The World Economic Forum (WEF) has released a white paper aimed at regulating the cryptocurrency industry, emphasizing the importance of cooperation among countries and organizations to achieve effective regulation.
Attempting to Regulate the Uncontrollable Industry
In the evolving ecosystem of digital assets, harmonizing regulatory frameworks across jurisdictions is a complex challenge. Given the unique features of this underlying technology and the limitless opportunities it presents, global coordination is both necessary and evident.
Recently, the WEF collaborated with the Digital Currency Governance Consortium (DCGC) to create a white paper on cryptocurrency regulation. This document highlights the necessity of regulating the cryptocurrency industry and advocates for cooperation among nations and organizations to achieve this goal.
The white paper aims to clarify the needs and challenges in developing a global approach to regulating digital assets, examining various regulatory approaches across jurisdictions.
Through consultations with experts from government officials, regulators, policymakers, industry professionals, and academia, the white paper suggests pathways to create a credible global ecosystem for digital assets.
However, the WEF has a controversial reputation due to its significant and often disproportionate influence over companies and countries worldwide, which has affected the cryptocurrency industry and its regulations as well.
Therefore, the regulatory white paper on digital assets is of paramount importance, as it can influence digital asset regulations globally, potentially transforming or undermining the cryptocurrency market.
In this article, we will summarize the key points of this white paper and discuss how its implementation could impact the crypto industry.
A Global Approach to Regulating the Crypto Industry
The World Economic Forum’s white paper titled “Pathways for Digital Asset Regulation: A Global Approach” has recently been published, beginning with a brief preface by a member of the Forum’s Fourth Industrial Revolution Center.
The Fourth Industrial Revolution is a concept established by Klaus Schwab, founder and president of the World Economic Forum, fundamentally revolving around the idea of replacing humans with artificial intelligence and automation. Another key aspect of this revolution is population control through technology. It’s likely for this reason that the introduction of the WEF’s white paper raises the question of how governments can regulate an open-source and decentralized technology, concluding that the only solution is to establish a coordinated global approach to regulation.
The white paper highlights that the WEF has consulted several stakeholders in the crypto industry to determine how to implement global regulation. The term “stakeholder” is used by the WEF to describe powerful individuals and institutions—specifically trusted ones—rather than regular users or actors within the crypto sector. The author notes that the white paper includes significant quotes from members of the Digital Currency Governance Consortium (DCGC), formed in January 2020, which comprises several crypto companies.
While the full list of DCGC members is ostensibly private, we have attempted to compile a list of some members based on the WEF’s previous activities related to this white paper. Companies like Ripple, Ethereum’s Consensus, and Circle, the issuer of USD Coin, are all part of this consortium and are among the prominent players in the crypto industry. The WEF website states that the DCGC is currently in the second phase of its main project, focusing on assessing the economic impacts of cryptocurrency stablecoins and central bank digital currencies (CBDCs).
The next section of the white paper summarizes key points, with the authors arguing that global regulation of cryptocurrencies is not only desirable but essential. They seem to believe this is due to increasing interconnections between digital currencies and traditional investments. According to them, numerous challenges obstruct the path to global cryptocurrency regulation, including the lack of an accepted global definition for various cryptocurrencies, the absence of coordination among regulatory agencies, and regulatory arbitrage, where certain countries overly favor cryptocurrencies.
Regulatory arbitrage refers to a corporate strategy that exploits more favorable regulations in one jurisdiction to bypass less desirable rules elsewhere. While this practice is often legal—taking advantage of existing loopholes—it is generally considered unethical.
The authors also point out that many irresponsible and unaccountable international organizations are also working on global digital asset regulation, referring specifically to the Financial Stability Board (FSB) and the Financial Action Task Force (FATF).
They acknowledge that the WEF has been in contact with these organizations but insist that academia, civil society, and crypto users should also have a voice in the global regulation of digital currencies. However, no details have been provided regarding how this consultation would occur or when industry participants can express their opinions.
The Digital Currency Governance Consortium comprises over 80 organizations representing various sectors and geographical regions. DCGC members represent the public sector, private sector, and civil society across 33 countries in Africa, Asia, Europe, the Middle East, North America, and Latin America/Caribbean.
The phrase “Fourth Industrial Revolution” was first coined by Klaus Schwab, the founder and executive chairman of the WEF. He claims that the changes we are witnessing go beyond optimization advancements, indicating a transformation in industrial capitalism.
Regulatory Chaos in Crypto: A Threat to Global Financial Markets
The authors explain that various jurisdictions have introduced different regulations for cryptocurrencies. They claim that this regulatory fragmentation and lack of uniformity in crypto legislation increase risks for the global financial system and provide advantages to corrupt actors within the crypto industry. This section of the white paper also highlights contradictions in the definitions of cryptocurrencies.
The first part of the white paper discusses why global regulation of digital currencies is necessary. The authors begin by defining digital assets and categorizing stablecoins as a subset of crypto assets. Notably, these reports rarely refer to cryptocurrencies as currencies, as the authors believe cryptocurrencies are not, in fact, currencies. However, they acknowledge that cryptocurrencies have various financial uses, which is why regulatory scrutiny around them has intensified. In this context, they point to the collapse of the Terra cryptocurrency last May and the FTX exchange’s failure last November as examples justifying regulatory oversight.
The authors further note that jurisdictions have introduced different regulations for cryptocurrencies since then. They assert that this regulatory fragmentation and lack of coherence in crypto legislation elevate risks for the global financial system and create benefits for corrupt actors in the crypto space. This section of the white paper also underscores the inconsistencies in defining cryptocurrencies.
The authors then suggest that smart contracts could be a way to ensure compliance with regulations, which is not surprising given that the WEF is a strong proponent of programmability in payments.
Crypto Regulation or Violation of User Privacy?
Like many other initiatives from the WEF and its affiliated companies, this plan ultimately aims to control people’s activities. Programmable payments are one way to achieve this. When it comes to regulating digital assets, the authors assert that the first step is to identify locations where crypto activities occur. The second step involves identifying individuals participating in such activities. The authors believe that private wallets for privacy coins and DeFi protocols make this task challenging.
Privacy coins are a type of cryptocurrency that use specific technologies to obscure an individual’s connection to transactions, making it difficult to identify the parties involved and keep transaction details, like amounts, confidential. DeFi protocols encompass standards, codes, and procedures governing decentralized financial applications.
However, such a stance in this white paper is alarming because it suggests that personal wallets may be the target of global digital asset regulation. Although this position is not unprecedented, the FATF’s positions indicate a goal of eliminating all non-intermediated activities in cryptocurrencies—essentially, eradicating personal wallets for cryptocurrency users.
If we look at this fairly, it does not seem that the authors of the white paper are entirely opposed to personal wallets. They understand that if cryptocurrencies are purchased through exchanges with a “Know Your Customer” (KYC) process, blockchain analytics firms like Chainalysis can easily identify which wallet belongs to whom. Regardless, the critical and dangerous issue is the failure to recognize the privacy of users and crypto participants.
According to the WEF’s white paper, the third step for regulating cryptocurrencies is to identify the responsible party for each specific crypto activity. The authors acknowledge that this can sometimes be challenging, especially when dealing with decentralized protocols. They note that if decentralized autonomous organizations (DAOs) were to become regulatory bodies, this process would become easier.
Concerns Over the Growing Popularity of Crypto Markets
In the next section of the white paper, the authors delve deeper into the relationship between cryptocurrencies and traditional finance. They initially mention that the correlation of crypto markets with Bitcoin prices indicates the maturity of this market. While this claim is arguably incorrect—since a lack of dependence among different categories of cryptocurrencies signifies market maturity, not the other way around—what the authors rightly identify is that institutional interest in digital currencies is on the rise. In this section, they present statistics from pro-crypto sources, which should be approached with some skepticism, as genuine institutional interest and investment will not materialize until digital asset regulations are introduced everywhere.
The authors also note that retail interest in digital assets is increasing and that this trend could pose challenges to financial stability. This could explain why some countries, like Canada, which is largely aligned with the WEF, have begun implementing restrictions on retail investors in the digital asset space. In addition to the risks posed by cryptocurrency proliferation, the authors emphasize the dangers of concentration as another worrying area, and this concern is entirely valid, as the global cryptocurrency market relies on a handful of stablecoins, a few exchanges, and even fewer digital currencies.
However, the odd part of this section of the white paper is the authors’ claim that Ethereum’s Layer 2 reduces this concentration risk. This assertion is peculiar because many Layer 2 solutions still depend on Ethereum for their security, which logically increases concentration risk. Moreover, many of these Layer 2 solutions are highly centralized and supported by the same investors.
Layer 2 is a collective term for solutions designed to help scale user requests by managing transactions outside the Ethereum mainnet (Layer 1) while still leveraging the strong decentralized security model of the main network.
The lack of regulatory coherence and fragmentation in the crypto industry increases risks for the global financial system and creates advantages for corrupt actors within the cryptocurrency sector.
The most alarming aspect of the WEF white paper is the targeting of crypto users’ privacy and the attempt to identify owners of private wallets.
Challenges of Global Crypto Regulation
The second section of the WEF white paper addresses the challenges of global regulation of digital currencies. The authors start by reiterating that the absence of universally accepted definitions in the crypto industry is the biggest existing problem. They propose a potential classification in this regard but admit that there are exceptions for every cryptocurrency definition. They then explain that this is problematic because it makes consensus on specific crypto regulations impossible. This situation raises the cost of compliance in the crypto industry worldwide and complicates consumer protection.
When discussing such problems, the only culprit that might come to mind is Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC). In an article titled “The U.S. Against Crypto,” published in the previous issue of this research paper, we elaborated on Gensler’s role and the SEC’s impact on the regulatory chaos in the crypto industry.
According to the authors, the second challenge for global regulation of digital currencies is regulatory arbitrage. The authors of the white paper seem troubled by the reality that cryptocurrency developers can move wherever they please as if the WEF has nothing but controlling people’s movements in mind. It appears that the organization’s efforts to turn more major cities into smart cities are aligned with this objective.
Nevertheless, the authors acknowledge in this white paper that it may still be too early to enforce global regulations on digital assets. The reason is that most governments are still grappling with understanding this disruptive technology. However, some jurisdictions, like the European Union, which has recently adopted its “Markets in Crypto-Assets” (MiCA) regulation, are ahead of others.
The authors reveal that all these initial crypto regulations, including MiCA, will be implemented from early next year. This point is more significant than it seems, as it may reassure institutional investors regarding reallocating funds and investments into cryptocurrencies, suggesting that the crypto market could see growth starting early next year. Interestingly, this coincides with the Bitcoin “halving.”
The authors also appear to have issues with so-called crypto hubs, interpreting them as a code for lighter regulation of digital assets; thus, it seems this white paper criticizes hubs for creating regulatory arbitrage. Given this, if the WEF begins its work on regulating digital currencies, it could be bad news for countries like the UAE, Hong Kong, and Singapore. In this context, if you watch the summary of the annual DeVos conference (WEF) earlier this year, you will notice a clear hostility from the Chair of the Financial Stability Board toward the representative from Dubai during one of the crypto panels.
Geopolitics: The Missing Piece in Crypto Regulation
Another important angle the authors discuss regarding cryptocurrency regulation is geopolitics. The deterioration of international relations makes it more challenging to gain the consensus of certain countries to comply with global digital asset regulatory recommendations. It can confidently be said that this trend will continue and will not improve.
This issue also relates to the third challenge for global cryptocurrency regulations, which is the scattered nature of oversight, supervision, and enforcement.
The authors reiterate that the lack of international cooperation, alongside the rapid evolution of technologies related to cryptocurrencies, is one of the main reasons for this fragmentation. They then present the infamous FATF Travel Rule as a case study. According to the FATF Travel Rule, all transactions above a certain threshold must be tracked and verified. The authors express regret over the slow compliance with the FATF Travel Rule regarding digital currencies. It is said that the FATF has pressured countries to restrict or even permanently ban cryptocurrencies in some cases to remove them from its grey list. If this is true, crypto hubs may face financial sanctions for failing to comply with FATF’s crypto recommendations.
The lack of universally accepted definitions in the crypto industry has been the biggest problem in its regulation, and the primary culprit in this issue is Gary Gensler, the Chair of the U.S. Securities and Exchange Commission.
The worsening state of international relations worldwide and the resulting lack of international cooperation, alongside the rapid evolution of technologies related to cryptocurrencies, is one of the main reasons for the regulatory fragmentation in this industry.
Global Regulatory Approaches to Crypto
The third section of the white paper discusses possible approaches for the global regulation of digital assets. The authors begin by presenting a list of regulations the WEF is considering. These include regulations specific to cryptocurrencies, stablecoins, anti-money laundering identity verification, consumer protection (including restrictions on retail access to cryptocurrencies), stringent regulations on cryptocurrency marketing, and regulations concerning decentralized finance and decentralized autonomous organizations.
The authors outline five main approaches to the regulation of digital currencies. The first approach is principle-based regulation, which involves regulation around a set of broad principles rather than specific laws. The advantages of this approach include innovation and flexibility, while its downside is a lack of regulatory certainty.
The second approach is risk-based regulation. This necessitates applying the principle of “same risk, same regulation,” meaning that cryptocurrencies should adhere to existing financial regulations. The advantage of this approach is regulatory certainty, while its downside is the difficulty in assessing risk.
One of the guiding principles of the Financial Stability Board’s framework is “same activity, same risk, same regulation.” This principle emphasizes that when digital assets and intermediaries perform functions equivalent to traditional financial sectors, they should be subject to similar regulations. It should be noted that the WEF is a proponent of the “same risk, same regulation” approach, which is why it appears in many existing regulatory recommendations for cryptocurrencies. Another concerning point is that the WEF supports the elimination of cash and digitization to ensure compliance with anti-money laundering identity verification.
The third approach to regulating cryptocurrencies is what the authors call agile regulation. This approach effectively allows regulations to evolve in response to new innovations. The advantage of this approach is its flexibility, while its disadvantage is that it requires a significant amount of coordination and collaboration with the crypto industry.
The fourth approach to regulating digital currencies is self-regulation. This approach allows the crypto industry to set its own standards. The advantage of this approach is that it builds trust; however, a negative aspect could be that it may lead to the monopolization of standard-setting by one company.
The fifth approach to regulating cryptocurrencies is a familiar one for crypto industry participants; this approach is regulation through enforcement, which involves taking crypto companies and projects to court and using their legal precedents as practical regulations. In this approach, regulators use enforcement actions to express their expectations and interpretations of existing laws instead of creating new laws or guidelines through the usual legislative processes. Currently, the United States is the primary jurisdiction implementing this approach, although it faces significant criticism. The advantage of this approach is accountability, while its disadvantage is the lack of benefit from any innovation.
Doubts About the Validity of the WEF White Paper Survey
Interestingly, the authors of the white paper asked their so-called stakeholders which regulatory approaches they prefer. According to the results announced in this white paper, the risk-based regulatory approach was identified as the most popular among the disclosed stakeholders of the World Economic Forum (WEF). Given that the WEF is an advocate and supporter of this specific approach, it is not surprising that there are doubts about the reliability of this survey or the potential bias of the selected stakeholders.
The authors also confirm that other unaccountable and unelected organizations, such as the Financial Stability Board and the Financial Action Task Force, have adhered to the WEF’s risk-based approach to regulating digital currencies.
WEF Recommendations for Global Regulation
The fourth section of the white paper includes the WEF’s recommendations for global cryptocurrency regulation. The authors begin this section by explaining that these recommendations are intended for international organizations, governments, and industry stakeholders, some of whom may be part of the WEF. In other words, these recommendations are what most crypto regulations are expected to look like, without considering the views of users and industry participants in their formation. Although the authors of the WEF white paper claim that all participants and users of the crypto industry, including ordinary individuals, will someday have the opportunity to voice their opinions in this regard, given previous records, it cannot be confidently assumed that this promise will be fulfilled!
The first set of recommendations is specifically for international organizations, which includes two suggestions:
- Creating definitions for different cryptocurrencies and cryptocurrency activities.
- Establishing standards for how to regulate these cryptocurrencies and activities, as well as sharing data related to registered entities with all organizations.
Now, the question arises whether registered entities include crypto users like you and me; given the existing understanding of the WEF, the answer may be yes. Ultimately, one can speculate that the endgame for these international elites is to establish a global government with a universal digital ID and a centrally controlled global cryptocurrency.
The second set of recommendations is specifically for governments and includes harmonizing regulations across jurisdictions, creating regulatory certainty for the crypto industry, and utilizing technology for regulation and designing regulations at the blockchain level through smart contracts. Remember that the WEF has a strong interest in programmability.
The third set of recommendations is specifically for the crypto industry. This industry must set standards, share best practices, and ensure that responsible innovation is provided. Given that this term refers to environmental and socioeconomic risks, it seems to serve as a code for adhering to “Environmental, Social, and Governance” (ESG) criteria.
Environmental, Social, and Governance (ESG) is an approach for evaluating how well a company performs regarding those social objectives that go beyond the role of a company to maximize profits for shareholders. The social objectives that the ESG perspective advocates for include striving to achieve a certain set of environmental goals, as well as a set of goals related to supporting specific social movements, and a third set of goals regarding whether the company is managed in a way that aligns with the objectives of diversity, equity, and inclusion movements.
ESG governance is an investment belief established to ensure the achievement of the “United Nations Sustainable Development Goals” (SDGS). As each country is expected to reach these goals by 2030, this date is commonly seen everywhere and about everything.
Examinations show that all dystopian elements that are under pressure stem from the United Nations’ sustainable development goals, whether it be central bank digital currencies, digital IDs for smart cities, or online censorship. What we have yet to understand is who exactly is behind the United Nations’ sustainable development campaign and what their objectives are.
It can be speculated that the ultimate goal of these international organizations for regulating the crypto industry is to create a global government with a universal digital ID and a centrally controlled global cryptocurrency.
All dystopian elements that are becoming prominent are rooted in the United Nations’ sustainable development goals, whether they involve central bank digital currencies, digital IDs for smart cities, or online censorship.
Impact of the WEF White Paper on the Crypto Market
All these considerations ultimately lead to one major question: How would the World Economic Forum’s (WEF) recommendations for global digital asset regulation impact the crypto market if implemented? The short answer is that it would result in the integration of the crypto industry into the existing financial system; exactly what the WEF desires, as the practical effect of the risk-based regulatory approach is to compel the crypto industry to comply with existing financial regulations.
As the authors implicitly acknowledge, the risks associated with cryptocurrencies are not always clear, and many argue that these risks vary significantly. This justifies the existence of various regulations in this area. The WEF’s recommendations worsen the situation for cryptocurrencies compared to the existing financial system because they require sharing information about all registered entities with international organizations, enforcing laws through smart contracts, and mandating that all cryptocurrencies comply with the United Nations’ sustainable development goals.
These three problematic recommendations share one commonality: control.
Uncontrollable Bitcoin: A Threat to Global Organizations
By examining all these recommendations, we arrive at one argument: the environmental aspect of the issue is not the problem; the governance aspect is. Bitcoin cannot be controlled because it lacks a governing structure. This is precisely the main issue that the WEF and its allies are trying to address: “How do we control something designed to be uncontrollable?”
There is also a possibility that the ultimate aim of the concentrated environmental attacks on Bitcoin is to track all Bitcoin miners and nodes. This is what the WEF’s global digital asset regulation dictates; because miners and Bitcoin nodes will likely need to be registered. Therefore, their information must be shared with all international organizations. At that point, controlling Bitcoin theoretically becomes feasible; however, in practice, the WEF’s regulations for globally managing the crypto industry will likely never be implemented, something the authors of this white paper implicitly admit as well. Furthermore, given all the geopolitical tensions, it is impossible to apply uniform cryptocurrency laws across all countries simultaneously.
This means that a regulatory arbitrage exists, whether intentional or not. This regulatory arbitrage has existed for years and will continue in some countries for decades. It can be said that as long as there is a country where the WEF cannot exert influence, it cannot fully destroy the crypto industry, and since the growth of cryptocurrency innovation is fundamentally exponential, it is highly likely that this industry will evolve to the point where it cannot be controlled by the WEF and its allies.
This may be the most significant conclusion possible. The crypto technology is moving too fast for the WEF. Klaus Schwab will never be able to keep up with this trend, and ultimately, cryptocurrencies will win this race.
Although currently, there are many obstacles facing the crypto industry, and the WEF white paper indicates that it has played a role in creating these barriers—whether it be the Financial Stability Board or the Financial Action Task Force, the fingerprints of the WEF are evident. If we say that the allies of this forum also play a very effective role in the crypto industry, we are not exaggerating.
Nevertheless, we genuinely believe that the motivations of the crypto industry are far stronger than those of the WEF and its allies. The mechanics of this industry are such that, for instance, if you create a powerful cryptocurrency or protocol that enables ordinary people to preserve purchasing power, increase wealth, and achieve financial freedom, you will be rewarded in every possible way, and this is just one of the marvels of the crypto industry.
As the purchasing power, wealth, and financial freedom of people around the world decline, the motivation to create powerful cryptocurrencies and protocols increases. At certain times, these motivations will be so strong that the WEF’s barriers will become meaningless and largely ineffective. It should not be forgotten that people around the world desire freedom, and they will achieve it in financial markets through cryptocurrencies.
The ultimate goal of the concentrated environmental attacks on Bitcoin is likely to be tracking all Bitcoin miners and nodes.
The crypto technology is moving too fast for the WEF. Klaus Schwab will never be able to maintain control over this industry, and cryptocurrencies will ultimately win this race.
