Crypto Learns How to Lobby, But Whose Interests Are Being Served?
- There's a concern that the lobbying groups that have emerged possess interests that don't align completely with the crypto ecosystem as a whole.
- However, it is still too early to judge how risky such close ties are.
Money is power. This may be an old cliché, but the existence of lobbying groups in Washington, London and other centers of power would suggest that it contains a grain of truth, at the very least. In the US alone, USD 3.37 billion was spent on lobbying policymakers in 2017, while the annual total has topped USD 3 billion every year since 2008.
Lobbying is big business, which is why the ascent of cryptocurrency is now bringing crypto- and blockchain-based businesses into the lobbying arena for the first time. Even though their initial movements in this direction were modest and piecemeal, they've recently gained more mass, with Coinbase, Circle and other firms announcing the formation of the Blockchain Association in September.
However, while this would ostensibly be good news for crypto, there's a concern that the lobbying groups that have emerged possess interests that don't align completely with the crypto ecosystem as a whole. As such, their appearance may be more to the benefit of certain companies, platforms or cryptocurrencies than others.
Bitcoin Foundation and Coin Center
Crypto's first forays into lobbying were made in July 2014, when the Bitcoin Foundation – an NGO focused on promoting Bitcoin adoption – hired Thorsen French Advocacy to lobby lawmakers in Washington.
"The lawmakers and regulators who have studied bitcoin take the sensible position that government should seek its benefits and mitigate its risks," said the Foundation's global policy counsel at the time, Jim Harper. "We're carrying this message to Capitol Hill so the bitcoin community can focus on building tools and services that enrich and improve people's lives around the world."
Two months later, Coin Center was founded. Backed by investment from such companies as Coinbase, BitGo and BitPay, the self-declared mission of this Washington-based group was to communicate – to politicians and the public – the benefits of cryptocurrencies and decentralized technologies.
"We’re advocates,” Executive Director Jerry Brito said in January 2015. “We’re not advocating on behalf of any particular company or industry. We think simply that this technology offers a lot of benefits to consumers and to the wider economy and the world generally."
Since its establishment in September 2014, Coin Center has gradually raised its profile in Washington and increased its activities. Its breakthrough came in February 2017, when it announced the formation of the Congressional Blockchain Caucus, a bipartisan group of congressmen (currently all members are indeed men) "dedicated to furthering understanding of blockchain technologies, as well as sound public policy to foster its continued development free of unwarranted regulation."
And with a group of fellow travelers firmly installed on Capitol Hill, Coin Center has been able to push more strongly for legislation favorable to crypto.
This September, members of the Caucus put forward two congressional bills and one congressional resolution. The first bill, Safe Harbor for Taxpayers with Forked Assets Act, would essentially exempt owners of newly forked coins from having to pay tax on these coins until clear rules are set down. The second, the Blockchain Regulatory Certainty Act, seeks to exempt nodes, miners and other 'non-custodial' parts of a cryptocurrency's ecosystem from being classified as money transmitters or financial institutions.
That Coin Center has succeeded in having these bills proposed in Congress is undoubtedly a triumph for the still-young cryptocurrency industry.
That said, the initiatives they've spearheaded raise the question of just who will benefit from cryptocurrency lobbying.
In particular, Caucus' resolution raises the prospect that cryptocurrency exchanges and businesses may profit at the expense of ordinary users, since it calls for the avoidance of "undue [legal] restrictions" on such organizations, as well as the enforcement of a “light touch, consistent, and simple legal environment."
Light touches may be good for the profitability of the crypto industry, but a minimal regulatory regime could potentially leave average users exposed to a variety of hazards, such as those related to the hacking of under-protected exchanges, to scams, or to risky initial coin offerings (ICOs). It could also simply favor the development of cryptocurrencies as assets, rather than as actual currencies.
This risk is underlined by how the current crop of groups currently lean more towards crypto-exchanges than to other blockchain-related organizations. Bitfinex, Kraken, eToro, and Urbit are backers of Coin Center (as was Coinbase), for example, while British trade body CryptoUK boasts CEX.io, eToro and Coinbase (again) as members.
Another worry is the prevalence of Bitcoin over other coins with some lobbying groups (e.g. the Bitcoin Foundation). For instance, of the five members of Coin Center’s board of directors, two have direct interests in Bitcoin (BTC developer Alex Morcos, and Wences Casares, CEO of Bitcoin wallet provider Xapo). Also, there is the CTO of Coinbase, one is a professor of economics, and one is Executive Director Jerry Brito.
And despite Coin Center fielding a relatively diverse spread of “supporters,” other groups have investors and members who seem too narrowly intertwined.
For example, the Blockchain Association’s members are Circle, Coinbase and Protocol Labs, and its investment comes from the Digital Currency Group, a blockchain investment firm, and Polychain Capital, another blockchain investment company. What’s significant here is that the Digital Currency Group is an investor in Circle, Coinbase and Protocol Labs, meaning that the four firms are effectively part of the same funding stable/pool of money.
This undermines the sense that the Blockchain Association, among other crypto groups, represents a truly varied range of viewpoints and interests. However, it is still too early to judge how risky such close ties are, given that the crypto industry currently has few concrete lobbying achievements to its name.
The Bitcoin Foundation, Coin Center and CryptoUK did not respond to requests for comment.