Critical moment! Major progress in US encryption bill will be decided at the end of the month

24-05-21 10:39
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Original author: a16z crypto
Original translation: Kaori, BlockBeats

Editor's note: Last night, Ethereum rose from the ground to a high building, with an increase of more than 20%. The news of Ethereum spot ETF stimulated the market. But in addition to this major event this month, there has been important progress in the US cryptocurrency bill. The official account of a16z crypto published an article last night to interpret the "21st Century Financial Innovation and Technology Act", also known as FIT21, which can make US cryptocurrency regulation clearer for everyone working in the industry or wanting to develop in this field. BlockBeats previously reported that on May 21, Politico reporter Eleanor Mueller posted on the X platform that people familiar with the matter revealed to her that the leaders of the House Democratic Party said today that they would not oppose the encryption bill of the House Republicans.

The following is the original content:

An important bill to help our industry: Why it matters and what you can do

By the end of this month, the House of Representatives will vote on a major bill (HR 4763) - and we think you should pay attention to it. It is called the Financial Innovation and Technology for the 21st Century Act, aka FIT21, and it could make US cryptocurrency regulation clearer for everyone working in the industry or wanting to develop in this field.

If the bill is passed, it should:

1. Provide a safe and efficient way for blockchain projects to launch in the United States;

2. Clarify the lines between the SEC and CFTC on who regulates cryptocurrencies and whether digital assets are securities or commodities;

3. Ensure oversight of cryptocurrency exchanges and further protect American consumers by implementing cryptocurrency trading rules.

Why It Matters: The Big Picture

Despite the crypto industry having existed for more than a decade, the United States does not yet have a comprehensive regulatory framework for digital assets. Our current regulatory framework is fragmented, incomplete, and lacks clarity. This regulatory uncertainty not only creates a confusing environment for innovation, it also creates a breeding ground for bad actors. As we have seen, companies and individuals with ill intentions can easily launch products that exploit regulatory gaps.

Meanwhile, responsible actors—legitimate entrepreneurs and startups—are subject to questionable “enforcement.” This approach harms American innovation, especially as other countries innovate, and is detrimental to the long-term dominance of the dollar, American consumers, and the U.S. economy as a whole. When other jurisdictions offer appropriately adapted regulatory regimes, it leads to startup activity moving abroad.

This is not an abstract question: Startups create jobs and economic value, and can give rise to the next big tech company. For example, Amazon, Apple, Facebook, Google, Microsoft, Netflix, NVIDIA, and Salesforce all originated in the United States—some in the past 20 years—and dominate not only market capitalization today, but our daily lives.

As FIT21 creates a supportive environment for innovation, cryptocurrencies can have the same potential, but without creating big tech companies that serve as gatekeepers to the few who own the many.

Whatever you think of cryptocurrency, it is more than just a financial opportunity—it represents a major technology platform shift, just as personal computing, mobile phones, and the internet transformed our world. While the internet is one of the most important technological innovations in human history, it has failed the people who rely on it today: consumers, creators, and developers.

Blockchain, cryptocurrencies, and web3 can help solve this problem in many ways: from proof of authenticity against deep fakes and proof of personhood against AI, to more voices and choices on social media platforms, to more inclusive payment systems, and so much more. But we need a supportive environment for these innovations to continue to grow in America.

What's in the Bill?

FIT21 seeks to ensure a regulatory environment that allows blockchain technology to flourish in a way that protects American markets and consumers. More specifically, the FIT21 Act/HR 4763 establishes a regulatory framework for the U.S. digital asset market in order to: · Address the unique structure of digital assets — thereby supporting the unique needs of new technologies and their opportunities; · Provide clear, strong consumer protections — thereby supporting the goals of protecting consumers while promoting innovation; · Clarify which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which are regulated by the Securities and Exchange Commission (SEC). This is important because there are key differences between the definitions of “commodities” and “securities” that have an impact on how they are regulated. Specifically: · The CFTC will regulate digital assets as commodities “if the blockchain or digital ledger on which they operate is functional and decentralized.” · The SEC will regulate digital assets as securities “if the relevant blockchain is functional but not decentralized.”

The bill defines decentralization as “if, among other requirements, no person has unilateral power to control the blockchain or its use, and no issuer or associated person controls 20% or more of the digital asset or the voting power of the digital asset.”

The bill also imposes other consumer protection requirements, such as segregation of customer funds; lockup periods for token insiders (to incentivize innovation rather than just speculation); annual sales volume limits; and disclosure requirements. These are not unlike the protective regulators put in place after the Great Depression, in the aftermath of the excesses of the 1920s, and in the aftermath of the 1929 stock market crash — and once those guidelines were in place, America’s markets and economy enjoyed an unprecedented era of growth and innovation.

What’s Not in the Bill?

Some industry insiders have expressed concern that the bill gives the SEC too much jurisdiction by setting a very high bar for decentralization and the ability to reclaim any “re-centralized” token or project. There are also concerns that the bill does not create a tighter line between the jurisdiction of the SEC and the CFTC.

However, while not perfect, the bill will provide the regulatory certainty that the crypto industry needs to continue to operate and innovate in the United States.

Why is there such a rule, some ask? It is unrealistic to think that there will be no regulation, and clearer rules are better than confusing ones. Regulation, along with a clear path for companies to comply, enables innovators to build trust and useful products for the public, while holding any bad actors more accountable.

Who is behind this bill?

The FIT21 Act is a joint effort of the House Financial Services Committee (which oversees the SEC) and the House Agriculture Committee (which oversees the CFTC), with input from the industry. Last July, the bill passed the Financial Services Committee with the support of six Democrats and all Republicans on the committee, while the Agriculture Committee also passed unanimously. Since then, it has continued to receive bipartisan support.

Why now? How can you help?

The vote on the bill in the coming weeks will serve as a referendum on cryptocurrency in the United States. Therefore, the bill must have strong bipartisan support to pass. After that, the bill will also need to pass the Senate and be signed by the President to become law.

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