Cryptocurrency in the USA — State of Adoption And the Legal Status
Cryptocurrency has a long history in the United States. It’s a little known fact that the American programmer and entrepreneur Jed McCaleb founded Mt. Gox in 2007 before selling it to Frenchman Mark Karpelès in 2011. The exchange imploded in 2014. Then there was Ross Ulbricht, the founder of Silk Road, another born and raised American.
The turbulent early years aside, since 2016 we’ve seen a lot of healthy growth in the crypto industry that’s originated from the United States. ConsenSys, arguably the most important company supporting Ethereum, is based in Brooklyn. Cryptocurrency exchanges Coinbase, Kraken, Gemini, Poloniex, and the Cash App are all based in the USA, as are many other exciting projects that may one day bring blockchain to the masses.
A Brief History of Crypto in the USA
As mentioned, Mt. Gox was founded by an American, and during Bitcoin’s youth, it was by far the most popular cryptocurrency exchange. By the time Mt. Gox went bust though there were already alternatives like Coinbase and Kraken, ready to fill the gap.
While Bitcoin and other cryptocurrencies have been in some way maligned in America, they have never been banned as has happened in other countries. For example, India initiated a sweeping ban on cryptocurrencies in 2018, reversed that ban in 2020 and now there’s a movement to reverse the reversal!
In China, cryptocurrencies are legal but exchanges are not. A lot of trading happens OTC which stands for Over the Counter. With OTC, an investor contacts a cryptocurrency selling desk and tells them how much they would like to buy. The investor wires the money to the service and then they send the crypto to the investor. Buying OTC is like buying a plane ticket from a travel agent while using an exchange is like buying a plane ticket from Expedia.
None of these bans have happened in America. In the United States politicians seem to prefer a “condemn and ignore” approach over “condemn and then do something about it.”
Within the USA, Silicon Valley has traditionally been one of the most important areas for crypto development. Ross Ulbricht lived in San Francisco before his arrest, Kraken and Coinbase are based there as are many crypto startups including Lightning Labs, which hopes to scale Bitcoin, and Wyre, one of crypto’s most important onboarding services and payment processors.
The Current Situation: Crypto in America
As of 2020, it appears that crypto in the United States is most popular with speculators and investors. There’s a good reason for that. America houses the world’s largest financial market and it’s reasonable to expect that this system will be interested in any new, viable asset class.
There’s also a good reason why we don’t see many Americans using crypto rather than speculating with it, at this time most Americans simply don’t need crypto the way citizens of other countries do. Americans have a stable currency and a well-developed banking system. Cryptocurrency tends to be more popular in countries that lack good financial services or stable currency.
Looking at the legal status of the top three most popular cryptocurrencies the only thing we know for sure in America is that Bitcoin is classified as a commodity. The CFTC Chairman (Commodity Futures Trading Commission, one of the largest financial markets regulators in the United States) has said that he believes Ethereum is also a commodity, but these remarks were made offhand and they do not represent an official classification from the CFTC.
The legal status of Ripple XRP is very much up in the air and currently, there are lawsuits alleging that XRP is in fact a security and should be treated as such. In general, most cryptocurrencies fall into a sort of grey area within the United States, as America has yet to release any comprehensive blockchain regulations.
Paying for Goods and Services with Crypto
It’s easier to use crypto within the United States than perhaps many people realize. Thanks to an initiative by Starbucks it’s now possible to spend Bitcoin at their coffeehouses, Whole Foods, and other large stores like Nordstrom. While that’s a fine service, what’s more exciting is the possibility to buy gold or silver with Bitcoin from a retailer like JM Bullion. This is an exciting prospect as it allows the purchaser to buy gold without having to exchange their Bitcoin to dollars and then deposit it into a bank account.
Although Bitcoin maximalists often proclaim Bitcoin to be superior to gold, it never hurts to own some physical gold, the world’s oldest currency. In terms of quickly exchanging Bitcoin for another cryptocurrency, an exchange service like ChangeNOW is a fast and secure way to swap your coins.
Since 2019, the SEC (Securities and Exchange Commission, another large financial markets regulator in the United States) has been aggressively going after the ICOs. Some of these projects were blatant scams, pure money grabs in the finest form. Other ICOs that the SEC has targeted were real projects but marketed themselves in a way that made their tokens seem like a security. The most famous example would be Telegram’s TON blockchain which raised an incredible $1.7 billion. Before they could distribute any tokens, however, the SEC filed an injunction and shut down the project on the grounds that Telegram was selling an unregistered security.
The problem with the SEC at this point is its sluggish approach to regulation. It’s been nearly three years since the height of the ICO mania, and yet the SEC has still not released a comprehensive, fair framework for cryptocurrency projects looking to build in the USA (also, there is some dissent about whether the SEC should even be regulating crypto).
While the SEC has released some guidance for determining if a token is a security, this guidance is based on a framework conceived at a time when the color television was still in its prototype phase. There are those who feel that using an 80-year-old framework to judge a blockchain project may present certain problems.
Because of this lack of clarity, a lot of blockchain projects are being driven overseas. Many new projects as well as exchanges are also blocking American investors. This can be very frustrating for those who believe that blockchain is the future.
America’s Most Famous Crypto Projects
Ripple is arguably the most well-known crypto project based in the USA. Ripple (the company) hopes to use XRP (the cryptocurrency) to facilitate fast, inexpensive cross-border remittance. Ripple has a large holding of XRP which they’ve been selling for years, giving them a comfortable cash cushion to fund their operations.
Another platform EOS, famous for its $4 billion ICO, recently opened a new headquarters in Washington, DC. The project, which hopes to replace Ethereum as the number one smart contract platform, is no stranger to the SEC. In 2019, EOS agreed to pay a $24 million fine for selling an “Unregistered ICO,” the same thing Telegram was prevented from doing (act first, apologize later?)
Both the Cash App and Coinbase are America-based platforms very important to the cryptocurrency space, being among the most popular ways to trade crypto in the USA and overseas. Using a secure platform to buy crypto on is important, as that service often holds users’ banking data.
However, any time you leave your data and funds under someone else’s control — even if that’s a trusted entity — they are at some risk. Services like ChangeNOW do not face this problem — as a non-custodial service, we do not control your funds and do not require registration. You just don’t leave there any data that could leak. This is a truly secure way to buy and sell crypto.
The Push for Adoption
Two things need to happen for cryptocurrency usage to explode in the United States. First, there need to be clearer regulations. Good projects, real projects with a working product won’t want to build in the United States if they think there is a chance that the SEC will shut them down before they even get started.
Secondly, as cool as it is to buy a coffee with Bitcoin, it’s no easier than using a credit card or cash. Americans need a good reason to use crypto. One interesting idea is DeFi, where it’s often possible to earn up to 8 or 10% interest on stablecoins. Sort of like a blockchain-based savings account. This could potentially be a draw for some people, given that most bank accounts pay almost no interest on deposits.
Will these factors be enough to attract more Americans to crypto going forward? Let’s hope so! The more Americans in crypto the better, especially as the technology improves and the benefits for everyone become clearer year by year.