Crypto-assets: It is our duty to build tomorrow’s finance together by Pierre Person, MP for Paris
Speech delivered by Pierre Person on the sidelines of the Crypto Finance Forum on 19 July 2021
Crypto-assets, Bitcoin in particular, fascinate and displease. And rightly so, because they foreshadow what tomorrow’s world may – surely will – be like; a more efficient, more inclusive and more decentralised digital world.
This revolution, whether we like it or not, will be imposed on everyone. We are witnessing a revolution through use that, like others driven by human creativity and technical progress, cannot be stopped by the States or by the all-powerful GAFA. On the one hand, because this revolution is based on a dematerialised, but above all decentralised, technology that is beyond the reach of States and mega-corporations; on the other hand, because it is only the continuation of an even greater movement, which aims to liberate and restore the power of control and choice, as well as the meaning of individual decisions. But let us not delude ourselves; this great battle for the digital renewal of our societies will confer significant competitive advantages on those who win it. In this respect, France and Europe have to mobilise to ensure the full sovereignty of their citizens.
In an ecosystem built on a libertarian basis, the State is often criticised. Our ecosystem has sometimes been made in opposition to regulation which, it is true, can sometimes be a brake on innovation. Still, it remains imperative to protect the weakest and to create society. There is no question of innovating in a chaotic, Darwinian world. I want to remind everyone that the State is an emanation of what we are. It is a part of us. There is no corporation or conspiracy behind the State – behind the public thing in general. However, the State, its elected leaders and its servants are like our society, full of contradictions. Sometimes averse to change and often prefer the comfort of what is known, comfortable in small renunciations in a form of procrastination that protects the rent to the detriment of risk and the unknown.
So to those who consider regulation to be an absolute devil, it is appropriate to reply that, on the contrary, it is a factor of growth because it is in stability, in the transparency of the rules in the service of fair competition between economic competitors, but above all in the protection of consumers, that France has worked and will continue to work to attract the talents and capital that will make tomorrow’s prosperity.
On the other hand, if France has opted for a clear and strict framework, it must also avoid unfair competition between our national companies and foreign companies on its physical and digital territory. All too often, the good students of regulation are harmed in an international competition that puts those who are not governed by the same rules first.
Our role as politicians and supervisors is to ensure strict fairness in the regulation of the digital world. It is not tolerable that foreign players can reach French customers by circumventing the rules of national law and without giving them the same protection as our regulated companies. In this way, it is not a question of regulating for the sake of controlling. Europe already protects its citizens with the RGPD, but its implementation remains piecemeal by the big data holders, the American GAFAs. Good regulation must therefore be able to rely on strong, local players who respect our rules and our visions, customs, and values. This is how we will protect our citizens. However, technology is our best weapon when it comes to blockchain and these crypto-assets, well beyond a regulation that would like to be omnipotent. We only regulate when the technology is imperfect, when it reveals flaws and makes abuse possible. But blockchain is today the technology that is most likely to help us fight against the financing of terrorism or money laundering, to ensure strict fairness in the financial markets or true transparency in the use of our savings. Therefore, we are talking about a decentralised technology free of any censorship or arbitrariness, totally secure, and perfectly transparent, subject to pseudonymity protecting our private life. It is not a question of pointing the finger at blockchain and crypto-assets and stifling it with a flood of technical rules. For, if the technology is neutral and pure, it is the uses that we must control and regulate. This is where the responsibility of industry professionals is immense.
To protect consumers from people who use technology for malicious purposes, safety is our best weapon. In my opinion, this is the keystone of any effective regulation. However, the State cannot do everything in this area. It must rely on specialists in the private sector who are constantly developing innovative solutions to guarantee the security of our funds in this still immature ecosystem. In France, we are fortunate to have the world leader in this field with Ledger, which has this requirement.
As early as 2017, we sought to get a head start and build the beginnings of a regulation that would, on the one hand, ensure consumer protection and, on the other, guarantee a clear and reliable framework for professionals in the sector. We were the first in Europe at the time. If unfinished in 2019, this regulation had the advantage of not stifling innovation to the point of causing its extinction. But it was still fragmented and, in the face of the inventiveness of developers, it must now be completed if not revised. However, it has to be said that France has lost the lead it had in 2017. But it is not regulation alone that determines the success of an ecosystem or its downfall – it is above all a collective work.
It is now clear that many problems continue to hamper innovation in our country. Some of these are new problems that have emerged in conjunction with innovations. However, there are still difficulties that existed when we wrote our first report in 2019 and that have not yet been resolved. Politicians, regulators, banking institutions, industry professionals and media, generalists and specialists: these challenges are now everyone’s business. Our level of commitment must be commensurate with the challenges that these new digital opportunities present to our societies. Indeed, crypto-assets and blockchain are building today what tomorrow’s world will be: a world that is increasingly digital, increasingly efficient and at the service of all, regardless of wealth, religion, skin colour or sexual orientation.
We are now witnessing the construction of a value internet, which could be freed from the influence of the hegemonic GAFAs and managed, collectively, by its users. This perspective forces us to change our paradigm, and to think of a world that will no longer be centralised and vertical, but decentralised and horizontal. It forces us to rethink our way of conceiving social and economic relations, to rethink our regulatory model. Already today, some unbanked populations in the South can, with great ease, access payment and financial services without having to suffer the prohibitive fees charged by their banking institutions. In this sense, El Salvador, a small Central American state without a national currency, has made the much-discussed decision to adopt Bitcoin as its legal tender. Closer to home tomorrow, banking processes will be optimised on the blockchain; exchanges of value, whether national or international, will be carried out in record time and at minimal cost. Even more, Europe’s low-income households will finally be able to access new, more profitable types of savings, based on fractional ownership or decentralised loans.
This collective work of building an Internet of value can only succeed if each of the players takes responsibility and adds their stone to the building. The regulator first. Regulatory compliance is a real barrier to entry in terms of cost and time – except that the crypto-asset and decentralised finance sectors evolve over very short periods of time, sometimes a few months. International competition is tough, comparative law is fierce, and France – although willing – sometimes lags behind American pragmatism or Chinese state centralism. It is necessary that the records and decisions of the supervisory authorities take account of this sustained development. This obviously raises the question of the resources allocated to these authorities. Clearly, they are not sufficient today, but they will need to be in the not too distant future. The regulator must accompany this rising tide by allocating more resources to it. To this end, I will argue through the Finance Act that our regulators should have the necessary means to speed up deadlines and procedures.
But even more profoundly, the regulator will, in my opinion, have to leave behind the military posture that Napoleon gave it more than two centuries ago. It is no longer just a question of ensuring that our entrepreneurs do not contravene our national regulations; it is a question of ensuring that they are capable of carrying the voice of France and Europe in a globalised economy. In reality, we need to change scale. No longer think only in terms of our French market, when we have been integrated into a common market on a European scale for several decades. We must no longer think in terms of the standard and then innovation, but rather innovation and then, only afterwards, the standard. We should take advantage of these new perspectives to rethink our regulatory relationship with innovation: place the regulatory authorities in a supportive role, rather than one of control and sanctions; experiment with “sandbox” regulations, where entrepreneurs innovate within a flexible framework and under the supervision of regulatory authorities.
Putting the contract before the law. This was the purpose of the PACTE Act, and I would like to pay tribute to the work done and the vision shown by the AMF in its dealings with industry players, which show once again that we can rise to these challenges. We must not lock ourselves into a mortifying logic aimed at fitting these innovations into the predefined boxes of the 5th directive or other European regulations. This path would then fully confirm that France and Europe are lagging behind our international competitors, who are much more agile than our national players. Blockchain, crypto-assets, decentralised autonomous entities, … all these innovations force us to change paradigms and to conceive the world differently. How can we regulate an entity that has neither a corporate nor a physical form, whose managers are not known, but which is capable of managing hundreds of millions of dollars or euros in a totally automatic way? On this point, the regulations envisaged in the draft MiCa regulation do not correspond to this requirement for a regulatory review. But it is a battle of conviction that we must wage to ensure that this vision is won collectively.
In this broad campaign for innovation, politics obviously plays a major role. Politicians are also responsible for their judgement, a fact that crypto professionals have experienced first hand. The images conveyed by politicians contribute greatly to the media treatment of a sector. Crypto-assets, often accused of being a slush fund for criminals and terrorists, have a bad press today within assemblies and administrations. In this respect, it is my role today to dissociate myself from the recent caricatured visions of certain politicians, too often broadcast in the media, and to carry a long-term vision for our ecosystem. The role of the politician is to be a visionary. In a world driven by a perpetual race for innovation, wait-and-see, technological certainty, are criminal errors that have led our Old Continent to miss all the innovation trains for almost 20 years.
In France, we were the nation of Pasteur, the Ariane rocket or even the TGV. Today, disruption after disruption, we are missing the mark. And yet, far from falling into French bashing, we have primordial assets in this constant race to invent – our developers, our entrepreneurs, our ecosystem in general. We have only lost the ambition to make the most of them.
We have lost sight of the very long-term issues behind these innovations:
- We have classified crypto-assets as terrorist financing tools when less than 1% of transactions are used for illicit activities – can we even estimate the share for cash? This is again the strength of crypto-assets; and
- We have considered that Bitcoin consumes more energy than some states, and would pollute as much. But do we know that a large part of this energy comes from hydroelectric power stations, that Bitcoin’s mines now allow us to consume the gas from the oil normally released into the air? French people, like Sébastien Gouspillou, are working to finance hydroelectric plants in the Congo, which is heavily dependent on coal, with Bitcoin mines.
At the same time, the role of politics is also to ensure that innovations are used fairly, whether by entrepreneurs or by the public sector, and that the general interest is protected. In this respect, it is our duty to reflect on the relationship between traditional and decentralised finance, which will soon be established. It is also our duty to ensure that citizens will not be able to over-indebt themselves on various platforms or put themselves in a delicate financial situation. Finally, it will also be our duty to push entrepreneurs and researchers to direct their efforts towards more common good – avoiding a replay of GAFA or directing Bitcoin miners towards renewable energy sources. There is much to do in this new world, and politics can only afford to take an interest in the sector when Bitcoin is in vogue.
Furthermore, in order for an industry to develop, it must be able to count on reliable sources of financing, enabling it to conquer new markets. This is the basis of modern capitalism. However, in the first parliamentary report submitted in 2019, we had already pointed out the problems of access to accounts for crypto-asset professionals. From then on, we included in the PACTE law the principle of a right to an account for any crypto-asset company. However, it must be noted that this right to an account, while fundamental as a principle, has not found concrete application in the daily life of our crypto entrepreneurs. They are, even today, still facing difficulties to open a bank account and are sometimes forced to hide their activity on crypto-assets to avoid a brutal account closure. Indeed, banking and financial players are subject to particularly strong regulatory issues, especially with regard to the fight against money laundering and terrorist financing. However, it seems obvious that the managers of our major French banks have not yet realised the stakes behind the development of a robust crypto-asset ecosystem.
In addition to the sovereignty issues mentioned above, the advent of decentralised finance will have a fundamental impact on our banking and financial system. It is in all our interests that the latter is not brutally destabilised by this new technological revolution, which could also contribute to its modernisation if it is correctly adopted by the existing institutions. In this crypto-asset race, banking players are as much to blame as politicians and regulators. It is clear that their choices are not only dictated by regulatory constraints, but also by their judgement of a technology that is still in its infancy, but with significant disruptive potential.
Thus, society as a whole must be able to bring out major national and European players who will be able to count on the international scene. In this respect, the responsibility of these players towards society is immense. In addition to the constant search for innovation, technological developments must take into account the constraints inherent in our society and which contribute to our living together. This is particularly the case for the issue of tracing funds used for illicit activities, securing funds against fraud and technical flaws, and protecting novice consumers. Yes, there are risks associated with the development of crypto-assets and DeFi. It is then up to the professionals of the sector to provide solutions to limit the harmful consequences of these new technologies or their misuse. This is already the case, where several companies have become experts in data and transaction analysis to ensure the legality of the use of funds, widely recognised today; or decentralised governance solutions, via reserve funds, decentralised protocols. We need to go even further, and maintain the imperative of preserving the security, transparency and efficiency of tomorrow’s digital world. Only in this way can the new developments in this ecosystem be democratised.
Because it is really a question of sovereignty. On this point, we are currently at a turning point and our European model is at a crossroads. Europe must rediscover its ambition and find a middle way between the hegemony of the American private sector and the omnipotence of Chinese statism. This rivalry is already raging in one particularly sensitive area: currency. The United States is already taking advantage of the dominance of stablecoins in dollars to strengthen the dominance of its currency in this new digital world; China, on the other hand, is already deploying the digital yuan to move towards ever more state control and ever more control of citizens for the benefit of the single party.
Yet the Old Continent has never been more aptly named. We have the best and brightest experts in the world, but European regulators refuse to understand the upheavals taking place before their eyes and, worse still, prefer to stick to the rules of the past rather than ensure our future sovereignty. One of the great victories of Europe is the creation of a common currency for 19 different countries. Although imperfect, the euro is now one of the most reliable currencies in the world, and provides monetary stability that is particularly protective of citizens. However, this privileged position of the euro is now threatened by the emergence of digital assets, primarily stablecoins and other MNBCs. It is therefore urgent for Europe to develop a digital euro as soon as possible.
But we must not only develop a digital euro for the sake of developing a digital euro, if we want it to be able to compete with the already well-established US stablecoins and if we want it to resist the domination of the digital yuan, we must guarantee the conditions for a massive adoption of the digital euro. European leaders, whether they are central bankers, European Commissioners or parliamentarians, must, even before promoting the notion of a digital Euro, agree on what it should be: wholesale, retail or both; centralised, decentralised, anonymous or traceable; commercial currencies that simply modernise the traditional monetary model or central bank currencies that replace cash; the individual’s claim on the ECB, allowing for different innovative monetary mechanisms such as “helicopter money” in the face of the sometimes harmful policy of quantitative easing. The issue is that neither the State nor the commercial banks can influence the spending of citizens, control their use of money and sell the resulting data to private companies.
The digital euro must therefore, in line with Europe’s policy on personal data, keep citizens’ privacy intact and not give undue power to commercial banks that may host accounts etc. The fundamental issue is the confidence of citizens. This is true for cash, our coins and banknotes, and it will also be true for digital money. So I am calling on the Governor of the Banque de France and the President of the ECB today to take all these issues into consideration and to clarify everyone’s positions quickly so that Europe does not fall behind. But these considerations are not three years or five years away. The battle has already begun – dollar stablecoins are already hegemonic; the Chinese yuan is already beginning to take hold in the lives of citizens. In the time between now and a functional digital euro, we should not miss out on a euro stablecoin – which would meet a real demand. This would be a terrible misjudgement on the part of the European Commission and the ECB.
At the same time, the digital euro will also require a thorough reform of our financial and monetary system. Indeed, while our monetary policies are no longer sufficiently effective today to allow for the sustainable recovery of our European economies, the question arises of new monetary instruments that would allow us to act more directly on growth, through consumption and investment. In addition to the no less fundamental debates on the European budgetary framework and the trajectory of our public spending, the digital euro could, in the future, allow the European Central Bank to inject its liquidity directly into companies and citizens, without going through a banking and financial system that currently captures too much of this liquidity. This helicopter money, while complicated to implement before, will become a real variable in monetary policy in the coming decades.
As for me, I take my responsibility as a politician to heart. I make sure that I always align my understanding of the sector with the concrete needs of the professionals in the ecosystem. In the autumn, I will formulate proposals to enable this collective ambition to take shape. And, with other parliamentarians, we will take this fight to the executive and the administration. Among the proposals I will make, and I have already touched on some in my demonstration, I would first and foremost like to bring regulatory clarity to an ecosystem that is evolving at a frantic pace – providing non-restrictive but structuring definitions of the various activities related to crypto-assets and decentralised finance (NFT, staking, etc. …) to unify their regulations. Tax clarity – completing the different regimes implemented in 2019 and correcting the declarative difficulties of capital gains.
But also, I would like to propose a new regulatory paradigm, based on sandbox regulation, where innovative entrepreneurs are free to explore the possibilities offered by the technology they are specialists in without having to become specialists in the general tax code or the monetary and financial code. It is with this in mind that we will then be able to fully experience the opportunities left by STOs and DeFi.
When, in 2017, we began our parliamentary work on the subject, the women and men we met, some of whom are still here in the audience or on stage, were pioneers. Today, four years later, we are all builders, constructing the finance of tomorrow, the digital world of the 21st century. And in this gigantic construction site, we all have a contribution to make.