The Oklahoma Bar Journal January 2023

“[a]round 95.5% of cryptocurren cies fall[ing] by more than 99.99% from their peaks, with the vast majority effectively plummeting to zero.” 18 To put that into context, during that timeline, the S&P 500 fell about 25% and the composite NASDAQ about 35%. The crypto winter has affected stablecoins as well. Tether, the world’s biggest stablecoin, dropped below its $1 peg in May 2022. 19 Other stablecoins that were backed by crypto assets and not more stable investments or cash have cratered entirely. Terra coins, for example, saw $60 billion go up in “algorithmic smoke.” 20 Thus, despite its name, stablecoins can be very unstable, and their value very much depends on the quality of the firm standing behind their issuance. As a result of the crypto winter, several crypto companies have filed for bankruptcy, including crypto exchanges. For example, the crypto exchange Voyager Digital filed for Chapter 11 in July 2022, following “the collapse of Three Arrows Capital, a so-called hedge fund that took loans from other institutions, like Voyager Digital, to make risky gambles on tokens – including the col lapsed stablecoin terraUSD.” 21 Interestingly, or concerningly, peo ple who purchased crypto assets through the Voyager Digital plat form were (at least initially) being treated as account holders and not actually owners of the assets they thought they purchased (or secured parties). 22 We must also address the illicit activity associated with cryptocur rencies and digital assets. As noted by the U.S. Department of the Treasury, “Crypto-assets and markets that operate out of com pliance with applicable laws and regulations, or are unregulated, can breed fraud, abusive market practices, and disclosure gaps.” 23

another question, as anyone who deals with international payments would disagree with this premise. Moreover, people seem to want mediation or intervention if they are a victim of fraud or theft. While a speculative investment that some have profited from, bitcoin has never operated well as a currency. It has some inher ent weaknesses, such as there is a limit on the number of bitcoin that will ever be created. 12 That can be good for an investment but can create liquidity issues as a currency if ever widely adopted. Bitcoin is also very price volatile, making it difficult to price goods and services for both the vendor and the customer. More impor tantly, bitcoin is incredibly ineffi cient. “The Bitcoin network uses about the same amount of elec tricity as Washington State.” 13 As a result of its design, the Bitcoin network can process about seven transactions per second. 14 Visa, on the other hand, can process 24,000 transactions per second. 15 Many of the successor virtual currencies build on the open source software created by bitcoin. According to SoFi Technologies Inc. (an online personal finance com pany), there are more than 18,000 different types of cryptocurren cies. 16 Some have made significant modifications to the bitcoin struc ture to solve some of the problems outlined above. In September 2022, for instance, etherum switched from a proof-of-work model to a proof-of-stake model that it claims will cut its energy use by 99%. 17 If and which cryptocurrencies are prevalent in the future is anyone’s guess at this point. Crypto assets hit their peak value in November 2021 and have come crashing down since, coin ing the phrase “crypto winter.” In total, crypto assets fell from about $3 trillion to about $1 trillion with

This has borne out with digital assets, particularly cryptocurrencies. “According to one private sector estimate, there was $14 billion worth of crypto-asset-based crime,” 24 and 2022 appears on track to surpass that record again. For example, it was reported in August 2022, “Nomad, a bridge protocol for transferring crypto tokens across different block chains, lost close to $200 million in a security exploit.” 25 To address these issues, the Department of Justice has formed the National Cryptocurrency Enforcement Team to serve as the focal point for tacking the growth in crime involving virtual curren cies and digital assets. 26 Private actors are not alone in issuing virtual currencies – central banks are also dipping their toes into the proverbial water. In October 2020, the Central Bank of The Bahamas issued the “Sand Dollar.” 27 China, the world’s second- largest economy, has been piloting its digital yuan, coupled with a crackdown on users of private virtual currencies. 28 El Salvador adopted bitcoin as a national cur rency. 29 All these issuances appear to have little adoption to date. In the United States, the Board of Governors of the Federal Reserve System has also been exploring a “digital dollar.” In January 2022, the Federal Reserve published a white paper titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation” outlining several of the policy implications of issuing a CBDC. The paper was clear that the “Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” Many, including past governors of the Federal Reserve, have ques tioned the utility of a U.S. CBDC. Former Vice Chair Randal Quarles has observed: “The general public

8 | JANUARY 2023

THE OKLAHOMA BAR JOURNAL