Everyone saw this coming.
The New York Times reports that both the Russian and Venezuelan governments are trying to evade U.S. sanctions by creating new, state-sponsored cryptocurrencies that can avoid U.S. jurisdiction. Of course they are - that's what rouge actors do. The question for us is how we deal with it.
There's a cliché called "death by a thousand cuts." In trying to resolve each specific problem only after it arises, eventually there are just too many wounds and the patient dies.
If the U.S. government just tries to go after each problematic example of crypto on an ad-hoc basis, that's exactly what will happen (just like the War on Drugs has been a complete and utter failure) and it'll never get ahead of the problem. That presents opportunity.
This is not the time to play whack-a-mole. This is the time to recognize that crypto is real and here to stay. It's time to start forming sensible regulations to help govern the sector broadly and wisely.
What does that look like in practice? These are the first four steps we should consider:
Acknowledge the reality
First, our institutions need to realize that the more they try to deny the legitimacy of cryptocurrency, the more they inadvertently reinforce why it exists in the first place.
Trust in official institutions like government, organized religion, the media, and higher education are at an all-time low, all over the world. That's why people want decentralized alternatives.
The more that top officials in the public and private sectors keep calling bitcoin a fad (or worse), the more they signal that they don't get it.
No one knows for sure whether any specific currency will succeed or fail long-term, but I do know that crypto isn't going away. The federal government needs to recognize this too.
Likewise, the industry needs to recognize that the institutions aren't going away, either.
There are always bad actors in every sector and every walk of life. The public relies on government and the media to help separate the good from the bad.
Absent embracing some form of regulations, the bad guys like Russia and Venezuela (or sham initial coin offerings with no technological value) will drag everyone down.
Concrete steps forward
That's why we need national regulations on crypto assets (a 50-state patchwork approach is a very predictable disaster).
We need to accept it as a new and permanent addition to the financial system.
And then we need to regulate it as such: bank charters, licenses, standards, best practices and reviews.
We have a slew of regulations to ensure that banks, mutual funds, pension funds, insurance companies, mortgage lenders and a host of other financial institutions meet certain standards. Some of those regulations make sense. Others don't. But we all agree we need some structure to provide guidance, direction and ensure good behavior (or at least try to).
The same applies here. The U.S. Treasury Department and the Securities and Exchange Commission should start working on what a national regulatory structure would look like and how it would work and the major players in the industry should eagerly volunteer to help provide ideas, advice, information and feedback.
Take it to the next level
Then it needs to go global.
Sure, between President Trump's views on NATO, the U.N., NAFTA and free trade, this isn't exactly a watershed moment for global cooperation. But for the very same reasons that bitcoin's creation was fueled by a lack of faith in the financial system, if the standards governing crypto aren't relatively similar everywhere, that futile game of whack-a-mole is still going to exist.
And while we may not see the U.S. take the lead during this administration, by the time we have U.S. standards fully in place, we may have new leadership in Washington. In the interim, the World Bank and IMF should do as much as they can to start producing sensible global standards (including those that can help exile state-sponsored currencies designed to evade sanctions).
Even if the value of bitcoin (or XRP or ETH or anything else) plunges, crypto will still be here. People will still search for alternatives to the status quo.
Either we can pretend it's not real and only exacerbate all of the problems by sticking our heads in the sand or we can embrace the advancement of new ideas, platforms and technologies and bring them into the fold, rationally and thoughtfully.
Russia and Venezuela are betting we'll pick the former. Let's prove them wrong.