Florian Glatz: Why Europe Needs a Regulatory Shift to Avoid Crypto Irrelevance #442

Transcript

welcome to epicenter the show which talks about the technologies projects and people driving decentralization and the blockchain revolution i'm brian crane and i'm today speaking with florian glotz florian is you know one of the most kind of knowledgeable people at this intersection of law and crypto uh he's been a guest on his podcast before actually six years ago i checked before uh we did an episode about smart contracts the dao and he's been you know deeply involved in the crypto space for a long time i was i was organizing bitcoin meetups back in like 2014 13 and uh he would show up there at the very beginning and he's also the proud owner of a very cool domain name that kind of you know indicates how how early

he was with the thing uh blockchain not lawyer so we're going to speak about regulation and crypto today like lots is going on in regulation with you know some focus on europe where foreign is based and where florin is most expert but you know we're gonna try to cover it also in the global context so before we get into that briefly some words from our sponsors first of all course one so securing blockchain and earning words doesn't need to be energy intensive or complicated and by staking your assets with course one you can contribute to network security and earn rewards too course one has been a pioneer in this space since 2018 securing billions of dollars in assets on you know over 25 different decentralized networks like

solana cosmos and ethereum if you're an institution and you want want to run your own branded node you can also do that with course one's right label service and leveraging their ballot proven infrastructure so head over to course.1 and start your staking journey today and second pair swap pair swap is a multi-chain dex aggregator that means that through pairsup you can easily access the liquidity of various different decentralized exchanges the protocol automatically finds the cheapest liquidity for you so you can trade knowing that you're getting the best price it's also very gas friendly and helps you keep your transaction calls slow they recently added support for avalanche polygon bse phantom so you can

use pairshop uh all across the blockchain world and you can also use it directly from within ledger live if you're using a ledger and they also became a doll recently so if you have the psp token you can uh participate there so yeah uh to learn more and check it out go to parisroc.io epicenter and with that uh welcome florian it's great to have you back on i'm super happy to be back thank you for the invitation and yeah uh i think it's about time to talk about legal again on this podcast yeah yeah i mean there's been a few legal episodes i think between the last time we had you on you know when i was looking at okay

it was like just over six years ago a long time i think we were actually speaking about the doll uh and you know just locked it down i think in the in the notes it was called you know i guess it was before it got uh it fell apart and speaking kind of about you know what are smart contracts in the legal contract context i think you know one of the topics was could you sue a doll and you know how does that fit kind of into now of course those questions i think six years later are not resolved even though the crypto space has progressed tremendously but i think legal and regulatory uncertainty in question still you know hugely important and a huge topic

indeed and um it's interesting because the space has grown tremendously since then um and famously the dow failed but now uh six years later daos are i think the one of the hottest most interesting most vibrantly developing aspects of the crypto community at the moment and so it's really uh kind of cool to see this full circle um i also saw i think the founder of aragon say yeah we were pre-product market fit essentially for like four years but now you know in 2022 uh the world is catching up with this vision and i think a lot of the questions we touched upon six years ago are indeed not answered and actually um

now i think really being considered by um much more serious people than me so uh regulators actually and um yeah also lawyers in in big law firms you know now having clients with um you know maybe corporations or startups alike that say hey i want to dial you know make it happen and um so yeah it's i think uh really a good time really to come together here again and look at those developments and try to understand them uh i went back to this original episode we did six years ago and i have to say that i was so clueless looking back about what this all really meant uh in the sense we all were though um and so yeah i i just think it's good to

talk but in in law nothing seems ever final uh but then in crypto also everything is changing so fast that that's really hard to keep up cool that's interesting i'm curious like when you went back to that old episode what were the biggest things where you felt like oh i was so wrong about this i think my main problem back then is that internally i liked a really clearly defined use case for daos i obviously we saw the dao it was kind of this venture investment uh thing somehow but i was not clear how this dao would now invest into classical ventures which in my view at the time were not really daos but like startups as i knew them

and so what i definitely did not see is that ethereum quite naturally now looking back but at the time i didn't see how ethereum would give rise to you know this layer of decentralized exchanges and landing protocols and how those protocols by virtue of being decentralized would need some interesting form of or some functioning form of governance that now ends up being those dows and um yeah looking back it's super obvious in 2015 or 16 when we did this episode i didn't really get it i just have to very honestly admit that's a good point yeah yeah i mean i i also you know remember and i was involved in ethereum also kind of at this is very

uh early on and and the thing that also is like in retrospect seemed so obvious and that i missed was just the ability to basically uh you know fund the development of applications smart contract applications using tokens right like that wasn't like even though of course you had ethereum itself fund itself through selling the token but that you'd have like the applications on top leverage the same mechanism uh now it seems totally normal but it seems so obvious looking back and i think yeah just like we have assumptions today they will seem ridiculous in six years from now but that is what i love about crypto it constantly challenges

your assumptions and you can never rest on your laurels or your you know what you think is true um i currently have this kind of grand theory now because of all those kind of things i didn't see uh that that says we're in kind of the third phase of crypto evolution where the first phase was the uh development of the settlement layer itself so first bitcoin then ethereum so the layer ones now actually there's layer twos in the mix which really scale the layer ones and then um what happened around i see the gnosis ico is kind of the maybe the kickoff for it was the emergence of this token layer so icos uh new crypto assets that were not building their own blockchain they were

just building services on top of blockchain such as ethereum and um i was a part of this you know as much as you and anybody who's been the space but i always felt a bit like more like an observer because i i don't see myself as you know this big finance genius and so i was like wow okay it's super interesting what you're doing there but understand like you know 10 and now in in this third phase that i think we're entering it's actually the the you know financial plumbing is there it works it's great uni swap you know you can use it it's just there it's about building institutions that use crypto for something that is not really about crypto in the first place so this is more about you know society related

things um that we either have or should have um but um if we have had them in the past somehow the institution that was running them maybe the government kind of let us down and uh one my favorite example here is maybe a co2 price which to this day i just don't know what is the price of a ton of co2 and i don't think it's actually globally harmonized it's just kind of still subject to industry politics where as a global people i mean it's one planet if it goes down it goes down why is there not a simple global you know co2 token that i can be trading as well as a retail investor in a sense you know and it's because governments simply refuse to

give us that price they were like no no no if we do this everybody's going to be unemployed because you know steel is going to be so expensive well look at 2022 steel is very expensive now uh because of you know so reality caught up with us anyways so well good luck fixing that now now it's just it's painful now it wouldn't have had to be painful so yeah i think this is phase three now crypto doing actually useful things for all those use cases that we've always been asked for you know in like 2017 18 when we started to talk to politicians and germany were like you know give us awesome use cases with this promising technology that you're building yeah icos you know do you know them yeah that kind of looks like a casino yeah

that's kind of true also it was a huge speculative problem however what is is you know even i haven't seen this then secretly people um who who also benefited from this ico we've just sat down and worked for years building amazing infrastructure that you know became the defy summer the nft summer the whatever summer dao summer probably this year this is all the stuff financed by this 2017 ico bubble you know so it wasn't all just for nothing and um built on all of this we're now entering into a new phase of crypto that is going to show the world i think how life-changing or like yeah really transformative it can be that's that's

my outlook at the moment cool that's i i really like this mental framework i think that's that's a nice way of thinking about it it's funny also that you mentioned this uh carbon token right because actually i think two or three episodes ago uh we had the podcast with region network uh which is creating exactly that right so that's i love them they are awesome i saw them at selling point in amsterdam i was like wow this is honestly exactly what we need this framework for creating those assets on yeah regenerative uh uh things yeah so that's that that token is called nct i think it's like coming uh i think they're just about to launch that

now maybe let's talk a little bit about uh regulation and the thing actually i wanted to ask maybe to start off with so you know there's this organization bundesblock that you were uh i think one of the one of the initiators and and you're you're president for for many years which was kind of the german uh crypto you know lobby association i'm curious like what what was sort of how was that how did it go there what were the main did you guys yeah like what did you learn what worked what kind of impact were you guys able

to have that is a great uh uh question to start off because really bonus blog was my entry point into regulation of crypto uh and for for many people actually what we learned is that um the crypto industry this you know small fledgling industry that became really significant over the past few years um first of all needs a voice with politics that is kind of harmonized and reflects you know the values and and so on of the stakeholders in this industry and bundesblog you know fulfilled this function um quite well um it started off with i think a really really

nice kind of you know um [Music] kind of a bang i would say it was at the height of the yeah craziness around tokens um everybody was interested in what we had to say and we created with the help of 30 40 people kind of was i don't know 50 60 page position paper unlike everything that crypto and recognition kind of uh has has to say to one another and i think to this day it stays an important resource for people to to you know understand foundational issues what we also learned i think in terms of building an organization like this is that in an industry where everybody is you know a little bit

kind of more like as a first attitude oh regulators great you know uh they probably don't understand what we're doing and uh actually we're building a world where regulators themselves play a little bit of different role than they do today quite frankly you know when you think about decentralized systems so that um it really took some effort actually to build an understanding for one another and i think this is now repeating in europe where i'm now engaged in building uh an organization where we see similar patterns with the super engaged community and a regulator that does not know how you know passionate this community is about this thing that a regular is about to touch and we've seen play out on twitter in

the context of this tfr what unhosted wallet ban that we will talk about later how passionate such a community can be and i think back in 2017 it was very similar when we started bundesblock what we i think um not failed at but like weren't sufficiently i think capturing was all those other aspects of building an organization which is you know if you look at other industries that came before us the gaming industry or you know they all ended up at least in germany creating some you know big tanker of an organization that is kind of you know institutionalizing all of those industry voices and relationships to politics and and blah blah and in that sense bundeslag always stayed a you know

really nimble kind of smallish uh grassroots organization as opposed to becoming a properly you know top-down managed org with a big budget and so um in order to make room for that actually uh me and the other board members uh did actually choose to not go for a you know third term uh but after two terms now actually said hey is there a new team that wants to take you know open a new chapter and so that team stepped up where we found people in our members and community to now yeah work on bundesblog and kind of a new chapter um whereas what i have actually started in 2020 is to look more and more at the european

level since uh since around september 2020 uh the eu has officially you know uh made it clear that they are working on regulating crypto assets in a harmonized way across all european jurisdictions and so uh it became clear that this needs a lot of attention and uh starting yeah end of 2020 right around when uh you know yeah covet was already a thing thinking in before after covert it was i guess like yeah during the first or second wave i guess of course where uh this really started to get a lot of my attention and now is actually that i i stopped being on the board of of bundesblock is kind

of my main um outlet for for lobbying or generally like you know my efforts in in trying to talk to regulators and and make them understand the good side of crypto which is i've been doing this since 2014 essentially uh very self-motivated i back then i wrote a letter to the president of the german center for cyber security essentially saying like yeah there are all those problems with electronic signatures in germany and and blockchain you should look at this i don't know why i did this but this kind of started it off and so i'm doing this in such a self-motivated fashion but have found with bundesblock that if you want to you know really have an impact you need an organization and

so bundesblock was amazing as a start in germany and also for me personally and now i'm taking a lot of the learnings uh i had in germany and kind of tried to build something in europe that that makes um you know that improves on the things that weren't great and kind of picks up and and continues the things that were really great in business block which to me mostly is about community and a kind of you know really using them as a resource um i i talk a lot so i will one last sentence but uh what we've always done in buddhist blog is asked our members hey you know you're ingenious people building bleeding edge technology and there are regulators who think all of the problems that are in this space need

to be addressed with a loss but maybe you know there are technologies we can leverage to actually solve some of those problems and now that you know defy is on the table with regulators in brussels it's kind of the same question to me again to the community hey um you know ingenious galaxy brains out there we need you now to come up with crazy zero knowledge proofs and and other things that allow us to you know uh give regulators what they want which is you know mostly reasonable demands about yeah certain you know assurances uh around fraud and and money laundering and all those things um but without violating the both the privacy and the fundamental way how crypto works in

europe which is what this unhosted wallet ban really you know touched upon so um i yeah i i think we're back there and uh i enjoy this because it's a very creative moment also i think the industry is now stepping up to uh to this challenge once again yeah so i guess the organization right you mentioned uh that you're starting on on the european level is this european crypto initiative maybe before we get into sort of the the actual meet of like you know what are the core issues that you know i do want to spend uh quite a bit of time on often i guess one looks for example the coin center right as an example of like okay an organization that at least from

the outside seems to have done you know like a really good job and like you know advocating in a good way in the u.s if you see it kind of evolved in a similar way where like i know you have like a good research staff or or like how do you see this organization evolve yeah thank you for that question so the european crypto initiative is i think uh quite interesting in in many dimensions one of them is in fact that we invest a lot into a research staff into senior policy experts that you know have experience on the eu level which is just so particular but also people who you know have either written laws before themselves because

they work for government or they have worked in academia analyzing laws giving you know really detailed commentary on you know half sentences of individual paragraphs you know this really hardcore work that lawyers do in in those masochistic ways um so those people who who love policy you know and crypto and who have uh have a passion for those you know really bleeding ads challenges um um you know like like i have another uh who who co-founded this organization with me those are the people hiring at the moment and it's great fun because um i think also for them it's an amazing opportunity to you know work on something that actually matters

which is not often the case in law uh you can easily be trapped you know being a transaction lawyer on big transactions that are very complicated and they require you know you having a massive iq maybe but i mean you're just making rich people richer in a sense right and um there may be critics that say working on crypto lobbying is similar but i would venture to say that it's quite the opposite i think crypto is the biggest trojan horse for redistributing wealth in this world that that we've seen in a long time and that's that's what motivates me to work in it you know so the uci getting back to that is um research heavy in that sense but um what we started it out as in 2020 is really establishing relationships to regulators

so um it's hard to understand what that really entails but um regulators are you know there's not one type in the eu there is the commission which is you know really brainy smart kind of nerdy people who are very much all about you know being very accurate and information based then there's the council which represents kind of the national european interests of the member states uh because they are direct representatives of national governments and then you have the european parliament which is this you know kind of democratically elected organ in the eu and all of them are involved in in all those different pieces of legislation all of them are regulators in a sense but they are

totally different they have different incentives they have different education and background they have different people they are accountable to and so um it took us i would say yeah a year and a half two years to you know meet everybody talk to them uh it's hundreds of people right so we're talking about a massive engagement you need to have and you need to pay people you need to pay into and this is actually what i found rather concerning for democracy in a sense in europe is to even get to all those people you need to pay intermediaries that are so well connected that can even give you access to everybody in brussels it's not like uh in germany where we could you know just be like hey you know with the

german blockchain association send us an email and then regulators would you know send you emails or call call you and invite you in brussels you you it works differently and in this in to some extent a money question and that is i think not not how politics should should work but i also understand of course that the eu is so big that there is no better solution at the moment it's just yeah also a thing that technology may actually help with uh in the future okay okay cool well let's let's let's get into it right i mean i probably a bunch of people listening have maybe seen some of those uh you know headlines or some of those

conversations so i think i particularly remember two that you know i think got quite a lot of attention one was you know briefly it seemed like sort of on the table for the eu to basically ban uh bitcoin or at least bitcoin mining i'm not exactly sure how i think it was bitcoin fully right and then another thing that came up was this thing recently where again i'm actually not sure where that is right now but it sounded like you know pretty extreme measures to kind of ban or at least uh disadvantage what they called like unhosted wallet

would i think people in the crypto space would call like a non-custodial wallet or a self custodial world where you like control your own keys which is in a way the whole point of it you don't necessarily have to start there but i would just like ask like what what are the most important you know regulatory questions that like at the moment are on the table yeah so it's indeed the proof of work ben that you mentioned which is at the moment off the table and is not likely to be reintroduced um now in this very context in which it was originally raised so in that sense it's it's kind of uh you know the warning is is off

yeah we were able to convince um and the people in um yeah in the parliament were able to be convinced that this is not a good idea and then um [Music] the other yeah really controversial proposal that came from brussels recently was the so-called tfr or traveler funds regulation it contained um after uh the parliament looked at it and made amendment proposals to it um the transfer funds regulation contained what effectively could be you know said to be a ban of unhosted wallets and uh let's maybe start with this concept of unhosted wallets which indeed i would agree is a deliberate

framing i don't know who came up with it but it's a non-custodial or self-custodial or just a wallet since every you know hosted wallet uh if you want to call it that uh is also a non-custodial wallet for the person who hosts it for you so um i don't even understand the concept of a host that wanted to be it's just an account that i have with a bank i mean you wouldn't call my bank account a hosted wallet with my bank so i think it's a framing device to make it seem like it's unnatural and that the opposite of it is the natural one and that is of course not the case i think that wallets or self-custodian wallets are how crypto is

supposed to work but i do agree that uh you know we're still lacking great technology to keep those private keys secure and i do hope that you know large-scale social recovery systems actually will save us from having to keep hardware devices somewhere i don't really believe in you know everybody having uh i mean i love ledger and treasures and i i have them but you know i i'm not sure every human will end up having them and so social recovery is hopefully something we will see and then i hope that europe is still around and has not banned you know that technology because i think it will become the mainstream way of how crypto is adopted

i hope at least and um the other element is you know um why would you even go into this territory of making rules around those wallets and the motivation behind it originally was well the financial action task force in 2019 made some guidances around money laundering and terrorism financing countries and europe itself as a you know a nation or a supra national organism um are free to implement those guidances and most countries do it it's like a broad consensus and so this tfr is originally from this 2019 recommendation and for reasons that i

think are also related to this framing topic of the unhosted wallets europe has adopted a very strict kind of interpretation of this original guidelines and ended up in the parliament version at least with this yeah uh strict kind of rules around how unhosted wallets need to be kyc identified how the source of funds need to be identified despite there being virtually no standard around doing how to do this right now and so it would leave crypto asset service providers almost unable to comply and with a kind of simple incentive to just tell people hey those wallets you just simply cannot use

them with us at least for the moment maybe never again all those other wallets basically the ones you have with us where you don't even have the private key you know that's easy that's accessible and so just through that effect it would lead to a strong disincentive for people to use it and it would kind of counteract you know years of efforts of people telling telling people to withdraw funds from exchanges onto their wallets you know i remember how this was for years or still is you know a general recommendation and this is a recommendation you could not give any more in europe that's really frankly ridiculous so that is tfr uh in a nutshell um the good news i think that uh everybody listening to this is is is maybe happy to hear is that so far the signals we receive is

that now after this initial shock the conversations and the triloks where this is happening now kind of negotiation between commission council and parliament they they there's a growing kind of understanding why um it's you know just not wise to do this um without corresponding you know industry practices around how this could even work in a privacy preserving manner and so i think we may actually not see this wallet ban ultimately what we still are fighting for though is a simple renaming of of this unhosted wallet they do i think uh more you know maybe personal wallets maybe just

wallets maybe self-custodial or non-custodial world so there should be terminology that is neutral right now we don't believe it is regardless of whether now there is this effective ban contained in this tfr regulation or not maybe the last uh but maybe even most important regulation to mention that's on the table is the markets in in crypto assets regulation um we have not really touched on it yet but it is at the moment also in kind of finishing stages in the so-called trilogs where all the three institutions negotiate the final version of this text and again the parliament i mean that's probably its function to some extent has brought in

a lot of new concepts that were not originally meant to be in this regulation and we're now looking with mika at a legislation that may potentially make decentralized finance completely unviable in europe and uh so this is the stuff that currently keeps us awake at night um in in uci in the european crypto initiative since we're yeah effectively drafting decision papers statements and recommendations you know after every meeting and before every meeting of the people negotiating we let them know that very particular things they should be aware of when they negotiate and so you know

guiding them through this process right now is what we're doing in in the mika in the tfr um in in other aspects there is an aml regulation now that sets up a new aml oversight kind of agency in europe so yeah these are maybe the most important things right now and in the future we see already more things coming around tax around data economy and all kinds of things actually one one thing you know that comes up as a big question for me right like i mean for example you mentioned this mika thing right then you mentioned like okay maybe that would mean some kind of ban

right of let's say d5 in europe but then of course like the interesting question is like what does that even mean like what is d5 in europe right because then like let's say you have this unisol thing is there and it's on ethereum or you know like a lot of these things are there so like what would that imply would that imply like i don't know like for example you couldn't have you know often maybe there's some legal entity that these organizations have maybe a foundation maybe that couldn't be in europe but well actually i don't think there are not mostly not in europe anyway or or like how you know how does that sort of

interface with you know the rest of the world or you can people simply kind of you know circumvent that by you know domiciling outside of europe yeah that's a a good question and the answer is not really the solution is not to leave europe it's kind of like the gdpr this general data protection regulation that everybody's familiar with even if they don't live in europe simply because europe says hey if you interface with european clients you need to adhere to those rules and it's going to be very similar with with mika people in a sense know it from method 2 which is kind of the equivalent regulation for

traditional securities where also when you address european to uh you know be regulated you need to be licensed and mika stipulates all those licenses for crypto asset service providers which of course is a new term and then in their understanding it's almost everybody you know who touches crypto uh is a crypto asset service provider and so you need some sort of license or regular contact with an agency possibly a new one or not a new one but kind of a centralized one in europe asthma to get the permission to do it and the question now with defy is that if it's a properly decentralized entity it will have a hard time doing that even because

it's not a legal entity it doesn't have a you know a ceo um it doesn't have anyone who can speak on behalf of this entity officially it cannot be regulated cannot it doesn't have a domicile it doesn't have a a postal address so all those things is what daos in their pure form don't have of course some of them have legal entities that accompany them so it's very hard sometimes impossible um for decentralized projects to comply with the stipulations in this regulation and so what would a ban mean it could mean a number of things so just straight out violating um this mika thing could result in for example your domain being banned um like

european clients european ips cannot reach the website of let's say uni swap for example that's a random example it would be blocked on the you know um on the telco layer just like you know i don't know child pornography or other kind of really bad websites are banned um the same would be for you know d5 websites um of course you could still use those services protocols through a terminal but it would just make it you know impossible for normal people to use i would say so this is what effective ban would look like a more indirect ban you know would be um in in the sense that this asthma this european securities and

markets regulator could uh potentially start enforcement procedures uh like the sec did it with uni swap um i mean it's not an enforcement procedure with the uni swap it's like an open exploration i think that the sec does so asmr could do the same with projects either inside of europe or outside of europe but targeting or in their mind targeting european customers and then potentially arrive at you finding you and saying hey you know if you continue doing this you need a license and for what you did in the past there's a fine um that's possible that would also be effectively a ban but i think that maybe the most important thing would be the chilling effects it has right if europe commits to such a pass it would just prevent so many you know

18 year old or 16 year old kids who have heard of crypto who are nerdy and want to try this stuff out to just never go into it because they think they end up in jail you know or they think uh i don't know it just it creates chilling effects that prevent people from even approaching you know that that that line that has been drawn beyond which you're a criminal now in europe it's not the right i think attitude to approach the whole topic um but yeah yeah i'm still i'm still kind of like you know i'm still sort of struggling to see you know this this kind of like play out right because like for example i mean if you look at the sec

and then the sort of enforcements they have done you know i mean one thing that's also like very clear is that their ability to then go after projects is like very very limited you know because they have limited resources limited people so they can i don't know make some examples but by and large there's just way too much going on it's moving way too quickly people creating new things so i think this whole idea that you can kind of you know control it that way put it in the box it doesn't seem that plausible and then i think with europe that's probably going to be

i mean that might be even more extreme no because probably it's going to take years for even this kind of regulator to be there for for this you know to go from the european regulation to then actually okay now we are going to try to enforce this go after projects i know some kind of decentralized applications that uh you know running out some blockchains that you know they're targeting european users i mean probably not i mean they're just there for anyone to use right it's not like particularly targeting a certain jurisdiction but of course there probably would be many european users right just by the fact there's a lot of people in europe i'm struggling

to see how that actually plays out yeah i think the uh dangers of europe becoming a digital backwater you know or staying staying one maybe um in the sense that um the us china maybe not that much but maybe other regions you know around it india looks more promising um i just recently been in south america and was very very blown away by the crypt adoption brazil so there are other really big regions not just small countries you know who played this game always with regulators but uh big regions having a totally different attitude to crypto and i think them embracing this

and europe um you know staying not um staying in this or even becoming more hostile than now by really yeah implementing the laws as they stand now and forcing them to some extent even of course if i agree with you that it can always ever be them you know doing examples almost you know communicating publicly how someone receives a fine maybe a very high fine um they cannot go after everyone so they try to send signals like this you know so if all of that happens and the other big regions um have a different story then i just think europe misses out and will in the end implement just like today already you know all of us in europe are using um you know us dollar denominated stable

coins um it will be all other kinds of innovations will be tied to yeah maybe a u.s dollar or to companies uh uh or treasuries you know outside of europe so i think um this is the real danger of eur europe falling behind it's not that much that defy would you know stop existing i i don't think europe even has that power another perspective though on this to me is that you know those regulators in a sense have been around longer than than us and they've seen other you know supposed revolutions before and they've regulated them and it all kind of worked out and i think they're looking at it a little bit like this um you know maybe we are underestimating

or overestimating the effects of regulation uh who knows but i think rather what they're underestimating is just you know the nature of crypto and how disruptive in a sense it is and disruptive is it's kind of what does it even mean right it really means that crypto gives us an opportunity and in particular regulators and lawmakers to restructure some basic things in this society uh for its benefit and i just don't know whether they will be able to see this in time in europe but that's you know in so many words what what we are really trying to tell them and um you need to really benefit from crypto you need to

attack it at a more fundamental layer than just looking at okay you know same risk same rules that's what we always hear from brussels and uh you know of course it makes sense on on some level um you cannot have the financial world the traditional financial world you know follow all those rules and then in crypto you can do whatever you know this is obviously not uh what it is about but i think it's about acknowledging that decentralized financial applications they just you know take care of the financial needs of people who have been vastly neglected um in the past by the traditional financial system it's just it's accessible in a totally different way you know you need a mobile phone pretty much and that's it you can start using

crypto assets and there are a lot of people on this planet for which this is everything they can really actually you know master in terms of uh access material uh they don't have passports they don't have bank accounts or credit history so um acknowledging this fundamentally would allow europe to really i think take advantage of this at the moment yeah they may be creating this digital backwater uh by yeah creating at least the illusion of a ban even if it is not even if you cannot properly enforce it i i may agree with you there yeah i actually you mentioned uh you mentioned before like you know sort of other topics coming up and you mentioned topic

of tax and and i've been thinking you know a fair bit about this this topic of tax because to me it feels like actually quite a different beast in you know in one particular way right so when you talk about okay regulating d5 right you're talking about uh you know this you know these all these regulations are targeting you know the protocols themselves right even though they can't maybe maybe paradoxical but you know the protocols or crypto companies or things like that but now with tax well now you have people using crypto you know and they're you know buying and

selling crypto and they're staking and maybe they're buying nfts and they're doing this and that and then the whole bunch of transactions result and then you know i was reading an article recently where i think there was some in this was in a u.s case right some uh public accountant you know saying like what a nightmare is coming to us because he had been doing this accounting for some kind of a 20 year old friend of his who's like in college you know and it was always like took like 15 minutes now the guy has been doing some crypto trading and he sent him this spreadsheet and he was like what on earth am i gonna do with this like so i think you have this kind of

weird situation when it comes to tax that it's just going to be like pretty much impossible for people to actually sort of file their taxes correctly and of course often it's not even clear on what the taxation should be of of those things but like that so that seems like a weird thing right because then you all of a sudden have kind of you know millions tens of millions of people who are all kind of like adults with the government so i'm curiou like what are your thoughts on on taxation and how governments can kind of uh will deal with this

yeah it's it's such an important question also and um we see great comparisons in europe itself for example germany which has you know this everybody knows it somehow that in germany after holding as a private person those crypto assets for a year um the gains you make they they are tax-free um and and those kind of rules but then you know also in germany every transaction that you do um even crypto to crypto can be potentially you know a taxable event and um that creates this really awful situation that you just described where you know a 16 year old kid that is just doing some innocent nft trading maybe i

don't know what those kids do you know they end up with massive lists of of transactions the french have i think an amazing solution for it which is just they say well you know we don't care about crypto to crypto transactions we look at the moments you cash in or you cash out and this is when we try to assess your tax burden just based on that you know there's a massive simplification uh doesn't require much technology technological sophistication um for countries like germany and i think the us is similar where every you know transaction can be taxable in principle uh to make this work for a government and you know to not criminalize your own people and really make them you know criminals without them wanting to

uh you need to actually approach i think taxation from a totally different perspective which is a software perspective a data interchange and standards perspective you need to say that as a government hey i'm interested you know in getting a taste on all those millions of transactions that you guys are doing however i'm also willing to put in the effort to define how we're doing this and that effectively means you know that um exchanges maybe even d5 protocols or whatever or services around those protocols you know they can implement some simple interfaces some simple kind of data standards that make reporting basically automatable and then we could arrive at a point

where you know the government sends you your tax report i think denmark and sweden and some other countries have this where the the government just has an overview of of what you did and then they just calculate your tax burden for you you know of course this is this may be not what people want from a privacy perspective i'm not saying this is the favorite solution but it's like if you want to sell crypto solve crypto taxation you need to make it a software problem and then solve it within software it's problematic when you start with the legal obligations like everybody needs to declare all the relevant things and uh and pay the taxes on this according to those rules but then the rules and everything else is so unclear that even the best software in the world will produce a tax return

that is wrong you know and um this is the case today and um i was involved in some consultation with the german government where i made this position very clear and we're now at least at the point where some of those things they wanted to do around staking and so on are not coming but addressing this fundamental issue is really what they have to do which is looking at yeah looking at this as a software problem or doing the french solution honestly which i think is doing both you know look at it as software but also say hey crypto to crypto i don't know you know let's let's let's tax when people actually make real profits and not you know maybe temporary profits in some unstable

cryptocurrency that that could you know just evaporate any moment this is uh another element of course that doesn't make much sense but yeah it's maybe two aspects of the problem right but of course that's a tricky one because then okay now you cash out the stable coins and then is that what about that and then of course also it's just sort of makes sense to the extent that people actually need to go back into the you know fiat system to then use that money right but if that's not the case then how so i think another and this comes with a software statement or pro stating the problem as a software problem is like you need to be able you need to kind of accept certain

inaccuracies you know and the question is what yields the best pragmatic result you know where do you have the least discrimination between people where do you have the most you know effective you know deployment of of government resources against you know i don't know getting some amount of tax from this and um i have a very utilitarian view on this i think which is just should just go for something that makes it so easy for crypto people that they don't have to you know spend sleepless nights over this and make it such that governments you know don't feel like they are missing out on on on whatever and i think the solution is somewhere in more of a software direction than

than anything else or a massive legal simplification which i just don't see germany doing and they said yeah no no way we're ever going to implement this french solution in germany but that was the old government you know so we don't know this could hopefully come still i don't know i mean another thing that actually seems like you know easy to comply with uh is like a wealth tax your suicide i know it's pretty easy to look at yeah yeah i mean but you know in certain of course it's written you know it there's still ambiguity or staking and you know maybe that's still taxed differently and stuff like that but at the very least you know to go at the end of the year and be like

okay what are all the cryptos i have what all the things they have what are they worth and then you get paid you get taxed something based on that like that's something that's you know that's like sustainable right and people will be able to do this with a reasonable reasonably low effort i agree there are ways to solve it um even legally but if legally your assumption is everything is taxable then my god you know you're really you're creating criminals because nobody can track and i actually i have a friend of mine you know i left teres from from rocky he he he tells me about it you know he's like okay you know where takes

so much time and effort to implement just one dex or one exchange and you know it's like a hundred new taxes a day created somewhere on a blockchain that people can use for trading and he needs like half a year for one of them to to make sense in his and so hotkey is this bookkeeping solution so i mean it's doesn't make sense um it needs a different solution one one thing i also wanted to touch on is you know we i guess we have you know different countries take very divergent stances towards crypto and crypto regulation you have like the extreme cases of sort of all we're like banning this thing then you have you know something like

europe which is well i guess a little bit open still but tends to be on that you know not so friendly side and then you have other countries right i mean i think we've all seen the headlines by this el salvador you know declaring bitcoin legal tender i think there was uh a country in africa central african republic doing the same thing just recently and then of course you have other countries that have you know try to create regulatory environments to attract crypto now that that has existed for a while as well uh you know malta at some point was one of those you had a bunch of different places uh now you have new ones like uh uae i

think which one of those are actually going to be the ones that like you know work in the long run i i guess it's to be seen but i'm curious like how do you think of this this uh factor of you know different nation states competing on this regulatory playing field it is very interesting because it's um so many developments in parallel which is you know on the geopolitical stage now with also the ukraine and russia conflict which had a big impact already in europe on crypto regulation um and um you know other

um by really um expediating for example the tfr which became this wallet ban regulation um massively it would have actually happened in a few months but they expediated it because uh they were like oh my god russian oligarchs are using crypto to as vet sanctions which again there is no data for this it's actually not true but they've been told this repeatedly by by people who just want such a strict crypto regulation and so that's it so what do you think about those those you know countries and and the competition um i think geopolitics is you know kind of one of those big topics of the 21st

century again suddenly uh nobody maybe really expected it um but it makes total sense um and um what's happening in parallel on the digital realm is you know the emergence of crypto crypto assets uh there are people again now talking about digital nation states you know uh back in 2014 when you theorem did it's ico remember it was already then there were projects that were creating digital nation states on blockchain so it's all kind of repeating and repeating until it actually finds yeah maybe product market fit so to speak like dao's and are now and so i think we're seeing just we're in a branch of the of the multiverse you know of of all possible futures we could have been in

where i think a lot of crazy things are going to happen in the next 20 years and el salvador using making crypto legal tender as the first country on earth and now other countries following i think is you know looking back somewhat a natural move that could have been expected but of course then you know years ago nobody knew what would come of bitcoin um the fact that the eu is kind of slow in adoption of this and then now doing it in a way where it's you know so all-encompassing and kind of too detailed and maybe too obsessed with consumer protection it's totally expected that the us is really you know after some let's say initial confusion around this kind of tuning in on this and i think now

more and more kind of somewhat legitimizing maybe innovation from the private sector like uh us denominate u.s dollar denominated stable coins you know becoming more and more legitimate there have been moves like this um um this year and last year what china is is doing is the most opaque to me i have to say i know that in india there's renewed interest in crypto assets um [Music] you mentioned some african countries i know that in australia they have some the the community there was was able to somehow uh bring this idea of a law for daois to the highest regulator somehow now there is a law an effort of drafting a pro the first real law on the house not

this kind of fake stuff from wyoming or wherever they did some kind of dao llc um but the real dao law with you know really addressing those questions of decentralized governance so that's in australia australia and um it's going uh it's based on the work of the koala group around primavera who made this dao model law and they've used parts of this now successfully it seems so um you know it's it's really uh everybody somehow is is moving somewhere um geopolitics has become very complex uh we also see corporations stepping into this kind of more and more nation state-like behavior almost you

could say you know like facebook building the meta versus to me very obviously mark zuckerberg's continuation of you know world domination uh there is you know companies like amazon which have such a global scale we don't even know they run the internet effectively um there are others you know microsoft that the level of intelligence they have and so you know it's a crazy future um nothing in a sense seems certain anymore and um i think crypto has a chance to establish itself also among those big powers big forces as a stakeholder on the table and i think it's really important that as a crypto community we retain those

original values you know that that were important to us before all the money came in and i think we're now at a point where we're in this phase three institution building where i see a lot of kind of ogs you know people from the early days kind of come back you know they don't care about nfts that much maybe but they care about uh kind of there is this renewed energy i feel that crypto is really moving into a new you know new plateau and so um the regulation that is happening is is relevant i see it mostly going into positive if we don't look at europe it's mostly positive i also see the uk playing a super important role now with them being outside of the eu and

kind of having to prove that this was a good idea to their own people and i think they will become very crypto friendly for example so um yeah that's kind of my big picture view maybe on this so one way or one question around this discussion that has been on my mind quite a bit so i you know many people have probably heard of this book called the sovereign individual so there's this book in the written in the 90s that was actually predicting a lot of the things predicting dolls predicting uh you know digital currencies that would be privately issued by like lots of different people so like incredibly prescient on like so

many different levels but and you know they they were like okay do we you know technology is going to bring all those things and and they're basically right about so many things now one thing they also predicted which has not happened yet is that they predicted there would be many more nations and that kind of you know that you'd have this uh erosion of the power of you know large nation states and that would cause this kind of like splintering up of large uh you know large countries and then you know you'd have kind of much more of this i i guess ability also to like innovate right on that level like because somebody can go and create a new country with like a new constitution a

new approach a new way of thinking which is pretty much impossible today so that that's that's always like for me that's like one of my big questions is this gonna happen like i don't right now i think in a way that nobody expects you know i think in a way that nobody expects in the sense that we just like bitcoin made us question what actually is money and nft's made us question what actually is art you know i think dao's or whatever comes afterwards will make us wonder what is actually a nation state you know what is actually this country what is it actually giving me you know and um one of the reasons why nfts could you know take off um now that much i

think is just because people culturally value digital information and artifacts so much more now than they did 10 years ago and so you know more and more whatever resources that you know nation states of today um that they govern just people don't care about anymore you know it's like in the old days um governments could basically you know enslave you as a as a yeah a working man or woman if you wanted to own a car because you know you needed a credit and then you you needed a job to get the credit and that's how you end up being you know a taxpayer today just nobody wants a car anymore you know and it's kind of like that's it's in the sense this is what

happening and i think um we may very well be looking at a lot of new you know nations or things that call themselves nations but they will not have physical land to speak of they may you know they may buy property you know we we hear of daos we have crypto castles we have big land being bought by crypto millionaires or whatever so it's certainly happening but this will not be sovereign land this would be you know whatever some some big nation states land but um when it comes to paying you know universal basic income health insurance um you know retirement uh i don't know family support i think all those payments could will in the

future come from totally different networks and those networks will not be governments and nation states anymore with that you know coins but it's gonna be i don't know digital communities of people believing in different things and this is gonna be possible because i don't know that's what technology seems to allow us to um that's kind of a trend that i see coming um if you want to call those things digital nation states i don't know um you know and if you look at kind of the state of medicine and the fact that we don't have longevity yet so people still die you know this whole nation state game could be over much sooner than we believe because you know everybody at least you know at around my age i i have to meet someone who who

cares about nation states as a thing i just think this is over you know this is you know something that our parents still need as a crutch to understand the world but i think all of us we don't even really need it anymore i mean of course if they would just be gone now we would be it would be bad surprise but i think kind of slowly we're moving towards an understanding of the world where we're kind of transcending this really weird antiquated idea of how the world is you know with borders and so on and so this whole ukraine russia war i i think every young person is like what war you know shooting each other over borders in the in 2022 is this real and so i really

feel this is you know our parents generation going out with a bang and it's like okay you know uh goodbye um let us run this world differently now um so that's you know my big vision maybe on this okay okay well that was a beautiful way to uh to wrap this up if a rally cry to the revolutionaries uh thanks so much florian it was a pleasure to have you on uh i'm really excited about you know the work you're doing right because i guess there's still that kind of i mean it's interesting because you're talking about okay you know this

leaving these old structures behind but then of course you are also very much at that intersection right and trying to actually uh find ways that you know maybe crypto can you know coexist and thrive within the existing structure so i think that's like you know super important and i'm really excited about the work you're doing there and to see what will come out of it thank you so much brian it was a real pleasure and i hope to see you again in six years on this podcast to reflect yes absolutely then thanks so much for watching our listeners for tuning in and we look forward to seeing you next week