The Foreign Service Journal, April 2023

30 APRIL 2023 | THE FOREIGN SERVICE JOURNAL cases such as cross-border remittance and basic financial access. At its core, Web3 guarantees ownership over digital identity and privacy. The technological improvements made within the Web3 industry are constantly advancing, as the space seeks to solve some of the most challenging questions in the world of cryptogra- phy and mass-scale coordination: technical improvements such as zero-knowledge cryptography or effec- tive and fair ways to align incentives across organizations. FSJ: What else do you think our readers should know about digital currency? SW: In 2022 crypto made a huge leap into public awareness as individuals and governments alike considered the implications of digital currency. But—and I won’t mince words—it was an unforgiving year. It’s easy to take notice of numbers, but we must not forget that there are people behind them. Sadly, those affected by unethical decisions made at the highest levels felt them most acutely. Many have, understandably, asked whether the risks of crypto outweigh the benefits. We need to be clear: People were at the center of the negative press, not the technology involved. And the alleged bad acts committed mirror similar bad acts that have happened throughout the course of history: fraud, misuse of assets, and egregious breaches of trust. Keep in mind that crypto emerged out of the financial crisis. It was designed with these very human failures that come with centralization in mind. While we still have a way to go, it’s important to highlight that the technology is designed to avoid these types of events. This is why so many remain excited about its potential. At its best, the technology mitigates centralization risks, and it provides a much-needed option in vulnerable contexts (like hyper-infla- tion, authoritarianism, and high-friction financial markets). As the crypto market continues to survive through numerous headlines, both good and bad, it’s clear that governments are taking digital currencies seriously. They have been slowly wak- ing up to the undeniable reality of crypto being here, and their recent focus on policy and regulation is a sign that they acknowl- edge its potential. Japan led the G20 countries in being the first to adopt stable- coin legislation in the summer of 2021 and in 2022 announced investment into NFTs, the creation of a decentralized autono- mous organization (DAO) for Web3 exploration, and overall investment in services that utilize the metaverse. The European Union followed by endorsing its landmark legislation, Market in Crypto Assets Regulation (MiCA). This is the first time a major player moved to legislate digital assets and the wider crypto ecosystem. This regulation will have global implications because a majority of the companies in this space are headquartered outside the region. G20 countries are also coordinating on the regulation of crypto assets through the Financial Stability Board (FSB) and other international standard-setting bodies in financial regula- tion. The FSB proposed nine recommendations that provide oversight, supervision, and regulation of stablecoins. On the technical side, the Bank for International Settlements (BIS) partnered with four central banks around the world on Project mBridge to explore digital currencies as a more efficient mecha- nism for cross-border payments. In the United States, President Joe Biden’s Executive Order on Digital Assets led to the release of several reports and a framework. On the legislative front, crypto saw broad, bipartisan support throughout 2022. Notable bills include the Bipartisan Responsible Financial Innovation Act from Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), and the Digi- tal Commodities Consumer Protection Act. Although the new Congress brings different actors and priorities, the trend overall demonstrates the growing importance of the sector and the interest from across the political spectrum in securing the future of the U.S. digital economy. Digital currencies—in some form or other—are here to stay. The crypto space is firmly on the global radar, and these exam- ples represent a handful of the activities that happened around the world in 2022. Worldwide, governments have realized that the technology is not going away. They are making investments in the technology and are making moves to protect consumers with sound regulation. To ensure that the U.S. continues its role as a leader in innovation, government officials and diplomats should pay close attention to this quickly evolving space. n