We are back with another addition of Muldering! Here’s a major crypto policy issue that’s flying under the radar.
TL;DR
There’s a high likelihood that staff and policymakers will be banned from owning any cryptocurrency, or at least shamed from ever owning it.
With less of a chance to gain a basic understanding of new web3 products and services, policymakers are going to struggle to really understand it at a user level.
Civil servants should be permitted to own crypto, at least at a de minimis amount, or at the very least provide a nonprofit, safe space to experience web3 directly.
Funky 🎧 vibes:
Forget Me Not
Time for a confession. Â
In my little world, I was known as the lead policy staffer for all crypto, fintech, and AI issues for a very senior, influential policymaker on the Hill. Â
Sounds cool, and it was, but here’s something I’ve never told anyone:
Despite being relatively well known as a leading policy expert in web3 issues before it was even called that, I never actually owned any cryptocurrency until after I left the government.
Why? Fear.
I was afraid of even an appearance of impropriety whenever I had to fill out my senior staff investment disclosures each year. I was afraid of activists on the other side that, if they found out I had invested in even a minute amount of Bitcoin, Ethereum, or whatever, it would cause headline risks for my boss, maybe even at the cost of losing my job.
I had nothing to hide, but it just wasn’t worth it to me.
Now, since leaving government, I took a job requiring me to quickly deep dive into some of the most cutting edge web3 projects, and I have to admit that I was embarrassed with how behind I was.Â
While I was learning the basics of how to open up a Coinbase account, the rest of the team was excitedly sharing with each other what their Urbits looked like. While it took a great deal of convincing for me to even buy a basic webpage, the others were thinking about buying ENS domains for their kids. Â
I had a lot of catching up to do. Â
And while it was a little embarrassing at the time, the truth is that I learned more in that span of a couple months about the opportunities—and frankly the limits—of web3 than all the roundtables, conferences, policy papers, and meetings I had in the previous eight years in government.
When it comes to web3, you just have to roll up your sleeves.
Defending the Indefensible
The next populist wave is coming.
It’s likely Congress is going to do something in response to the well-deserved, recent public outrage over politicians buying and selling individual stock. Â
Numerous bills have been introduced in varying degrees of severity over the past few weeks, from an outright ban on trading to requiring members and their families to create a blind trust for their investments. But the net net of it all is that reform is coming. And the risk is that, in combating insider trading and stock picking, cryptocurrency will get swept up in it.
You might say: so what?
Or even: good!
But similar to my never actually owning crypto while working in government, numerous staff and policymakers have personally shared with me over the years that they also do not want to directly own any web3 products or services out of fear of having even the appearance of impropriety. Those that do take the risk of owning it, own very little because of the fear that it might cause headline risks for their boss. All are afraid of what’s going to happen next.
And while this might sound overly risk averse, here’s a recent example of how policymakers actually get treated if they dare own even a little bit of crypto:
Notice the article not only targets members for owning crypto, but it goes after family members as well. Even the children of politicians aren’t immune to this type of treatment.  Â
Why would anyone in public office want to be portrayed in this way? And why would anyone who owns crypto ever want this type of scrutiny in elected office?
They won’t, which is why this is such a big problem.
Depending on how Congress proceeds in combating the laudable goal of stopping insider trading, there’s a very real risk that crypto ownership will get banned, such that the ability for policymakers to actually understand web3 might worsen in the future.
Sadly, we are seeing this already happening elsewhere in government. Â
The Fed recently adopted rules banning its officials from owning crypto in response to its insider trading scandal. Remember, crypto wasn’t even involved in the scandal–it was all stocks and bonds–but no matter. The sweeping changes in conflicts applied crypto just the same.
And keep in mind, this is the very same Fed that is in charge of exploring whether the United States will issue a digital dollar, which regardless of how you feel about it, is arguably the most significant technological undertaking for the future of money since Nixon in 1972, maybe ever. Â
How are the Fed staff going to design a digital dollar with important features like security, privacy, and interoperability, when they are prohibited from even experiencing what it’s like to open a Coinbase account? What basic UX features of a digital dollar will they misunderstand, or not even take into account, because it remains all purely theoretical for them? Â
The truth is, they will outsource and rely on industry technical experts to worry about all of that. But that should give everyone pause. For the crypto skeptics, they might worry about agency capture with private industry designing a digital dollar. For crypto proponents, wouldn’t you want the team in charge of strategy to actually understand how it actually works?
Users First
A ban on crypto for policymakers would be a terrible policy result.Â
Whether someone opposes or supports crypto, all policymakers and staff benefit from actually experiencing it. Â
The easiest way forward is to provide a broad de minimis exemption to all staff and policymakers to own web3 products and services. Â
This is the common sense solution not only for clarity and ease of implementation, but it also accounts for future use cases that are going to be widely adopted soon that will make prohibitions nonsensical anyway. Â
For example, music NFTs.Â
Imagine if as a staffer you needed to disclose every song you listened to, or imagine a policymaker being limited in the number of musicians you could listen to, based on the disclosures that would be required. This may sound very woo-woo web3 theory, but the truth is that music NFT ownership is already here and will scale soon.
If allowing for a de minimis exemption is a nonstarter, then industry should work with policymakers to create a kind of nonprofit, safe environment for all policymakers to experiment with the latest web3 products and services. Â
Believe it or not, even providing this basic level of experimentation runs into conflict issues with the agencies that will require reform. Many of the financial innovation offices struggled with complying with outdated procurement laws as they tried to understand and experiment with new financial products. Â
That’s right: just for a regulator to experiment with a web3 product, they can be forced to go through the steps of what is called the Federal Acquisition Regulation, which requires a cost-benefit analysis, evaluating a variety of bids, studying for antitrust violations, and other requirements. Juice isn’t worth the squeeze.
Regardless, trouble is ahead.Â
We cannot sleepwalk our way into forcing our policymakers and staff out of web3 merely because of the well-deserved public outcry against how civil servants trade investments.Â
Whether you are pro-web3 or anti-web3, everyone should be pro-understanding web3. And the only way policymakers can really understand web3 is to make sure they can experience it.