3 Questions To… Akli Le Coq, Inspector of public finances specialized in cryptocurrencies, and teacher at Alyra, the blockchain school. Akli Le Coq is deeply interested in the apprehension of cryptoassets with a personal experience of more than 10 years on cryptocurrencies, discovered via the bitcointalk forum, and put at the service of the Administration. He also is the creator and writer of cryptophilo.fr, a website that deals mainly with the crisis by bridging different disciplines, including psychology, technology and economics.
Coup Data: Cryptocurrencies rely on distributed network protocols, where individual can send and receive new forms of value, theorically without any third party, which is an unprecedented situation on a global scale. However, regulation has always applied to legal entities or individuals : how can governments deal with these new form of economic and social interactions ?
Akli Le Coq: In the early years, most countries ignored Bitcoin or simply banned it. 13 years after the Genesis Block, we can count thousands of assets listed as cryptocurrencies on different exchanges. Governements needed to regulate this sector, following four major phases. First, in 2019, the French parliament decided to create the new category of digital assets, composed of tokens and digital representations of a value. Secondly, Digital Assets Service Providers were granted mandatory licences, to protect consumers.Thirdly, the Accounting Authority tried to adapt the official accounting plan to new practices such as initial coin offering, cryptocurrency mining or staking. Lastly, the tax administration applied a 30 % rate on digital assets realized gains, exempting crypto-to-crypto transactions for individuals.
From Bitcoin whitepaper in 2008 to Decentralized Finance (DeFi) in 2022,distributed ledger technologies, one of which is blockchain, move faster than regulators. How important is the discrepancy between the practical usecases of these technologies and the legal framework?
Before the law, at the technical level, cryptocurrencies such as Ethereum (ETH), which have their own main network and ledger, are different from tokens such as Chiliz (CHZ), which use the Ethereum ERC20 standard and network infrastructure. The first category is a container and only compares with a global monetary system, whereas the second is a content made to provide access to rights, goods or services. Also, historically, cryptocurrencies and tokens were created as permissionless and trustless open source systems.
"Legal typologies don’t explicitly exclude permissioned and centralized blockchains, and differ between countries. [...] Even among french authorities, the accountants put all together cryptocurrencies and tokens into a single account «522. Tokens», ignoring the legal definition."
However, the legal typologies don’t necessary reflect these features. Legal typologies don’t explicitly exclude permissioned and centralized blockchains, and differ between countries. The french wording of Digital Assets turns into Cryptoassets (subdivided by economic functions, as payment tokens, asset-referenced tokens, utility tokens…) in the European Institutions, while the Financial Action Task Force (FATF) uses Virtual Assets. Even among french authorities, the accountants put all together cryptocurrencies and tokens into a single account « 522. Tokens », ignoring the legal definition.
What approach could be adopted in order to tackle these growing concerns and legal voids?
Before adopting new laws, governements should be able to consider their effects on accounting and tax revenue. This cautious behavior implies measuring capital flows from the financial system to distributed networks through advanced metrics, and consider why cryptocurrencies were created in the first place. These three first steps applies to political, economic and legal levels and are all related to how governments and people interact with money as a common.
"This cautious behavior implies measuring capital flows from the financial system to distributed networks through advanced metrics, and consider why cryptocurrencies were created in the first place."
However, all the distributed protocols which allow decentralized applications, DAO and DeFI to flourish rely on the underlying hardware and communication networks in the real world with physical limits. In the long run, players providing efficient and frictionless services through low tech infrastructures will probably have a competitive advantage. The 4th step should be to set mandatory goals to foster network resilience, without detailed implementation methods.
On effective implementation and architecture choices, we should take a step back and aknowledge we cannot anticipate how these technologies and usecases will evolve in the next years: there is a fierce competition and debates on the way a distributed ledger could scale to billions of users, stand secured, and remain fairly decentralised, with a good user experience in the daily life. Consequently, the last step could be adopting flexible standards and regularly assess how they help to achieve security and sustainability.
TO GO FURTHER:
Qualification juridique des cryptomonnaies, May 2022, from Arlycrypto Blog.
OECD seeks input on new tax transparency framework for crypto-assets and amendments to the Common Reporting Standard, March 2022, from OECD website.