While crypto was invented to provide an alternative to the traditional banking system, converting to and from fiat currency is still necessary in many cases. And depending on local regulations, the policy of your bank, and even different cultural standards, your experience can vary greatly. So, what is the path forward to improve this situation around the globe?
Web3 adoption and regulatory backlash
The origins of Web3 are rooted in the pursuit of freedom. Bitcoin has historical ties to the cypherpunk philosophy, which represents a movement to empower individuals in a radical way: Wherever you are in the world, you can become your own bank to achieve sovereignty, anonymity and freedom.
In this way, blockchain technology can be seen as building blocks for a decentralized, borderless, permissionless, immutable and censorship-resistant future.
But whether to protect consumers from scams or to protect their vested interests in the current financial system, regulators worldwide have been cracking down on blockchain investing. As a result, many banks are making it difficult or even impossible for their customers to access crypto on/off ramp platforms.
Some countries like Egypt are afraid to lose track of digital assets in light of threats from organized crime and terrorism. So, these governments simply prohibit on-off ramp access.
But if Monero is the exception that proves the rule, the vast majority of crypto assets are more traceable than cash. And while both legitimate businesses and criminal enterprises continue to exploit tax havens and loopholes, sanctioning everyday Web3 investors appears to be a higher priority for many regulators compared to holding major tax evaders accountable.
Varying attitudes toward crypto
Of course, each government around the world has a different relationship with crypto in their country. Regulation can change quickly, and some nations have moved toward facilitating a transparent Web3 economy while others take a more restrictive stance. For example, the United States has largely operated under the principle of regulation by enforcement from government bodies like the SEC instead of passing legislature with clear guidelines.
Furthermore, private banking policies also differ from country to country.
In Germany, for example,customers might find their bank accounts temporarily frozen for using on-ramp platforms. Moreover, since a large chunk of the population prefers bank transfers or even cash payments to credit cards, on-ramp platforms are facing the risk of seeming suspicious to many people — especially when asking users to wire their money to foreign IBANs to buy crypto. In France, people are accustomed to using their credit cards on a daily basis, yet most banks make you sign a disclaimer for crypto transactions.
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At the same time, there are also some countries like El Salvador where crypto is fully accepted as legal tender by both the state and private entities. Recently, the United Arab Emirates has also emerged as a crypto haven — especially among Web3 businesses such as CoinBase and Ripple which are relocating to Dubai in pursuit of regulatory clarity. Yet while Dubai is very crypto-friendly overall, they still have some rules in place, such as a ban on privacy-focused assets like Monero and Zcash.
In countries with unstable banking systems like Afghanistan, mobile money from exchanges like Binance has become a lifeline that allows individuals to control their personal finances despite sanctions and local restrictions. And in countries where crypto is banned entirely, there are entire illegal markets based on peer-to-peer (P2P) trading. In this situation, Web3 investors must face major risks of not only getting into trouble with the police, but also of being swindled by scammers.
Potential paths forward
There is no one-size-fits-all solution to overcome these hurdles. Here are a few solutions adapted to banked countries that the Web3 industry should prioritize:
- Providing national IBANs or bank accounts where people can wire fiat money to buy crypto, instead of routing through foreign countries.
- Negotiating with banks and credit card companies to avoid users getting blocked after processing a crypto payment.
- Including established payment options like PayPal or Klarna to access crypto payments.
- Educating institutions about the fact that the vast majority of Web3 assets are actually transparent and not suitable for criminal activities.
Recently, crypto-backed financial products like credit cards and ATMs have emerged as potential solutions. Yet, of course, these tools are still subject to regulatory scrutiny in each jurisdiction.
In unbanked countries, it’s a completely different story. Crypto wallets can be a very useful solution for individuals who cannot use a traditional bank account. In addition to being more accessible, blockchain banking can also be significantly faster and cheaper compared to existing payment solutions like Western Union. Unbanked countries should support Web3 payments in a transparent manner.
A historical responsibility
If financial institutions are threatened by the disintermediation of blockchains, they might not help facilitate a fair and decentralized digital economy anytime soon. Efforts from central banks around the globe to implement their own digital currencies, known as CBDCs, raise questions about whether governments want to coexist with existing digital currencies or replace them with their own.
But within the Web3 community, we must deal with reality and play every card we have. Of course, the blockchain world needs to continue to educate regulators and negotiate with institutions to help avoid any head-on conflict. We must also encourage virtuous behavior within our communities and denounce bad actors. DAOs and soulbound tokens (SBTs) could also help to prevent malicious behavior, including both scams and money laundering.
At the end of the day, adoption is the best way to overcome all of these challenges. As crypto becomes more ubiquitous worldwide, both public and private institutions will have no choice but to facilitate access or fall by the wayside. Once the majority of people use crypto to buy or sell goods and services, the on/off-ramp problem will disappear and a new era of finance will officially begin.
Wolfgang Rückerl is the CEO of Istari Vision and Entity.global. His expertise is in Web3 startups, DeFi and GameFi.
This article was published through Cryptox Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cryptox.
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