want to ask Washington or any other government, state or federal, to regulate technology. That's bad, right? We do not want to stifle innovation in technology. And nothing will kill it quicker than government intervention in the technology, the underlying technologies. So the regulatory structures, yes, the technology is no.
00:23:40
Speaker
The only piece I would augment that is we do need to talk about the term standards for technology, and that can be a big S or a small
Building Tech with Privacy and Security
00:23:50
Speaker
S. We want technology to be built with privacy by design. We want it to be built with security by design. And there are certainly technical standards that we would like different aspects of the community to use.
00:24:02
Speaker
you know, less about regulation, but more saying when you build your product, making sure there are certain protections at the front end that really cover a lot of the other principles that you see the regulators caring about. That's much broader. And I agree, technology should be regulation should be outcome based. And I'll just say this, having been a regulator,
00:24:23
Speaker
It has great value for those who are building it to come in and explain how you're building it and what you're doing with it. And then the regulators theoretically can work in a collaborative way to create something that has value for everyone. It doesn't always work that way, but at least that's a good place to start.
00:24:41
Speaker
I just wanted to add, and I don't want to sound like a Cassandra, but one remark is that technology itself will be regulated when it poses great risk. Self-generating AI, that's a very dangerous zone. Any technology linked to security
00:24:57
Speaker
Authorities will want to have a look inside, will want to understand, will want to control. So I see where you're coming from, from the business side, perfectly understandable. But again, that's why the industry should embrace the regulatory efforts rather than stand aside or fight it.
00:25:17
Speaker
Well, and I think real quickly, we've seen an explosion, if you will, in Washington, of blockchain associations and digital asset associations and digital chambers of commerce. I mean, in the last several years, many of these groups didn't exist, and now there's probably six to 10 associations and coalitions that are advocating on behalf of the industry or various parts of it every day.
00:25:45
Speaker
And just to round this out for Emma, one of the things too is all these groups and each of you, and this is what we do every day in our jobs, is to educate and inform. Don't talk at the people who could do things to you. Try and help them understand some of these issues. And I know that can be very frustrating.
00:26:05
Speaker
But at the end of the day, this industry is no different from any other industry that has grown up over time when we're talking about the tech stack.
Dialogue and Collaboration in Regulation
00:26:13
Speaker
And we've been able to work through that. This is more difficult because it's conflated with the crypto world and there are issues around fraud and other things that people are concerned about.
00:26:24
Speaker
Yes, absolutely. So I mean, I think the words really coming out very strongly are dialogue and collaboration and really kind of working collaboratively with policymakers to showcase use cases, to identify risks and work ways through those risks.
00:26:40
Speaker
So finally, we've just got a couple of minutes left. One final question. Owl Explains has this tree of Web3 wisdom. It's actually a real tree just outside the door, which represents it. Branch number five is Think Global. So how can we encourage
00:27:00
Speaker
US and EU policymakers to talk about all
Aligning US and EU Regulatory Approaches
00:27:03
Speaker
the things we've just been talking about together and try to align as much as we possibly can the regulatory approaches that they're taking. Who wants to start on that one? Scott, maybe.
00:27:15
Speaker
Yeah, sure. I'm not sure you want the U.S. to export any of our ideas and regulations in this space right now. So I would encourage the EU to call Washington and advocate for MICA-like efforts.
00:27:34
Speaker
I think it's a challenge. It's an international challenge. It's a border challenge. Thomas mentions how many European countries are working together through the EU. I think one thing that's been untouched in America is that we talk a lot about Washington. We have 50 states, and a lot of those states have actually taken action.
00:27:56
Speaker
on blockchain related legislation in a very favorable manner to encourage the businesses to invest to encourages the digital asset industry to grow in their states will that eventually become a big enough massive states that washington has to step in.
00:28:15
Speaker
and either do an over-the-top approach or squash it, I don't know the answer to that yet. I think we'll find out over the coming years. But I think from an international and US perspective, you know, conversation is key. And I think we've got a long way to go.
00:28:33
Speaker
I'll just say this. I mean, the US is actually fully engaged in the international committee on these issues, but we have to distinguish again when we say policymakers.
US's Role in Global Tech Discussions
00:28:43
Speaker
So the Biden-Harris administration, our agencies are all 100% engaged with the EU in the G7, in the G20, in the OECD. In fact, what most people probably don't know in this room is that the US is leading a lot of those conversations in these global alliances.
00:29:02
Speaker
And the US is sort of, you know, advocating the review of these issues. But again, the US tends to be leading on national security concerns in these conversations. And then the second piece is our lawmakers, right? So the US Congress does, we need them to talk to the EU. I know that they've started that dialogue and they have very
00:29:25
Speaker
Divergent views, I think, though we have to bring together all of these discussions because Congress needs to better understand what is the US doing in global alliances because the US is actually getting other countries to agree to our general principles around technology and blockchain and cloud and AI.
00:29:46
Speaker
I'll focus for a minute on the transatlantic relations in this field because the EU has taken a long time to mend its broken heart after the Trump era. And the new administration is liked and the hopes are big and the contacts are there.
00:30:08
Speaker
But there's very little progress made so far in real mutual initiative. It is more massaging difficulties or avoiding too great a
Transatlantic Tech Council Challenges
00:30:20
Speaker
conflict. And so you have the transatlantic tech council, for example, which deals essentially with the commercial aspects with access to market issues there, but is not thinking
00:30:32
Speaker
on about the fundamentals like what I mentioned how do we ensure that what we share as great values democracy freedom of speech protection of privacy and how do we what does technology contribute to that that dialogue is not happening at political or at administrative level and it's a pity because we all see what where the dangers come from and they're not from friendly nations
00:31:03
Speaker
Well, I think that's all we have time for. So thank you very much to the panelists.
00:31:14
Speaker
We hope you enjoyed our hooten
Session Wrap-up and Resources
00:31:16
Speaker
eye. Thank you for listening! For more hootful and hype-free resources, visit www.owlexplains.com. There, you will find articles, quizzes, practical explainers, suggested reading materials, and lots more. Also, follow us on Twitter and LinkedIn to continue wising up on blockchain and Web3. That's all for now on Owl Explains. Until next time!