By: Dr. Alondra Nelson, head of the Office of Science and Technology Policy and Deputy Assistant to the President
More of the American public than ever before is using digital assets to pay for things or to speculate, with approximately one-in-six saying they’ve invested in, traded, or used cryptocurrencies. Initially created to decentralize our financial system and transfer control from institutions to individuals, cryptocurrencies generally use blockchain technology that coordinates thousands of computers around the world to verify each transaction, rather than relying on a central party like a bank or a government. These underlying distributed ledger technologies are being used globally for everything from improving supply chains to creating new ways to support artists.
Fully and equitably realized, digital assets could be cheaper and more efficient than traditional financial instruments, thus more seamlessly allowing a father in Pennsylvania to send money to a daughter in Honduras, or a small business in Dallas to access the capital it needs to expand, with confidence and low risk.
But as the use of any technology scales, we often see real and meaningful risks where these technologies intersect with people’s lives, our society, and the planet. In particular, digital assets have serious potential to affect consumers, communities, the climate, and both U.S. and global financial stability. Without proper controls in place, digital assets can enable fraud and crime, creating new ways to deceive American consumers and to facilitate illegal conduct. They can also be volatile in value, which could amplify financial harms to communities that are more invested in digital assets. And, because certain types of digital assets currently require so much computing power — often in economies that rely on carbon-intensive energy supplies — the growth of digital assets potentially presents an environmental challenge at a time when we need to shift to carbon-free sources in order to combat climate change.
Recognizing these and other issues raised by digital assets, today President Biden signed an Executive Order that outlines the first whole-of-government strategy for promoting responsible digital asset innovation to protect consumers, financial stability, and national security and address climate risks. Its implementation will leverage the knowledge and distinct expertise of a broad range of stakeholders — from White House components such as the National Economic Council, the National Security Council, the Office of Science and Technology Policy, the Office of Management and Budget, the Domestic Policy Council, and the Council of Economic Advisers; to federal departments and agencies including the Departments of State, Treasury, Defense, Justice, Commerce, Labor, Energy, and Homeland Security, the Environmental Protection Agency, and the Office of the Director of National Intelligence; to financial regulators such as the Federal Reserve, the Consumer Financial Protection Bureau, the Federal Trade Commission, the Securities and Exchange Commission, and others.
Among its many steps to mitigate the potential risks and harness the potential benefits of cryptocurrencies, stablecoins, and other advances in distributed ledger technologies, this Executive Order crucially provides national leadership on advancing financial equity and inclusion, curbing financial predation, and understanding the climate impacts of digital assets. It also builds on the Biden-Harris Administration’s ongoing efforts on digital assets, such as the emphasis on digital assets and distributed ledger technologies in the updated list of Critical and Emerging Technologies.
From leading an evaluation of the technological capacity needed for a central digital bank currency should one be proposed, to leading an examination of the climate impacts of digital assets, the White House Office of Science and Technology Policy will play a key role working with counterparts across the Federal government to ensure that digital asset innovation reflects our values.
Advancing Financial Equity and Inclusion
Too often, the benefits of new technologies go to the same people, while the costs are borne by those who can least afford it. Equitable innovation can help ensure that all Americans benefit from scientific and technological developments, including digital assets.
We don’t yet know enough about how digital assets could expand access to financial services, especially among communities that have been historically underserved by the traditional banking system. Even today, many households – especially lower-income households, Black, Hispanic and American Indian and Alaska Native households, and working-age disabled households – are unbanked and underbanked at far higher rates than other households. Digital assets could help close this gap by providing opportunities to reduce fees, eliminate middlemen, and make financial services more widely accessible to underserved and marginalized communities. But this won’t happen by accident; it has to be done by design.
History shows how new financial innovations can disproportionately harm certain groups, as some communities initially adopt them, or are excluded from them, at a higher rate than others. Many technologies, including distributed ledger technologies, are not naturally inclusive, though active planning in their creation and development can make that more likely. And while some digital assets may be more inclusive in practice, others are collapsing and prone to high volatility, which could place already-financially vulnerable communities at greater risk. The reality is that digital assets will not enable financial inclusion on their own; their expansion has to be accompanied by an intentional strategy to do so.
The U.S. government is committed to exemplifying responsible digital asset innovation that prioritizes equity, inclusion, and other American values. For example, if the United States chooses to establish its own central bank digital currency, today’s Executive Order ensures that such a currency’s design and deployment will be informed by a thorough study of its potential effects on financial inclusion, which will be especially important. Equally important will be ensuring that we protect the vital role that physical cash plays in our society.
Curbing Financial Predation
New technologies can create new wealth, but they can also present new opportunities for scammers and grifters, which is why the Biden-Harris Administration is committed to protecting consumers, investors, and businesses from the risks of financial predation in the digital assets sector. In particular, we recognize the concerns that the absence of critical controls in digital asset systems may enable crimes like fraud and theft, privacy and data breaches, and unfair and abusive practices. For example, risks associated with cryptocurrency investments are not always appropriately disclosed, which can mislead, deceive, and ultimately harm consumers and investors.
This Executive Order directs action to evaluate the risks posed by digital assets; prioritizes protecting consumers, investors, and businesses; and encourages regulators to act swiftly to ensure sufficient oversight and safeguards are in place. In the coming months, the Department of the Treasury will work with other Federal agencies to present appropriate policy recommendations to the President, including potential regulatory and legislative actions, to protect American consumers, investors, and businesses.
Studying Climate Impacts
Climate change is one of the most pressing problems confronting our nation and our world, which is why President Biden has committed to cutting U.S. greenhouse gas pollution by 50-52% by 2030, advancing environmental justice, and having a net-zero emissions economy by 2050. Building on the historic progress on climate action that President Biden achieved in his first year in office, the President’s plan to achieve those goals includes improving energy efficiency, deploying a record amount of new carbon-free energy sources, and advancing clean energy innovation.
So what do digital assets have to do with climate change? Today, many cryptocurrencies use a “proof of work” mechanism, which requires a large amount of computing resources that collectively use a lot of electricity, creating carbon pollution. Some researchers estimate that cryptocurrencies use more electricity each year than many individual countries in the world, including some industrialized nations. We need to make sure that digital asset innovations move America closer to meeting our climate goals instead of setting us back.
That’s why, as part of today’s Executive Order, the White House Office of Science and Technology Policy will examine how distributed ledger technology impacts our climate and environment, as well as our transition to a clean energy economy. We will also explore how blockchain technologies could potentially benefit the environment, including by facilitating transactions related to liability for greenhouse gas emissions, water, and other natural or environmental resources.
This Executive Order is aligned with the mission of the White House Office of Science and Technology Policy, which is to maximize the benefits of science and technology to advance health, prosperity, security, environmental quality, and justice for all Americans. The American people deserve to fully benefit from technologies like digital assets, while being protected from the harms they could bring. We look forward to playing a key role in implementing many aspects of this Executive Order over the coming months.