The Crypto Explorer podcast: Regulating the world of crypto composer
Welcome to the written edition of our latest episode for The Crypto Explorer, a podcast by Sygnum, which takes you into the exciting world of crypto assets and Future Finance with conversations with leading figures in blockchain and finance.
In this episode, host Aliya Das Gupta and guests Luka Müller, Co-Founder & Chairman at Sygnum, as well as Magdalena Boškić, Head of RegTech & Crypto Compliance Services at Sygnum, talk about the regulation of the crypto world and the new global order for technology and compliance.
Listen to the full podcast episode here.
Aliya Das Gupta: Could you talk about the various global stages in the crypto regulation in Switzerland?
Luka Müller: Yes. When Vitalik Buterin and his team were evaluating from where they should start the launch of Ethereum, Switzerland was one of the jurisdictions to be explored. At the beginning, I thought about Ethereum as a new technology or a new way of creating a protocol and information. But later I realised the incredible impact of the technology in two ways: first, the possibility to create digital property/ownership and second the smart contract system that Ethereum brought. It really fascinated me.
However, we still had to find a way how to set up the structure of a decentralised stakeholderless network. Vitalik wanted to create something truly decentralised, and this is the reason we came up with a Swiss foundation which functions like a smart contract. The foundation was the right solution, as it allowed us to have a legal umbrella where we could put the whole project into. But we asked ourselves, how do we launch such a protocol?
Aliya Das Gupta: How did you launch the protocol? Luka Müller: In the beginning, it was collecting Bitcoins to finalize the protocol. And then step two, to ultimately deploy such a protocol. Deployment of a protocol meaning, integrating the genesis block in block numbers, one of the Ethereum protocols. Once this was done, try to explain that to the regulators in 2014. I think our chance was that we had very open regulators with FINMA at that time. They listened, tried to understand and were open for discussion. We were very well prepared, because we went through all the laws, all the eventualities already before we launched and made the proper analysis. After long discussions we decided to launch in 2014 and deployed the protocol in 2015. Which played out to be the right thing to do.
Aliya Das Gupta: How do you think the regulation landscape has evolved from 2017 until today?
Luka Müller: Not very much. This shows we are still in a very early development phase of the entire space. However, we have done some major changes. For example, when we solved a civil concept issue by introducing a new concept of a registered security on the blockchain. This security allows us to legally transfer ownership via a blockchain infrastructure. It solved the very basic principle of civil ownership.
We also added some rules into the AML regulations. We clarified certain banking terms and certain enforcement laws, this was a punctual/sectorial adaptation of the law. We did not implement the complete DLT regulation. I believe the approach that we have taken was the right one but there are many things that still need to be regulated.
Magdalena Boškić: I would agree with Luka that we are still in an early stage. However, in the last 5 years I have been working in the sphere I have seen some developments. In 2018, FINMA issued its ICO guidelines, and I believe this is the year when the crypto regulation began in Switzerland. At this time, I was working at a crypto native company that later became a FINMA regulated company.
The challenges have shifted from legal uncertainty to regulatory dynamics, which are the approaches that nations are taking towards regulating crypto assets that are a cross border international global topic. As a result, you have inconsistencies because every country’s jurisdiction has their own approach. Nevertheless, I think we are going into the right direction.
Aliya Das Gupta: By definition, a regulator is a centralised power, on the other hand, crypto in its ethos is decentralised. What do you think about this?
Luka Müller: Yes. Crypto is decentralised, but on the way to full decentralisation you have several centralised steps. Decentralisation is a term that is not fully defined yet. We will have several layers of decentralisation, several levels where regulation should be present and where it should not.
Magdalena Boškić: I think crypto exchanges are a very good example of centralised crypto assets, to buy and sell crypto you have crypto exchanges. They are centralised in a decentralized world providing financial services and this subject to regulation.
Listen to the full episode here to learn what Luka Müller means when he talks about crypto regulation.
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