Regulation of cryptocurrencies is necessary, but the government does not wish to hinder blockchain innovation

The government is closely monitoring cryptocurrency legislation as it explores how to manage digital assets and foster innovation throughout the broader blockchain ecosystem.

Senator Andrew Bragg, chairman of the Select Committee on Australia as a Technology and Financial Centre, told us that the government recognises bitcoin as a "sector rich in possibility but also rich in risk."

“While consumers suffer risks when they participate in uncontrolled marketplaces, we do not want legislation to stifle innovation,” Bragg stated.

“However, these issues must be mainstreamed through a regulatory framework.”

The legislative committee is currently determining the structure of that umbrella and has begun hearing from business, academia, and regulators regarding the kind of activities that might fall under its protection.

Bragg, on the other hand, is cautious to avoid the type of cryptocurrency alarmism that has resulted in international crackdowns on bitcoin use and growth.

He recently headed a similar group that examined the buy now pay later (BNPL) services pioneered by Australian companies such as Afterpay, and suggested that the nascent industry adopt a self-regulatory posture.

The BNPL industry interpreted the government's lackadaisical response as tacit acceptance of its kind of retail credit, clearing the path for US payments platform Square to purchase Afterpay for $39 billion - reputedly Australia's largest corporate takeover ever.

“We are not interested in imposing regulation for the sake of regulation; rather, we want to ensure that we have the regulation that the industry desires and requests,” Bragg told Information Age.

“I believe our evaluation of BNPL was thorough. In terms of these challenges, I believe that the benefit is increased choice, increased efficiency, and decreased dead weight - all of which are beneficial to our society, which is why I'm so determined to get it right.”

Could Australia serve as a breeding ground for cryptocurrency innovation?

Fred Schebesta, co-founder and CEO of Finder, described cryptocurrencies as a "trillion-dollar sector" that has the potential to impact Australia's economy "by the tens of billions" during last Friday's public hearing.

“I believe it has the potential to generate new enterprises, additional money for the government, and hundreds of jobs for Australia,” he told the committee.

“It's also an additional way for Australians to confidently develop their wealth.”

In a June poll, Finder found that 17% of Australians held cryptocurrency, highlighting an increasing trend in cryptocurrency use - particularly among young Australians.

Schebesta expressed a desire for Australia to become a safe haven for cryptocurrency companies, implying that the government could guarantee a certain amount of cryptocurrency deposits in the same way that its guarantee of cash deposits helped build consumer confidence, which fuelled the recent surge in neobanks.

Schebesta added, "It would be a fantastic future." “They talk about global financial centres; well, Australia would be the world's crypto bank, as we would be able to hold all the bitcoin and people would deposit it with us.”

However, in order to achieve Schebesta's vision, regulators will need to work out some of the more difficult regulatory issues surrounding cryptocurrency and cryptoassets – specifically, how to treat crypto-assets such as non-fungible tokens (NFTs) or other utility tokens that serve purposes other than value storage and speculation.

Friday's session demonstrated that regulators are aware of these issues but have not yet determined how to address the thousands of possible use cases for blockchain tokens.

“Whether or not anything is a financial product is determined by a number of statutory standards. Some of the cryptocurrency products we've seen appear to fall into that category, while others do not,” Cathie Armour, Commissioner of the Australian Securities and Investments Commission (ASIC), explained.

“There are also some that may fall into this category that were probably not intended to be financial goods – they were established for a different reason, a non-financial investment objective.”

Armour stated that ASIC is now investigating this categorisation issue, but referred to a model in Europe in which a separate regulatory framework for crypto-assets is being established, which allows for the treatment of financial-specific cryptocurrency projects under existing regulations.

"I believe it is an excellent question as to whether it is the superior strategy," she stated.

"It does provide a degree of confidence for someone developing a crypto product, and they can design their product to fit into any strategy."

Organisations that operate autonomously

Crypto-assets may also be used to oversee the governance of a decentralised autonomous organisation (DAO).

These organisations, which are prevalent in cryptocurrency and public blockchain initiatives, serve as a sort of corporate body whose operations are governed by an open code base.

Members typically vote for changes to the DAO's structure and direction using linked crypto-tokens. Notably, the authority of a DAO is distributed over computer networks and may include members who use pseudonyms.

As Scott Chamberlain, an Entrepreneurial Fellow at the Australian National University, noted, local company rules are unable to recognise DAOs.

"An acceptable framework for legal recognition of code-governed businesses is required," he told the Select Committee on Australia as a Technology and Financial Centre on Friday.

“If you attempt to do so under current law, you can almost get there – you can almost incorporate a DAO within an existing company – but the requirement to have a board and to include the names and addresses of those board members in your registration, the requirement to have a members register and to know the names and addresses of your members, that nitty-gritty detail prevents you from getting there.

These restrictions may need to be addressed if Australia is to be a leader in blockchain innovation, which Senator Bragg has already expressed an interest in.

“It's difficult, but not impossible, to establish new company structures in Australia,” he told Information Age.

“I believe we must ensure that we have the best possible opportunity to attract new investment. While many of these concepts are novel in Australia, they are not novel among our competitors.”

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