Pinpointing Policy: Crypto and Agriculture
Each year AFBF asks state Farm Bureaus to surface policy issues that need further review or the development of policies not currently in the Policy Book. The Policy Development program is vital for the organization because the policies developed by our members guide the organization on the current and future challenges facing agriculture. The following Policy Development — Issue Surfacing topic was submitted this past fall for state Farm Bureau consideration: Cryptocurrency. Relevant Farm Bureau policy is listed within this article, and specific AFBF questions for policy development are:
- Should our policy address the existence or regulation of cryptocurrencies?
- How should cryptocurrency be regulated?
Even before the collapse of crypto exchange FTX, crypto (and digital) assets, currencies and exchanges, along with blockchain technology have been topics of interest and curiosity as to what exactly they are and more importantly, how they may impact agriculture. Our lives, the economy and agriculture are all experiencing a digital transformation, and digital assets are one part of it. Digital assets offer many potential benefits including increased transaction speed, efficiency and certainty, simplified compliance, enhanced security, automation through smart contracts and a “democratization” of markets and financial inclusion. But also, many issues and risks including the potential for market manipulation, a general lack of transparency, accountability and governance as new products and innovations appear rapidly leaving little time for regulatory and enforcement agencies to respond, illicit transactions, cybersecurity and systems failures and even excess resource consumption.
Digital Assets are a catch-all term for assets that exist digitally, and in crypto parlance, covers a wide variety of assets, including virtual assets, crypto assets or currencies, digital tokens, coins, currencies, stocks or collectibles, utility, security, or non-fungible tokens (NFTs), stablecoins or Central Bank Digital Currencies (CBDCs). They may utilize various underlying technologies, including distributed ledger technology (DLT) or blockchain, and are created and maintained with software (code), and exist as data on a network. An even broader definition can be found on Wikipedia.
Crypto (virtual) currencyare digital assets that circulate on the internet and are primarily intended as a medium of exchange, unit of account, and/or a store of value. Most employ DLT or blockchain, and by doing so, utilize cryptographical proof instead of trust (i.e. in a bank, institution or nation) to validate transactions. A few examples include Bitcoin (BTC), considered the original cryptocurrency, Litecoin (LTC) and Ethereum (ETH). The Federal Trade Commission shares consumer advice regarding the use of cryptocurrencies and compares them to U.S. dollars.
Capital.com estimates there were more than 9,000 different coins and tokens in 2021, and more than 20,200 in circulation worldwide. In its annual Survey of Household Economics and Decisionmaking, the Federal Reserve included for the first time, questions about cryptocurrency. The report for 2021 showed 12 percent of adults held or used cryptocurrencies in the prior year. Eleven percent of adults had held cryptocurrency as an investment, while a far smaller 2 percent of adults said they used cryptocurrency to buy something or make a payment in the prior 12 months, and 1 percent used it to send money to friends or family.
CBDCs are still in the research phase and can be defined as a digital liability of the Federal Reserve that is widely available to the public. Read more here. Today, Federal Reserve notes (i.e., physical currency) are the only type of central bank money available to the public. Like existing forms of commercial bank money and nonbank money, a CBDC would enable the public to make digital payments.
Stablecoins are digital currencies created with the intent of holding a stable value. The value of most existing stablecoins is tied directly to a predetermined fiat currency or tangible commodity, like Gemini dollar (GUSD), which is pegged 1:1 to the U.S. dollar.
Cryptocurrency Exchange or Digital Platform is a business where digital assets can be bought, sold and traded for fiat currency or other digital assets. According to Forbes, there are approximately 500 crypto exchanges. Examples include Kraken and Crypto.com.
Blockchain is a distributed database/ledger technology that is shared among the nodes of a computer network adhering to a consensus mechanism to confirm data. Each computer in a blockchain network maintains its own copy of the shared record electronically in digital format, making it nearly impossible for a single computer to alter past transactions or for malicious actors to overwhelm the network, ensuring the fidelity and security of a record, and generating trust without the need for a third-party intermediary. For more, we refer you to a 2021 paper from the Congressional Research Service (CRS) that provides an excellent review of blockchain technology and its potential applications in agriculture. As the CRS paper suggests, blockchain technology has many uses applicable to agriculture beyond serving to validate cryptocurrency transactions. AFBF policy 224 7 states “We support blockchain technology.”
Digital assets have a varied set of features and applications touching a range of regulatory domains, and like digital assets themselves, are evolving. Regulatory agencies have worked to foster industry growth and innovation, focusing their attention on entity registration, recordkeeping and reporting. The Commodity Futures Trading Commission (CFTC) and U.S. Securities and Exchange Commission (SEC) lead efforts to regulate, while the Internal Revenue Service (IRS) notes that digital assets are treated as property, that general tax principles applicable to property transactions apply to transactions using digital assets, and that you may be required to report your digital asset activity on your federal tax return.
The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), along with the Justice Department, who announced their first Director of the National Cryptocurrency Enforcement Team (NCET) in February of 2022, are active in the law enforcement aspects of digital assets. Focusing on curbing illicit uses of digital assets such as using cryptocurrency to pay for or facilitating criminal activity and/or terrorism, money laundering and undermining the digital asset ecosystem.
Considering the FTX collapse, legislative progress may actually slow in the short run, as the causes are investigated first. Efforts prior to the collapse include but are not limited to: The administrations Executive Order (EO) on Ensuring Responsible Development of Digital Assets. Factsheet; Senators Lummis and Gillibrand’s Responsible Financial Innovation Act; Senators Boozman, Stabenow, Booker and Thune’s Digital Commodities Consumer Protection Act of 2022; and Congressmen Khanna, Thompson, Emmer and Soto’s Digital Commodity Exchange Act of 2022. Legislative priorities will likely center on CFTC and SEC jurisdiction, federal definitions of digital assets, banking, tax treatment and consumer protection.
If the goal is to digitize currency, it should be noted that today’s account-based, dollar currency has been digital for decades, as electronic deposits on a digital ledger, and that every time you swipe your debit card, you are digitally transferring dollars. But the decentralized nature of cryptocurrencies clearly has an appeal to many, along with its ability to provide the public access to a payment option outside of the current banking system. Concerns with cryptocurrencies include that they are a form of money backed by computer code instead of a central banking authority such as the Federal Reserve or a government. In a 2021 speech, Agustin Carstens, General Manager of the Bank for International Settlements, noted several concerns with cryptocurrencies and stablecoins and suggested that while yes, there was a place for digital currencies, he made the case for CBDCs, noting 86 percent of central banks are currently researching them, including the US Federal Reserve. An issue to resolve is, to act as a medium of exchange, is cryptographical proof enough, or does a currency need the trust and backing of a central intermediary to ensure the integrity and safety of the payment system?
American Farm Bureau (AFBF) policy 415 4.2.5 states we oppose “Moving to an all digital financial system.” Policy 415 4.1.8 further states we support “Keeping coin and paper currency as our legal tender.” And Policy 418 10.1 states we support “The continued use of physical currency and recommend the U.S. government continue to produce a sufficient supply of coin and paper currency.
 As this is an evolving industry, there are many definitions. A few sources include: CFTCs Digital Assets Primer, U.S. Treasuries FAQs on Virtual Currency, the National Institute of Standards and Technology’s Glossary and Cryptopedia’s Glossary.
 In 2014, the CFTC declared virtual currencies to be a “commodity” subject to oversight under its authority under the Commodity Exchange Act (CEA), and in late 2017, the Chicago Mercantile Exchange Inc. (CME) and the CBOE Futures Exchange (CFE) self-certified new contracts for bitcoin futures products.
 Blockchain networks can be “private,” with specific users controlling which transactions are verified on the network, or they can be “public,” like the Bitcoin and Ethereum blockchains whereby their decentralized decision-making model allows any user with a given amount of investment, to become a transaction validator (miner)–a benefit touted by users. High numbers of participants help to keep these safe from data breaches, hacking or other cybersecurity issues, but new or smaller public blockchains can be vulnerable to 51% Attacks, whereby a majority of participants, or a participant with a majority of nodes, can conspire to alter the blockchain.
 NCET was established to investigate the criminal misuse of cryptocurrencies and digital assets.