Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Florian Glatz: The European Crypto Initiative – Why Europe Needs a Regulatory Shift to Avoid Crypto Irrelevance

Episode Date: May 8, 2022

Florian Glatz, blockchain.lawyer, is one of the most knowledgeable OG's at the intersection of crypto and law. He was last on the show 6 years ago when we talked in great detail about smart contracts and the DAO. We welcomed him back to discuss the regulatory environment, with a focus on Europe. We covered key topics like the recently floated Proof of Work ban, Travel of Funds Regulation (TFR), and Markets in Crypto-assets (MiCA) regulation. We also discussed the European Crypto Initiative, a new lobby organization that Florian co-founded, which is advocating for crypto-friendly regulation on a European level.Topics covered in this episode:What Florian got wrong about DAOs when he was on the show in 2016The story of the Geman blockchain association Bundesblock that Florian co-founded and was president ofThe European Crypto Initiative - Why a European-level organization is neededThe most important regulatory questions facing crypto todayWhy crypto taxation is a particularly challenging issueHow will competition between different nation states play out?Whether we will see the rise of new nation states or digital nationsEpisode links: Episode 125 - Defining a Legal Framework for Decentralized Autonomous Organizations (DAO)The Sovereign individualblockchain.lawyerFlorian on TwitterSponsors: Chorus One: Chorus One runs validators on cutting edge Proof of Stake networks such as Cosmos, Solana, Celo, Polkadot and Oasis. - https://epicenter.rocks/chorusoneParaSwap: ParaSwap aggregates all major DEXs and makes sure you beat the market price at every single swap and with the lowest slippage - paraswap.io/epicenterThis episode is hosted by Brian Fabian Crain. Show notes and listening options: epicenter.tv/422

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 Glutz. Florian is, you know, one of the most kind of knowledgeable people at this intersection of law and crypto. He's been a guest on his podcast before, actually six years ago, I checked before. We did an episode about smart contracts, the Dow. And he's been, you know, deeply involved in the crypto space.

for a long time. I was organizing the Bitcoin meetups back in like 2014, 13 and he would show up there at the very beginning. And he's also the proud owner of a very cool domain that kind of indicates how early he was with the thing,

blockchain. 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 chlorine is based and where Florin is most expert, but you know, we're going to try to cover it also in the global context.

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And with that, welcome, Florian. It's great to have you back on. I'm super happy to be back. Thank you for the invitation. And yeah, 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 DAO and, you know, the Slotted Dow, I think, in the notes it was called, you know, I guess it was before it got, it fell apart. And speaking kind of about, you know, what are smart contracts in the legal context? I think, you know, one of the topics was could you sue a DAO 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 is still hugely important and a huge topic. Indeed. And it's interesting because the space has grown tremendously since then. And famously, the Dow failed, but now six years later, Dao's are, I think, one of the hottest, most interesting, most vibrantly developing aspects of the crypto community at the moment. And so it's really kind of cool to see this full circle. I also saw, I think, the founder of Argon say, yeah, we were pre-product market fit essentially for like four years. But now, you know, in 2022, 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 now, I think really being considered by much more serious people than me. So regulators, actually. And, yeah, also lawyers in big law firms, you know, now having clients with, you know, maybe corporations or startups alike that say, hey, I want it out, you know, make it happen. And so, yeah, it's, I think really a good time really to come together here again and look at those developments and try to understand them. 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. In the sense, we all were, though. And so, yeah, I just think it's good to talk, but in law, nothing seems ever final. But then in crypto, also everything is changing so fast that's really hard to keep up. Cool. That's interesting. I'm curious, like, when you went back to that old episode, So 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 lacked a really clearly defined use case for DAOs. Obviously, we saw the DAO, it was kind of this venture investment 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 DAO's, 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 this layer of decentralized exchanges and lending protocols and how those protocols by virtue of being decentralized would need some interesting form or some functioning form of governance that now ends up being those dows. And 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.

Right. That's a good point. Yeah. Yeah. I mean, I also, you know, remember, and I was involved in Nicarium also kind of at this is very early on. And the thing that also is like in retrospect seems so obvious and that I missed

was just the ability to basically 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. 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, know what you think is true. I currently have this kind of grand theory now because of all those

kind of things I didn't see that says we're in kind of the third phase of crypto evolution where the first phase was the 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 what happened around, I see the Gnosis, I seeo is kind of maybe the kickoff for it was the emergence of this token layer. So ICOs, new crypto assets that were not building their own blockchain, which is building services on top of blockchain, such as Ethereum. And I was a part of this, you know, as much as you and anybody who's been in the space.

But I always felt a bit more like an observer because I don't see myself as, you know, this big finance genius. And so I was more like, wow, okay, it's super interesting what you're doing there. but understand like, you know, 10%. And now in this third phase that I think we're entering, it's actually the financial plumbing is there. It works. It's great. Uniswap, 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 that we either have or should have, but if we have had them in the past somehow the institution that was running them, maybe the government kind of led us down. And 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 CO2? token that I can be trading as well as a retail investor in a sense, you know. And it's because government simply refused 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 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 of bubble. However, what is, you know, even I haven't seen is then secretly people who also benefited

from this idea 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, Dow 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 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 my outlook at the moment. Cool. I really like this mental framework. I think that's a nice way of thinking about it. It's funny also that you mentioned this carbon token, right? Because actually, I think two or three episodes ago, we had the podcast with Region Network. which is creating exactly that, right?

So that's... I love them. They are awesome. I saw them at Shelling Point in Amsterdam. I was like, wow, this is honestly exactly what we need. This framework for creating those assets on, yeah, regenerative things. Yeah, so that token is called NCTE. I think it's like coming.

I think they're just about to launch that. Now, maybe let's talk a little bit about... regulation and the thing actually I wanted to ask maybe to start off with so you know there's this organization bundes block that you were I think one of the one of the initiators and I think you're president for for many years which it was kind of the German 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 question to start off because really Bundesplog was my entry point into regulation of crypto. And for many people, actually. What we learned is that the crypto industry, this, you know, small fledgling industry that became really significant over the past few years. is first of all, needs a voice with politics that is kind of harmonized and reflects, you know, the values and so on of the stakeholders in this industry. And Bundesblok, you know, fulfilled this function quite well.

It started off with, I think, a really, really nice kind of, you know, kind of a bang, I would say. It was at the height of the craziness around tokens. Everybody was interested in what we had to say. And we created with the help of 30, 40 people, kind of a, I don't know, 50, 60 page position paper unlike everything that crypto and recognition kind of has to say to one another. And I think to this day, it stays an important resource for people 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, they probably don't understand what we're doing. And 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 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 an organization where we see similar patterns with the super engaged community and a regulator that does not know how passionate this community is about this thing that a regular is about to touch. And we see it play out on Twitter in the context of this TFR 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 start Bundesblock.

What we, I think, not fail that, 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, be 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 blah blah. And in that sense, Bundesblog always stayed a really nimble kind of smallish grassroots organization as opposed to becoming a properly, you know, top-down managed org with a big budget. And so in order to make room for that,

actually, me and the other board members did actually choose to not go for a, you know, third term. but after two terms now actually said, hey, is there a new team that wants to open a new chapter? And so that team stepped up where we found people in our members and community to now work on Bundesblock and kind of a new chapter. Whereas what I have actually started in 2020

is to look more and more at the European level since around September 2020, the EU has officially made it clear, that they are working on regulating crypto assets in a harmonized way across all European jurisdictions. And so it became clear that this needs a lot of attention. And starting, yeah, end of 2020, right around when, you know, COVID was already a thing. Thinking in before after COVID, it was, I guess, like, yeah, during the first or second

wave, I guess, of COVID, where this really started to get a lot of my attention. and now is actually that I stopped being on the board of Bundesblock is kind of my main outlet for lobbying or generally like, you know, my efforts in trying to talk to regulators and make them understand the good side of crypto, which is, I've been doing this since 2014, essentially, very self-motivated. I read back then I wrote a letter to the president of the German Center for cybersecurity, essentially. essentially saying like, yeah, there are all those problems with electronic signatures in Germany and blockchain. You should look at this. I don't know why I did this, but this kind of started a lot of often. So I'm doing this in such a self-motivated fashion, but have found with Bundesbloc that if you want to, you know, really have an impact, you need an organization. And so Bundesbloc was amazing as a start in Germany and also for me personally. And now I'm taking a lot of the learnings I had in Germany and

kind of try to build something in Europe that makes, you know, that improves on the things that weren't great and kind of picks up and continues the things that were really great in Bundesblock, which to me mostly is about community and kind of, you know, really using them as a resource. I talk a lot, so I will, one last sentence, but what we've always done in Bundesblog 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 laws. But maybe, you know, there are technologies we can leverage to actually solve some of those

problems. And now that, you know, Defi is on the table with regulators in Brussels, it's kind of the same question to me again, to the community. Hey, you know, ingenious galaxy brains out there, we need you now to come up with crazy zero knowledge proofs and other things that allow us to, you know, give regulators what they want, which is, you know, mostly reasonable demands about certain, you know, assurances around fraud and money laundering and all those things. But without violating both the privacy and the fundamental way how crypto works in Europe,

which is what this unhosed wallet ban really, you know, touched upon. So, yeah, I think we're back there and I enjoy this because it's a very creative moment also. So I think the industry is now stepping up to this challenge once again. Yeah. So I guess the organization, right, you mentioned that you're starting on the European level. It's this European crypto initiative. Maybe before we get into sort of the actual meat of like, you know, what are the core issues that, you know, I do want to spend 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 US. If you see it kind of evolved in a similar way where like, I don't know, you have like a good research staff or like how do you see this organization evolve? Yeah, thank you for that question. So the European crypto initiative is, I think, quite interesting 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 governments 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 those masochistic ways. So those people who love policy, you know, and crypto and who have a passion for those, you know, really bleeding-edge challenges, you know, like I have and others who co-founded this organization with me. Those other people are hiring at the moment and it's great fun because I think also for them it's an amazing opportunity to, you know, work on the same. something that actually matters, which is not often the case in law. You can easily be trapped,

you know, being a transaction lawyer on big transactions that are very complicated and require, you know, you having a massive IQ maybe, but I mean, you're just making rich people richer in a sense, right? And 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 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 research heavy in that sense, but what we started it out as in 2020 is really establishing relationships to regulators.

So it's hard to understand what that really entails. But 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 base. Then there's the council which represents kind of the national European interests of the member states 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 all those different pieces of legislation. All of them are regulators in the 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 it took us, I would say, yeah, a year and a half, two years to, you know, meet everybody, talk to them. 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 in Germany where we could just be like, hey, you know, with the German German blockchain association, send us an email and then regulators would, you know, send you emails or call you and invite you in Brussels. It works differently and in this, to some extent, a money question. And that is, I think, not how politics 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, I also think that technology may actually help with in the future. Okay, okay, cool. Well, let's get into it, right? I mean, I probably a bunch of people listening have maybe seen some of those, you know, headlines or some of those conversations. So I think I particularly remember, too, 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 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.

a ban or at least disadvantage what they called like unhosted wallet where I think people in the crypto space would call like a non-custodial wallet or a self-custodial wallet where you control your own keys which is in a way the whole point of it but you don't necessarily have to start there but I would just like ask like 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 ban that you mentioned, which is at the moment off the table and is not likely to be reintroduced now in this very context in which it was originally raised. So in that sense, it's kind of, you know, the warning is off. we were able to convince and the people in the parliament were able to be convinced that this is not a good idea.

And then the other really controversial proposal that came from Brussels recently was the so-called TFR or Traveler Funds Regulation. it contained after the parliament looked at it and made amendment proposals to it, the transfer of funds regulation contained what effectively could be said to be a ban of unhosted wallets. And 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 hosted wallet, if you want to call it that, is also a non-custodial wallet for the person who hosts it for you.

So I don't even understand the concept of a hosted wallet. To me, 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-custodial wallets are how crypto is supposed to work. But I do agree that, 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, I mean, I love Ledger and Treasors and I have them, but, you know, 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 the other element is, you know, 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 nation or a supranational organism 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 unhasted 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 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 people

to withdraw funds from exchanges onto their wadlets. 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 anymore in Europe. That's really frankly ridiculous. So that is TFR in a nutshell. The good news, I think that everybody listening to this is maybe happy to hear, is that so far the signals we receive is that now, after this initial shock,

the conversations and the trilogues where this is happening now, kind of negotiation between Commission, Council and Parliament, there's a growing kind of understanding why it's just not wise to do this 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 this unhosted wallet thing.

I think more, you know, maybe personal wallets, maybe just wallets, maybe self-custodial or non-custodial 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, but maybe even most important regulation to mention that's on the table, is the markets in crypto assets regulation. We have not really touched on it yet, but it is at the moment also in the kind of finishing stages in the so-called trilogues 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 so this is the stuff that currently keeps us awake at night. in UCI, in the European crypto initiatives, since we're effectively drafting position 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 the MECA, in the TFR, 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, all kinds of things. Actually, one thing that comes up as a big question for me, right? 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, defy in Europe. But then, of course, like, the interesting question is, like, what does that even mean? Like, what is defy in Europe, right? Because then, like, let's say you have this Ulysmobile 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 they are not mostly not in Europe anyway. Or like how, you know, how does that sort of interface with, you know, the rest of the world? could people simply kind of, you know, circumvent that by, you know, domiciling outside of Europe? Yeah, that's 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 the, those rules and it's going to be very similar with with mecca people in a sense know it from mifid too 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 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, ESMA, to get the permission to do it. And the question now with Defi 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 CEO. it doesn't have anyone who can speak on behalf of this entity officially. It cannot be regulated. It doesn't have a domicile. It doesn't have 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 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 this MECA thing could result in, for example, your domain being banned. Like European clients, European IPs cannot reach the website of, let's say, Uniswap, for example. That's a random example.

It would be blocked on the, you know, on the telco layer. Just like, you know, I don't know, child pornography or other kind of really bad websites are banned. The same would be for, you know, defy websites. 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 a effective ban would look like. A more indirect ban, you know, would be in the sense that this ESMA, this European securities and markets regulator could potentially start enforcement.

procedures like the SEC did it with UNISWOP. I mean, it's not an enforcement procedure with UNISWAP. It's like an open exploration, I think, that the SEC does. So as much to 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 is a fine. that's possible, that would also be effectively a ban.

But I think maybe the most important thing would be the chilling effects it has, right? If Europe commits to such a path, 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 the stuff out, to just never go into it because they think they end up in jail, you know, or they think, I don't know, it creates chilling effects that prevent people from even approaching, you know, that line that has. 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. But yeah.

Yeah, I'm still kind of like, you know, I'm still sort of struggling to see, you know, this kind of like play out. Because like, for example, I mean, if you looked 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, it'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 or 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 don't know, some kind of decentralized applications that, you know, running on 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 strongly to see how that actually plays out. Yeah, I think the danger is of Europe becoming a digital backwater, or staying one maybe in the sense that the U.S., China, maybe not that much, but maybe other regions around it. India looks more promising. I just recently been in South America and was very, very blown away by the crypto adoption in Brazil. So there are other really big regions, not just small countries, you know,

who played this game always with regulators, but big regions having a totally different. different attitude to crypto. And I think them embracing this and Europe, you know, staying not, 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. 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 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 it will be all other kinds of innovations will be tied to yeah, maybe a US dollar or to companies or treasuries, you know, outside of Europe. So I think this is the real danger of Europe falling behind. It's not that much that defy would, you know, stop existing. 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 us. And they've seen other 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. You know, maybe we are underestimating or overestimating the effects of regulation. 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 a 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 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 we are really trying to tell them. And 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 risks, same rules. That's what we always hear from Brussels. And, you know, of course it makes sense on some level.

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 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 in the past by the traditional financial system. It's just accessible in a totally different way. 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 access material. They don't have passports. They don't have bank accounts or credit history. So 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 by, yeah, creating at least the illusion of a ban, even if it is not, even if you cannot

properly enforce it. I may agree with you there. Yeah. Actually, you mentioned, you mentioned before, like, you know, sort of other topics coming up and you mentioned topic of tax. 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, you know, in one particular way, right? So when you talk about, okay, regulating defy, right? You're talking about, you know, these, you know, these regulations are targeting, you know, the protocols themselves, right? Even though they can't, maybe it's 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 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 was 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 some spreadsheet and he was like, what on earth am I going to 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 what the taxation should be of those things. But like that,

so that seems like a weird thing, right? Because then you all of a sudden have kind of millions, tens of millions of people who are all kind of like adults with the government. So I'm curious, like, will deal with this. Yeah, it's such an important question also. And 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, the gains you make, they are tax-free and those kinds of rules. But then, you know, also in Germany, every transaction that you do, even crypto to crypto can be potentially, you know, a taxable event. And 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 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. It doesn't require much technological sophistication. For countries like Germany and I think the US is similar, where every, you know, transaction can be taxable in principle. 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. 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 that exchanges, maybe even defy protocols or whatever, or services around those protocols, 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 government just has an overview of what you did and then they just calculate your tax burden for you. Of course, this may be not what people want from a privacy perspective. I'm not saying this is a favorite solution, but it's like if you want to solve crypto taxation, you need to make it a software problem and then solve it within software.

It's problematic when you start with legal obligations. like everybody needs to declare all the relevant things 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. And this is the case today. And I was involved in some consultation with the German government where I made this position very clear. And we're now at least at a point where some of those things they were. 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 tax when people actually make real profits and not, you know, maybe temporary profits in some unstable cryptocurrency that could, you know, just evaporate any moment. This is 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 what about that? And then, of course, also, this 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... So I think another... And this comes with a software statement or 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 government resources against, you know,

I don't know, getting some amount of tax from this. And I have a very utilitarian view on this. I think we 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're missing out on whatever. And I think the solution is somewhere in more of a software direction than anything else or a massive legal simplification, which I just don't see Germany doing it. They said, yeah, 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 is like a wealth tax. You're Swiss, you know. It's pretty easy to go look at. Yeah, yeah. I mean, but, you know, of course, in Switzerland, you know, there's still ambiguity or staking and, you know, maybe that's still taxed differently and stuff like that.

Well, at the very least, you know, to go at the end of the year and be like, okay, what are all the peripters I have? What are all the things I 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 reasonably low effort. I agree. There are ways to solve it, 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 actually, I have a friend of mine, you know, I left Teres from, from Rodki. He tells me about it. You know, he's like, okay, you know, it takes so much time and effort to implement just one decks or one exchange. And, you know, it's like a hundred new decks 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 make sense in his. So Rodki is this bookkeeping solution. So I mean, it doesn't make sense. It needs a

different solution. One thing I also wanted to touch on is, you know, 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, oh, 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

an account in Africa, Central African Republic, doing the same thing just recently. And then of course you have other countries that have tried to create regulatory environments to attract crypto. Now that has existed for a while as well.

You know, Malta at some point was one of those. You know, you had a bunch of different places. Now you have new ones like UAE, I think. Which one of those are actually going to to be the ones that like, you know, work in the long run, I guess is to be seen. But I'm curious, like, how do you think of this, this factor of, you know, different nation states

competing on this regulatory playing field? It is very interesting because it's so many developments in parallel, which is, you know, on the geopolitical stage now with also the Ukraine and Russia. which had a big impact already in Europe on crypto regulation. And, you know, by really expediting, for example, the TFR, which became this wallet ban regulation, massively, it would have actually happened in a few months, but they expedited it because they were like, oh my God, Russian oligarchs are using crypto to as bad sanctions, which, again, there's no data for this.

It's actually not true. but they've been told this repeatedly by people who just want such a strict crypto regulation. And so that's that. So what do you think about those countries and the competition? I think geopolitics is kind of one of those big topics of the 21st century again suddenly. Nobody maybe really expected it, but it makes total sense. and what's happening in parallel on the digital realm is the emergence of crypto crypto assets there are people again now talking about digital nation states you know back in 2014

when Ethereum did its I see I 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 fits so to speak like Dow's and now and so I think we're seeing just in a branch of the of the multiverse, you know, 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.

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, you know, US dollar denominated stable coins, you know, becoming more and more legitimate. There have been moves like this this year and last year. What China is doing is the most opaque to me. I have to say I know that in India there is renewed interest in crypto assets. You mentioned some African countries.

I know that in Australia, they have some, the community there was able to somehow bring this idea of a law for Daos. To the highest regulator, somehow now there's an effort of drafting the first real law on Dao. It's not this kind of fake stuff from Wyoming or wherever. They did some kind of DAO LLC. But a real Tao law with really addressing those questions of decentralized governance. So that's in Australia. Australia. And it's based on the work of the koala group around Primavera who made this Dow model law.

and they've used parts of this now successfully, it seems. So, you know, it's really everybody somehow is moving somewhere. Geopolitics has become very complex. 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 metaverse is, to me, very obviously, Mark Zuckerberg's continuation of, you know, world domination. There is companies like Amazon which have such a global scale. We don't even know.

They run the Internet effectively. There are others, you know, Microsoft, the level of intelligence they have. And so, you know, it's a crazy future. Nothing in a sense seems certain anymore. And 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 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 kind of there is this renewed energy, I feel that crypto, really moving into a new you know a new plateau and so um the regulation that is happening 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, yeah, that's kind of my big picture view maybe on this. So one way, one

question around this discussion that has been on my mind quite a bit. So, you know, many people have probably heard of this book called the Sommean individual. So there was this book written in the 90s that was actually predicting a lot of the things, predicting

dolls, predicting, 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 were like, okay, you know, technology is going to bring all those things. 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 erosion of the power of, you know, large nation states and that would cause this kind of like splintering up of large,

you know, large countries. And then, you know, you'd have kind of much more of this, I guess, ability also to innovate, right, on that level. Like, if 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's, that's always, like, for me, that's like one of my big questions. Is this going to 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 NFTs made us question, what actually is art? You know, I think DAOs 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 one of the reasons why NFTs could, you know, take off 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 that they govern, just people don't care about anymore. You know, it's like in the old days, 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 needed a job to get the credit and then it'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 we may very well be looking at a lot of new 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 hear of Daos, we have crypto castles, we have big land being bought by crypto millionaires or whatever. So there's certainly happening, but this will not be sovereign land. This would be, you know, whatever, some big nation states land. But when it comes to paying, you know, universal basic income, health insurance, you know, retirement, I don't know, family support. I think all those payments will in the future come from totally different networks. And those networks will not be governments and nation states anymore with that, you know, shit coins. But it's going to be, I don't know, digital communities of people believing in different things.

And this is going to be possible because, I don't know. that's what technology seems to allow us to. That's kind of a trend that I see coming. If you want to call those things digital nation states, I don't 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, around my age, I have to meet someone who cares about nation states as a thing.

I just think this is over. This is 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 think every young person is like, what war? You know, shooting each other over borders in 2020. 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, goodbye. Let us run this world differently now.

So that's, you know, my big vision maybe on this. Okay, okay. Well, that was a beautiful way to wrap this up with a rally cry to the revolutionaries. Thanks so much, Florin. It was a pleasure to have you on. 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 find ways that you know maybe crypto can you know coexist and thrive within the existing structures 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 again in six years on this podcast to reflect yes absolutely

Then thanks so much, Lauren, and thanks to our listeners for tuning in, and we look forward to seeing you next week. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google Home or Alexa device, you can tell it to listen to the latest episode of the Epicenter podcast. Go to epicenter.tv slash subscribe for a full list of places where you can watch and listen. And while you're there, be sure to sign up for the newsletter. so you get new episodes in your inbox as they're released. If you want to interact with us,

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