Jean-Pierre Landau, the head of France’s Crypto Regulatory Task Force, has released his in-depth report on the use of cryptocurrencies in France in which he concludes that it “is neither desirable nor necessary” to regulate them.
Landau who has been nicknamed “Monsieur Bitcoin” was appointed in January this year by French Minister of the Economy Bruno Le Maire to analyze the state of cryptocurrencies and ICOs in France.
In the 97-page report Landau presented to the Minister on July 4, he heaps praise on the cryptocurrency movement as an “expression of a movement in society of libertarian inspiration, which rejects centralized and standardized systems.”
However, he also cautions that the libertarian ideals of cryptocurrencies detract from their practical use as a form of currency.
“The ambition of cryptocurrencies is beautiful but difficult to satisfy: nine years after the launch of Bitcoin, they are very little accepted or used for payments,” said Landau in his introduction to the report. (all quotes translated from the original French)
“Cryptocurrencies are slow and big consumers of energy resources: with 75 times higher electricity consumption then Visa. Bitcoin today operates around 80 transactions per minute – whereas Visa and MasterCard execute respectively close to 100,000,” noted Landau.
“The root cause of this inefficiency lies in the decentralized management of the currency. This handicap is durable or even permanent: it is impossible for a monetary system to reconcile the three requirements of security, decentralization and efficiency,” he added.
Landau pointed out that newer cryptocurrencies are attempting to address this problem by moving to more centralized models.
“Already, the movement to centralization is perceptible in the functioning and the architecture of the most recent cryptocurrencies,” he writes.
He also stressed the dangers of cryptocurrencies moving into traditional financial areas where they could pose a serious risk to financial stability.
“There is an immediate danger of cryptocurrencies entering collective investment portfolios. In this way, they would acquire liquidity and status, paving the way for many developments (construction of indices, derivatives, dedicated funds) that are susceptible to systemic risk,” he said.
“All of these evolutions are already manifesting today within the space of cryptocurrencies. It is important that they stay there. Conceptually, it would be a fundamental change to qualify as financial assets worthless instruments of use and without expectation of income. For financial stability, it would be a major risk. Preventing this movement must be a key priority of public policy.
Despite the serious concerns Landau expressed about cryptocurrencies he believes that their potential for innovation should not be hampered by blunt regulatory instruments that would stifle the industry’s creativity.
“Despite the questions they raise, it is not proposed to directly regulate cryptocurrencies. Direct regulation is not desirable because it would require definition and classification that would freeze these essentially mobile and still unidentified objects.
“The danger is three-fold: that of freezing the rapid evolution of technology in legislation, that of failing to grasp the real nature of the object we intend to regulate and that of pushing innovation towards regulatory avoidance. On the contrary, regulation should be technologically neutral, and in order to become so, address the actors and not the products themselves,” he wrote.
Nevertheless, Landau proposes that a space, much like a regulatory “sandbox” should exist for these innovative new technologies to develop and evolve under the watchful eye of regulators, but without imposing heavy restraints on them.
“It is proposed, for France and Europe, to experiment for a few years with a single accreditation scheme (a “Euro Bitlicense”) in which the managers would undertake to respect the existing obligations in the various statutes corresponding to their activities; banks, whose proprietary activities in cryptocurrencies should be firmly dissuaded; asset managers, for which quick and clear guidance is needed,” he added.
“With the essential exception of the fight against money laundering and the financing of terrorism, a direct regulation is not necessary either, because the risks are now circumscribed. The cryptocurrencies, raised in absolute terms, remain very low in view of the size of global financial systems: only 1.5% of the market capitalization of the S&P500 index and 5.5% of the total value of the gold market. The exposure of financial intermediaries to the risk of cryptocurrencies is also minimal and the risk of contagion non-existent,” he said.
Landau concludes on a positive note about the need to encourage the possible benefits of the technology while at the same time protecting the financial system from any ill effects.
“We must dissociate technological innovation, which must be encouraged and stimulated, from monetary and financial innovation, which must be viewed with caution. In the current phase, the good approach is to let cryptocurrencies – and the innovations they carry – develop in the virtual space they occupy. But, in parallel, it is necessary to avoid and circumscribe any contagion.”