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Blog posts, Company, Thought leadership | 02/02/2024

Regulating NFTs: Ledger’s VP Policy Seth Hertlein’s Speech at Westminster

Things to know:

– Ledger was in London at the House of Commons in partnership with Bright Moments where our purpose was to showcase NFTs & blockchain art as tools for creativity, rather than merely investments. 

– For this occasion, Ledger’s VP Policy Seth Hertlein delivered a speech at Westminster in front of MPs, where he presented the report: “Regulating NFTs: Striking the Balance between Business Innovation and Risks”, co-written by DCGG and INSEAD.

– For Seth Hertlein, “A picture is worth a thousand words, which is why we do the work to bring NFT exhibitions into parliaments, first in Strasbourg and now in London. Our goal is to make sure as many MPs as possible have experienced NFTs firsthand before deciding whether or how to regulate them.”

Seth Hertlein’s Speech at Place of Westminster, London, UK, January 24, 2024:

Good afternoon, it is an honor to be with you today. I would like to thank Lord McNicol for sponsoring us, and DCGG and INSEAD for the excellent report which has prompted today’s discussion.

My name is Seth Hertlein. I am the Global Head of Policy at Ledger, the world’s leading wallet platform to secure cryptocurrency and digital assets, including NFTs. We make these [hold up Stax].

Now, I’ll try to keep my remarks brief so we can all get to the food and drinks. And when we do, please look for Mo from the Ledger team – can you raise your hand, Mo?

There he is. Consider Mo your docent for the sampling of NFTs from the Ledger Collection we have on display here today.

This exhibition, the first of its kind within Parliament, has been made possible today with support from our partners at Bright Moments, who do a fantastic job of bringing NFT art and culture to life, including an incredibly popular run here in London a year or so ago.

I hope we all leave here today with a stronger feeling for how NFTs can revolutionise traditional sectors and create new opportunities for artists, businesses, consumers, as well as governments.

Now, you’ve already heard quite a lot about NFTs today, so I’ll only add a bit more. 

In my work, I’ve had the opportunity to talk with policymakers around the world about NFTs, and some common misconceptions emerge from those conversations that I hope to dispel today.

One common misconception, which I call the transitive property, goes like this: If NFTs are crypto, and crypto is finance, then NFTs are finance. Except that whether crypto is finance is itself quite debatable, and NFTs are even more remote.

NFTs are simply a technical standard. The most common NFTs today adhere to the ERC 721 standard, which ensures the non-fungibility of tokens. But, this standard can be expressed in a multitude of ways.

Around the room today, we decided to showcase to you NFTs as art. But, NFTs can also be used for digital identity, brand loyalty programs, supply chain and logistics, event ticketing, land and auto title registries, anti-counterfeiting, and loads more – none of which are financial in nature.

Importantly, none of these examples are hypothetical – each of the use cases I just mentioned have either completed pilot programs or are in live production today.

Which brings me to what can and should be done from a regulatory and policy perspective. 

One of my favorite Ronald Reagan quotes (and I have many) is: “The Government’s view of the economy could be summed up in a few short phrases: ‘If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.’”

President Reagan meant this as criticism, but your former colleagues across the channel in Brussels must have thought he was giving advice, because this has been exactly their approach to most things, and particularly to crypto.

Of course, the current Administration in the US is making a proper mess of things, too, so I’d not look there for inspiration. But, I’d note that America’s mess is, as yet, temporary and can be cleaned up with a few personnel changes, unlike Europe’s mess, which is rather permanent.

I point out these failings to highlight the enormous opportunity that presently confronts the UK:  As I stand here, no major market has yet gotten it right on crypto, meaning that the UK can still be first.

But, you have to choose to be. And, what does it mean to “get it right?” 

Well, firstly, it means to do no harm. Which, brings me to another top Reagan quote:  “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’”

Crypto and NFT technologies, and the industry building them, don’t need help – they simply need the space to grow, to experiment, and to innovate. Experimentation comes with risks, there’s no way around that, but taking risks is how you win: nothing ventured; nothing gained.

I learned recently that 10% of Britons now own digital assets, and that number is growing. It is evident that digital assets are here to stay.

If the UK gets the regulation right, this industry can be a major driver of high-quality jobs and economic growth in a key sector of the future. But, these jobs can be done anywhere – it is not a given that they end up here.

And, while today there is a thriving community of crypto-related startups in the UK, such as those Lord McNicol referenced in Manchester, the damage of an overly-burdensome regulatory regime will disproportionately fall on them rather than on larger overseas competitors.

So, how should the UK think about getting it right? I have three recommendations for you today: 

First, don’t regulate technologies, per se – remember that NFTs are just a technical standard – if you must, regulate how a given technology is used; not the technology itself.

Second, start small. Regulate only what you must, as narrowly as possible. You can always tighten later if you need to, but history has shown that once clenched, governments are not very good at relaxing their grip.

By way of example, the EU always regulates too much, too soon, and then endlessly wonders why its industries aren’t competitive. It’s no mystery. Which brings me to my final Reagan quote:  “Government is not the solution to our problem, government is the problem.” This really ought to be the EU’s motto. Don’t let it also come to describe the UK.

And finally, be cognizant that well intentioned goals and policies of the legislature, even those enacted into law, can easily be frustrated by overzealous rulemaking at the agency level. This is very much the story in the US today. So much so that the courts are increasingly stripping US agencies of their authority because they have so far overstepped their mandates, especially when it comes to crypto. So, keep a close eye on your regulators, and make sure that they are, in fact, advancing the policies you intend.

The report unveiled today is a fantastic example of how expertise from groups like the Digital Currencies Governance Group and fine academic institutions like INSEAD can be leveraged to achieve these objectives.

I’d encourage you all to continue to rely on them going forward. 

I would be delighted to talk more with each of you, so please don’t hesitate today, or anytime. And, thank you again for the opportunity to be here today!

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