Hoskinson introduces software-enabled crypto self-regulation to Congress

Cardano co-founder Charles Hoskinson has told Congress to make regulations for crypto but leave compliance to software developers.

Hoskinson compared the ideal arrangement for crypto regulation to how bank self-regulation works during a congressional hearing on June 23, telling lawmakers, “It’s not the SEC or the CFTC that’s out there pushing KYC- Do AML, it’s the banks.”

“It’s a public-private partnership. What needs to be done is set those boundaries and then, as innovators, we can write software to help achieve that.”

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are two of the financial regulators battling for jurisdiction over the crypto industry.

Related: US Congressional hearing on digital asset regulation focuses on disclosure

Republican Representative Austin Scott of Georgia claimed that neither the SEC nor the CFTC have the manpower to oversee the thousands of cryptocurrencies on the market, saying, “It is not possible to regulate all of these currencies.”

Hoskinson responded that cryptocurrencies’ ability to store and transmit data means they can do much of this regulatory work automatically. He also used it as justification for allowing the crypto industry to set up self-regulatory organizations (SROs) to manage regulatory compliance like the private banking industry does.

Hoskinson suggested the industry could create a “self-certification system” that would automatically monitor compliance until an anomaly occurred at which a tax authority would review it.

Hoskinson further clarified why manpower should not be a problem for crypto regulation, hypothesizing that even quadrupling the size of the Internal Revenue Service (IRS) would not be enough to audit every American.

Rather, Hoskinson told Rep. Scott that cryptocurrencies can be programmed to prevent transaction settlements until legally required reviews are conducted.

Hoskinson’s June 23 testimonial, released through the IOHK website, indicated that he was keen to work with federal agencies to develop new rules, stating that compliance with US regulations and laws ” must be a guiding value for the blockchain industry”.

“However, this is a new technology and a radically new asset class that does not easily fit within the confines of the laws and audits created nearly a century ago.”

Hoskinson’s pleas for clearer boundaries in the crypto regulatory landscape echo those of other industry insiders in the US last December. SEC Commissioner Hester Peirce recently blamed a lack of regulatory clarity for the SEC’s consistent banning of spot Bitcoin exchange-traded funds (ETFs) from launching in the United States.