Kevin O’Leary is Right – Crypto Adoption Needs Compliance

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  • Kevin O’Leary caused a stir over the weekend by suggesting that the arrest of Tornado Cash developer Alexey Pertsev was a good thing
  • O’Leary said that global crypto adoption can’t happen without compliance to regulations
  • His take highlights a divergence in the crypto space that is only getting bigger

Kevin O’Leary caused a stir on Saturday when he claimed that the arrest of Tornado Cash developer Alexey Pertsev, which took place last week after the mixing protocol was sanctioned, is a “sacrifice” that the crypto space needs to make to bring adoption. The Shark Tank favourite claimed that the space needs to clean up the “cowboys” like Pertsev before it can reach maturity, and while this specific may not be the best example, it’s hard to argue with the sentiment.

O’Leary is Right (in Principle)

O’Leary was speaking on podcast Crypto Banter over the weekend when he opined that institutions are keeping away from the crypto space “while crypto cowboys are riding the fence”, adding that “until we get rid of this crap,” there will be no “stability in […] institutional capital.” O’Leary referenced last week’s arrest of Pertsev, saying that if the crypto space had to sacrifice him then so be it, which is in contrast to the prevailing view that Pertsev did nothing but create code, code that many people use on a daily basis completely legally.

In my view O’Leary picked the wrong example, but his ethos is completely correct. Bitcoin was founded on the principle of decentralisation, where no one person or body can control the money inherent in the system. This is, by and large, still the case, which is what makes Bitcoin so unique – there are no other coins out there that afford the same level of independence.

However, it has been obvious for many years now that there is a huge dichotomy within the crypto space – those who want freedom from governments and those that want the space to reach its financial potential. Ever since governments became properly aware of the crypto space in 2017 and took steps to mitigate against its potential, it has been obvious that the two paths are diverging – they are on two very separate courses and moving further apart with every incident like this.

Governments Were Always Going to Step In

The rationale behind government involvement is simple – they are not going to allow an entire new technology sector to grow up under their noses that allows complete freedom of financial movement for every person and organisation in the world. At this point, what you believe doesn’t come into it – they simply will not let it happen.

We have already seen this, with the EU Parliament trying to ban anonymous wallets and exchanges forced to grab the details of anyone interacting with their customers. It’s happening, and it will get worse.

This increase in regulation is anathema to those who see crypto as the last bastion of personal financial freedom. They argue that the crypto space was founded on the principle of privacy, which indeed it was, and if it was just a few libertarians sending themselves bitcoin then it wouldn’t have raised an eyebrow. But there are now individuals, organisations and even entire states that are using the same principles of privacy to further their own ambitions, ambitions that threaten the lives of others. This, of course, is part of the issue – some people will use a product, any product, for ill, so does that mean that no one should have it? Where is the threshold?

The Two Sides of the Crypto Fence

Libertarians who are disgusted at comments like O’Leary’s, and the interference of governments in general into crypto, must realise that the space at large is only going to go one way – power will play out. For this reason, we can assume that as time goes on there will be a small corner of the crypto space that will have a libertarian flag planted firmly in it, but these individuals will be in the minority as time goes on. They will have to be, or the crypto space, the metaverse, DeFi and all the rest of it will be crushed into the dirt by governments.

On the other side of the fence there are those who accept government interference as an inevitability, and look to the upside of such involvement. A well regulated market that doesn’t stifle innovation has the potential to send adoption and valuations of the best crypto and Web 3.0 companies soaring, just like with the post dotcom bubble internet. I count myself among these people, not because I want government involvement but because it was always going to happen if crypto didn’t want to pigeonhole itself as anti-establishment, and kneecap itself in the process.

The fact that various networks, including some of the biggest in the space, are now able to have complete control over their networks, freezing wallets and coins where necessary, is absolutely a double edged sword, but it is one that can both increase trust in the entire space and save networks at the same time. Just this weekend, the Acala network was able to halt its network to freeze $1.2 billion worth of AUSD tokens that had been stolen in a hack. That money could have gone to fund terrorism, it could have permanently broken the Acala system, and users could have been left on the hook for the cost. That, of course, is a good thing, but what if one day they get it wrong? Who makes the decision to freeze a wallet? With great power, etcetera.

Decentralisation is a Myth

Some people reacted with shock that Acala was able to exert such control over its blockchain, decrying the fact that it wasn’t decentralised after all, but those people need to realise that barely anything is 100% decentralised anymore. This is because crypto has moved on from the likes of Dark Coin, Monero and Zcash. The new breed of creators realise that they need to work within government guidelines, or at least the law, if they want to survive, let alone thrive.

The crypto of the 2020s is not going to be like the crypto of the 2010s. Privacy coins are a dying breed, and for a reason – we may not like it, but if we want the space to reach its full potential we have to accept that governments will be sticking their noses in (after all, it’s in their interest to do so and they have the capability) and work within the shoddy frameworks as best we can. Privacy coins are already banned in South Korea, and this won’t be the last state that takes such action.

For creators, the choice is simple – comply or die.