By Patti Murphy
ProScribes Inc.
Fifteen years ago someone calling themselves Satoshi Nakamoto published a white paper proposing a peer-to-peer electronic cash system that soon became known as Bitcoin. Today there are thousands of cryptocurrency systems, all running on the same blockchain technology Bitcoin uses, and policymakers are struggling to get a handle on the whole matter.
But the market for crypto has been experiencing a rough patch, with crashing values and bankrupt exchanges leading to competing calls for government action.
Then there are the environmental concerns. Crypto mining, which requires vast decentralized computer networks that generate and verify new blockchains, consumes extraordinarily large amounts of energy, between 120 and 240 billion kilowatt hours per year, according to published estimates. That's well in excess of the total annual electricity usage of many countries, including Argentina and Australia.
Against this backdrop, Senator Ted Cruz, R-Texas, is pushing for crypto to be an accepted form of payment within the U.S. Capitol. No joke! He's introduced a resolution, Adopting Cryptocurrency in Congress as an Exchange of Payment (ACCEPT) Resolution, that would have vending machines and commissaries on the Capitol grounds accept crypto in addition to other forms of payment. (A resolution doesn't have the force of law; it's merely an expression of congressional sentiment.)
"Cryptocurrency is generating new jobs, encouraging entrepreneurs to invent new values and create hedges against inflation, and presenting new opportunities," Sen. Cruz said in introducing the ACCEPT resolution on Jan. 26, 2023. "It is also increasingly being used as a secure form of payment for goods and services. This is why we, here in the United States Capitol, should increase accessibility and signal our support for the burgeoning cryptocurrency industry."
Sen. Cruz has been a vocal advocate for crypto in the past, and has reported investments in Bitcoin on financial disclosure forms lawmakers routinely file. He also has expressed opposition to crypto regulation. But that doesn't seem to be the prevailing sentiment in Washington.
"For all their talk of innovation and financial inclusion, crypto industry giants—from FTX to Celsius to Voyager—are collapsing under the weight of their own fraud, deceit, and gross mismanagement," Senator Elizabeth Warren, D-Mass., said in a Jan. 25 speech to policy wonks.
The "solution" to this problem, Sen. Warren and others believe, is to step up crypto market oversight and enforcement by government entities, like the Securities and Exchange Commission and Commodities Futures Trading Commission.
"With strong rules and enforcement from tough regulators, we can give the crypto industry a chance to prove whether it can deliver innovation without robbing investors or laundering funds for drug traffickers and terrorists," Sen. Warren said.
The Biden Administration, in a Jan. 25 briefing paper, said it has instructed federal agencies to "ramp up enforcement where appropriate and issue new guidance where needed." This includes the SEC, CFTC, the Federal Reserve and other financial regulators, according to The Administration's Roadmap to Mitigate Cryptocurrencies' Risks. The briefing paper added that "the events of the past year underscore that more is needed."
The Administration urged Congress to expand the powers regulators have to prevent misuses of customer assets, which is believed to have been a leading cause of several well-known bankruptcies, including that of FTX.
However, a tug of war may arise out of efforts to tighten crypto regulations, notably the SEC and the CFTC, with each asserting reasons why it should be the primary regulator, and each launching enforcement actions against crypto firms in recent years. The CFTC argues that crypto is a currency, which makes it a commodity subject to its oversight. The SEC asserts that the broad legal definitions of securities place the crypto market squarely within its regulatory purview.
Ultimately, the decision about which agency gets the job will be up to Congress. But given the speed with which Congress acts on controversial legislation, that decision doesn't seem imminent. The White House, in its briefing paper, urged congressional action but also included a warning.
"Congress could make our jobs harder and worsen risks to investors and to the financial system," by allowing traditional financial institutions to play in the crypto market, the White House stated. "In the past year, traditional financial institutions' limited exposure to cryptocurrencies has prevented turmoil in cryptocurrencies from infecting the broader financial system. It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system."
Despite early assertions to the contrary, crypto and the underlying (blockchain) technology are not just a flash in the pan with no implications for payments. There already is plenty of interest among businesses and consumers to make payments using cryptocurrencies. In a 2022 survey of merchants, leading acquirer Paysafe found just 15 percent of respondents don't ever expect to accept crypto payments; 17 percent said they already accepted crypto payments.
Meanwhile, several ISOs now sell crypto payments as a lower-cost payment acceptance option for merchants.
Crypto payments can take different forms, the most popular of which seem to be credit and debit cards that are tied to crypto wallets. Visa said in 2022 that 80 million merchants, worldwide, were accepting crypto card payments and that in the first quarter of 2022 cardholders made $2.5 billion in purchases using crypto-linked cards. That was about 70 percent of the company's crypto volume for all of 2021.
The card brands are stepping up their crypto activities, too. Recently, Visa said its crypto team was working on a solution that would support automatic bill payments from crypto wallets. "While blockchain technology and digital assets are still in their infancy, we're digging into these emerging innovations to determine how they can impact money movement today, and into the future," the Visa team wrote in a December blog post.
Mastercard introduced a Crypto Source program last year, intended to help financial institutions deliver secure crypto and other digital asset services to customers. "Our commitment is simple – to explore crypto and the underlying digital assets technology to support consumer choice in payments," said Jorn Lambert, chief digital officer at Mastercard.
Bottom line: crypto is here to stay. Some particulars still need to be worked out, notably how these assets will be regulated. But it's here and it has found its place in the payments landscape.
Patti Murphy is senior editor at The Green Sheet and self-described payments maven of the fourth estate. She also co-hosts the Merchant Sales Podcast.
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