Alice in Regulatory Land

Transcript

so welcome and thank you for coming for this talk the presentation is about alice in regulatory land the crypto ecosystem invents new solutions to all problems money finance identity organizations but those concepts are already changing our grasp of our primitive brains if we spread on top of them computer science and engineering we lose most of the people that could help us understand these problems in the end no one can fully comprehend the intricacies of the task at hand and the consequences of any proposed solution

this is not you we live in a complex society and we use simple concepts to try to understand it a contract for instance we simplify it to this vision of a sheet of paper written with an antiquated font and with a ridiculous prose and this is what we identify as a contract this is not the full extent of the concept but this is an object we can identify we can comprehend and from which we can build more complex businesses and societies but what are the problems that actually crypto tries to solve for this let me introduce to you alice alice works as a teacher

in a small town she needs to be able to pay for groceries and in the near future she might want to borrow money to buy a house or also to get a garden and more space for outside businesses sometimes alice pays for groceries with cash she gives a banknote and gets a few coins in exchange money is composed of the subject that you can exchange for objects of the same value the word derived from all french and even latin moneta which is the same origin as minting so we have really this vision of a physical object when we we pay but when she pays with a card it is the

same money right act in our mind it's the money that we already deposited in a bank account that we are just using in a different form but as you all know here it's they it's absolutely false there is the the equivalence between the money in her bank account and the cash he has is just a fiction and the money is not created by minting it anymore so the money printer can go bare but it can't create money in the end so in this context which is confusing for everyone something like bitcoin is comforting bitcoin is a digital version of the id of money as a physical object

it is even in the name bitcoin how bitcoin units are created with hardware and energy we brought back physicality in this distressful world of abstractions of course some lawyers and central bankers can't map this digital physical object with their concepts of money indeed in top of this complexity we have to deal with different tribes looking at the same thing from different angles we have technologists building stupid things to solve problems that they don't really have with the help of business people building organization to build things to make money we have academics that try to

get famous by publishing ideas that don't really come from them either it comes from somebody else or it might be fully wrong and we have regulators administrations central banks lawyers they generally try to forge their careers by looking smart without taking too much risk and finally politicians that were not good enough at any of the above so how do they look at this concept together let's take a wallet for instance it is a physical object that we all know great it's a something made of fabric or liver that contains money translated to the digital world it can be a file that contains the

keys to our money or it could be a piece of hardware or the software that hold the keys that allows us to sign transactions or even the software that enable us to interact with an app by acting as an intermediary with the device where our keys are actually stored in the end a wallet does not contain money and might not even contain the keys and in this context lawyers looking at the same object add their level of poetry so we end up with the notion of hosted wallets that actually don't have keys at all and they are a relationship and account between you and a shaky business and

you better use this kind of wallet because otherwise you go into the uncharted territory of unhosted wallets which probably live in the ethers of the internet or something i took the example of the wallet but there are many instances of these skill morphemes the application of physical concepts for a false sense of definition a key for instance it's an object that unlocks the door we all know but in the digital world you can use it to sign a message so it's more like a stamp or a signature or the public key it can be used as an end fire an account it is the measure of a position by a company in a contractor relationship but in ethereum it's mostly

an entry in a database tokens in for engineers it is a long number that you can use to identify it can be an entry in a smart contract or actually it can represent value so we have different concepts sharing the same words in this game from which most of slide come from i tried to leverage the physical representation to introduce concepts it's called haciendas as you and as they were farms that were semi-autonomous in colonial spain they shared common infrastructures such as roots viales and ports where taxes were collected but each at its own economy or even

police so we could imagine each smart contract and its ecosystem as an agenda that ultimately shares the blockchain and pay the gas fees together it is not a virtual world so i'm not going to share the new nfte or token it is just a representation of the defile landscape a physical representation that highlights our confusion problem as you know smart contracts are just programming practice but because of the blockchain context they have legal financial and social consequences they constitute the backbone of the ecosystem and in the end they're not really contracts and they are even

further from the physical image that we have of contracts but i guess that to use the id of digital vending machine as a name for smart contract was not as appealing as smart contracts but let's go back to alice she pays with cash and there is when she pays with cash there is no trace of her payments for all we know alice could be actually called mustafa that like to wear weak and the cashier the money and the state would not care but at the second alice tries to pay with the digital means of payment we have to apply all the holy rules of anti-money laundering money laundering is a damaging activity let's get that straight people make

money from all sorts of shady activities from gambling tax evasion terrorism and it is proven that money damages twice if criminals can easily reuse the money that they gain from a criminal activity in the regular economy so money monitoring does not go through people like alice most of the time but you remember the tribe that we mentioned before applying ml sounds smarts and enforcing anti-money laundering rules so the big businesses servicing alice while she pays for it is way less risky than challenging any status quo so what does aml rules contain

one of the general ideas is that if one of the business sees something suspicious it should report it to authorities that lead banks to have compliance combat departments that will monitor transaction and trigger internal alerts if some criterias are met the talent will be reported to authorities that may or may not have the resources to actually investigate on it another rule is that the participating actors in the payments of alice will have to exchange information each actor uses this information to evaluate the risk of the transaction it can also be used later by law enforcement to investigate what happened in the payments but again they may or

may not have the means to actually conduct this work in practice the information is usually the name of a list a bank account and some other identifying information and same for the business receiving the money but what happens if alice wants to pay with crypto as we have seen before crypto does not really conform with all vision of money so the body that sets the standard for anti-money laundering just decided to just apply the same rules as was applied for traditional payments to crypto and the countries that participate in defining the standards are now implementing it in europe you have heard about this we have

the media regulation that created first a category that looks like a financial actor which is a crypto asset service provider and they have to be registered and to be registered they have to prove that they will conduct this monitoring internally ensuring that we have this iml applied and also they will have to apply those rules of transferring data when there is a payment but is it really crypto regulation in the sense because it does not really apply to crypto itself it applies to those anti-major gres that were already sort of financial institutions so

to just introduce some elements that look a bit more crypto because remember the purpose is to look smart there is the obligation of proving that you own an address when you transfer from your crypto asset service provider forms so there is at least one little bit that has any connection on how a blockchain works um but looking smart is good but you can even have more fun when you are part of the regulatory tribe when you write rules then now people have to figure out what it means crypto transactions that happen on a blockchain and as you know the blockchain can contain any personal information for

privacy purposes right and because of gdpr and all the its equivalents you can have any information related to the individual writen in the blockchain so you will need to build a new system to share information you will need to build a system that share information of personal data with other businesses you need to onboard businesses and have the the same common infrastructure to exchange this data you need to create standard for exchange it you need to make sure that any business that will receive the data will also be compliant with privacy rules and so protect the data of your users and hold to it as their deal life so

all of this is complex and in vm how much new information is really created because the crypto asset service provider already knew their customers and the blockchain already recorded the trail of transaction between them so what has been gained in this process could it have been done before could we solicit or different tribe to find more efficient solutions that would facilitate payment while tackling money laundering we could leverage for instance the concept of decentralized identity or verified credentials to prove that a person or an address has been identified by a regulated actor the proof could be unchained to be used by smart contracts or in a separate

system for more privacy guarantees this way the personal information would not be spread among all the actors and server diminishing risk of ask of hacks and leaving the possibility to rewind the money trail could we go even further and use zero knowledge proofs create private transaction integrate some rules facilitate the self-reveal of the flows of transaction when needed only if we look at further and we look at defile we have on the one hand those ideals ranging from the sovereign individual to the idea of creating digital comments

democratically governed by daos on the other hand you have companies and startups that try to build businesses by providing services or sometimes just scamming people in the middle you have the regulators they are trying to push everyone towards this category of financial institution that they already know and in the end we have all the actors of the ecosystem trying to push further away from them the risk of becoming one of those financial institutions and of fear of a disproportionate burden my vision is that components and layers

could be treated separately developers for instance could have the responsibility in the conception and in the implementation of the protocols done well these protocols could be the pipes of finance and despite all the complaints that regulators institutions make about crypto make no mistake everyone understands that there is impres impressive achievement that have been done by this ecosystem over the past years there is no doubt about that all the recent reports show and repeat every time that they see all the risk of crypto as it is today but they see also that the future of finance should probably look the way this ecosystem works

and this is not me seeing it a lot of reports have been in that direction so this is one aspect of it the developer side that should be protected from the risk of becoming financial institutions in order to continue to innovate with all the factors that make it innovate this open source ecosystem the concept possibility the traceability and so on but and when we say developers we generally think of individual developers but they're also companies providing technologies [Music] yes and we all know that there are risks associated with that but there are different risks than the one of the financial institutions for instance billions have been hacked in crypto because of errors bugs and negligences and currently no governmental agency is

equipped to analyze to prevent to provide guidelines and even more to regulate in details all this activity so this is the easy way to you go back to financial intermediaries regulation because you can't deal with what's the strongest difficulty the second element is the protocol and its operations the deployment by a third party the alternative frontends the decentralized governance are always to mitigate legal risk from the initial team because it is not desirable for them to have all the burden to become a financial actor but my view is that someone needs to advertise to a company user to identify improvements

and currently out of fear of regulation all this important activity is only left to discord and governance forums with drama and indifference could we clarify the roles of these different ways that don't have the custody of the fund that don't build the protocols but are facing the needs and pains of the customers so as a conclusion we might be entering in the face of maturity for crypto as this picture illustrates part of the dreams and aspiration of the prior decade has finished but this ecosystem has gone beyond expectations the question now is to better identify the objectives of individual projects and the values of the ecosystem as a

wall and from there to work on the fundamental concept and representations to shape new models structures and regulations hopefully all of these to bring valuable services to alice i will be extremely happy to continue working on that and for your question and as a final note i would like to say many thanks to all the people that contributed in brainstorming that led to these ideas in particular i'm thinking of ben marina john and maria and all the other that have been involved in this thank you [Applause] thank you thank you xavier

questions please anyone questions so this is slightly off topic i went on your website and i spent literally an hour on it going all the way around the what what is it i don't really get it because you've got the images on the background and i've i've wasted so much of my life wandering around that digital world what actually was it the the slides yeah yeah it's it's a game you can find which is called ascendant xyz and it's a real prototype just to discover a bit define crypto with a fun interface uh okay yeah yeah it was quite involving

anyone more questions thank you very much and spoken like a true academic where the goal is to properly name things and and have useful words so that we can communicate with each other i i really like the the metaphor that you propose of the the hacienda and how this can be seen as a contract or a community that that works together and then pays taxes commonly my question is around what happens when words as have as has been happening now and let's just take nfts for an example what happens when words already take on a meaning and inflame

a large part of the population so recently playstation launched collectibles that are absolutely not nfts not nfts not nfts because you know just as an example what happens when we already have an association with some words in some terms and how can we how can we rebuild or read reframe or redefine redefine that what do you think that process looks like thank you for this very hard question because i i think it's it's really a a core and one of the most important challenges we have seen that during the regulatory debate on wallets and hosted wallet austin wallet was i went through that a bit fast but

the real difficulty is that you have people that really don't have enough the base concept to be able to fully understand what we are talking about even nfcs is interesting because it became like this trend at the same time it designates a specific technology thing that actually shouldn't have a meaning either because it in the end just a standard of a type of smart contract and and we have this difficulty i don't know what is the best option maybe yeah industry-led air force to create common glossaries could be ways to try to publish articles reports that try to give definitions i've been participating in many institutional reports and in each of them you end up having this glossary of

all the blockchain words by the way it's funny because all the technical words you need to put them in the grocery because nobody understands but really technical economic world usually it's fine you know like everyone knows that yes but it depends of your culture you see so there is a culture of the technical things are not really known and it's a weird thing and so we need to redefine and every time they redefine it and they don't even reference prior version so there is nowhere anything that even somebody that wants to to to to go forward can can look at so maybe it's something we should do uh write a good glossary that helps as a reference and it also references the ambiguities and the contradiction in meanings because

we can cope with that the vocabulary is always ambiguous but we need some sources to just be aware of those ambiguities great thank you xavier thank you [Applause]