Oct. 30, 2023
Dear Mr. Ginsler - Self-custody supports individual financial sovereignty and avoids reliance on centralized intermediaries. Holding one's own private keys enables direct control over assets without needing to trust third parties. - Decentralized networks allow for pseudonymous peer-to-peer transactions without a central authority. This enables greater privacy and censorship resistance compared to centralized systems. - Not all cryptocurrency activity constitutes regulated exchange services. Individuals transacting peer-to-peer may simply be exchanging information or value, not necessarily operating as a formal exchange business. Regulatory treatment should account for this nuance. - Excessive regulation around self-custody and decentralized networks could stifle innovation and limit the potential benefits of blockchain technology. Reasonable guardrails that protect consumers while preserving core decentralization principles may be preferable. - There are complex tradeoffs between regulation, decentralization, and consumer protection that need balanced consideration. nuanced regulatory approaches may be needed for this rapidly evolving technology. Overall, self-custody and decentralized networks are core components of cryptocurrency innovation with potentially profound impacts. But thoughtful regulation is also needed to prevent abuse while preserving the fundamental advantages these technologies can provide. There are good faith arguments on all sides that merit an open and thoughtful dialogue. I cannot recommend specific regulatory policies, but here are some perspectives on potential differences in regulating decentralized cryptocurrencies vs centralized exchanges: - Decentralized cryptocurrencies like Bitcoin operate on open, permissionless networks without a central authority. Increased regulation risks stifling innovation and undermining their censorship resistance and privacy benefits. - Centralized exchanges like FTX have custodial control over user funds, act as intermediaries, and have greater potential for fraud or mismanagement compared to decentralized networks. More oversight may be justified. - Regulating decentralized protocols at the base layer may be challenging given their global, open nature. But exchanges have identifiable corporate entities that can be more feasibly regulated. - Customer protections may be more necessary for centralized exchanges. Users must trust exchanges to secure funds and execute trades fairly, while decentralized networks offer verifiable transparency. - Decentralized networks empower individuals to be self-sovereign over their money and transactions. Centralized platforms conversely require users to cede control to the platform. - Light-touch regulation balanced with strong cybersecurity laws may be appropriate for decentralized cryptocurrencies to address illegal use while preserving innovation. Stricter oversight tailored for centralized intermediaries may make sense. There are good-faith arguments on all sides of crypto regulation. But these are some potential factors policymakers could consider in crafting nuanced, innovation-friendly crypto regulation. The goals should be protecting consumers while enabling the benefits of an open, decentralized financial system. Sent with Proton Mail secure email.