Submission to Aotearoa Parliamentary Inquiry on Cryptocurrencies

Government should approach regulation of cryptocurrencies cautiously and with an open mind

Kia ora,

I hope that everyone in Aotearoa is staying well participating in our ongoing lockdown… I’m just back from a sunny afternoon run up in the Port Hills…what day is it again?😅

This is an occasional post between weekly newsletters: earlier this week I provided a short submission to the Aotearoa Parliament Finance and Expenditure Committee Inquiry Into Cryptocurrencies1. This was a (…slightly rushed…) opportunity for me to pull together some of my recent thinking on decentralised governance and CBDCs in particular to share with policy makers. Regular readers of the newsletter will notice some familiar themes…

Above all, given how the terms of reference of the Inquiry were phrased so negatively…

The terms of reference for the inquiry are:

1. to inquire into, and establish the nature and benefits of cryptocurrencies:

     a. to establish how crypto-currencies are created and traded

     b. to understand the environmental impact of ‘mining’ crypto-currencies

     c. to identify risks to users and traders of crypto-currencies.

2. to identify the risks crypto-currencies pose to the monetary system and financial stability, including tax implications, in New Zealand

3. to establish how crypto-currencies are used by criminal organisations

4. to establish whether means exist to regulate crypto-currencies, either by sovereign states, central banks, or multi-lateral co-operation.

…I felt I should use the opportunity to emphasise some of the more positive aspects arising from the underlying technological advances and governance mechanisms in crypto. (As you know, I’m by no means a die-hard tech bro evangelist, but I do generally believe that accelerating technology is the major driving force behind much global change and - with some imagination - brings with it many upside opportunities for society and the economy, as well as the potential risks which are more often dwelled upon.)

Also, I know that there will have been plenty of other high quality submissions to the inquiry - these will all be published on the parliamentary website in time, keep an eye out.

Comments welcome below or by email - and I’m aiming to organise a Memia webinar in September to discuss some of the main themes with other local experts…some pretty important issues being covered, will be good to have the kōrero. If you’d like to nominate yourself or someone else to take part, please get in touch.

Inquiry into the current and future nature, impact, and risks of cryptocurrencies

Finance and Expenditure Committee, New Zealand Parliament

Public Submission

Submitted by: Ben Reid

2 September 2021


This short submission focuses mostly on the potential upside economic use cases and societal opportunities arising for Aotearoa citizens and residents from adoption of blockchain-based technology, particularly cryptocurrencies and decentralized finance applications.

The inquiry’s stated focus areas on environmental impacts (particularly CO2 emissions), consumer protection risks and criminal usage all remain highly valid and no doubt the inquiry will receive many submissions focusing on these aspects. 

This submission, however, emphasises a more optimistic view of the potential for Aotearoa from actively participating in the explosion of decentralised financial technology innovation which is happening around the world.

1. Accelerated global financial system innovation

The global financial payments system has suffered from low levels of user-focused innovation for decades. Incumbent banks have been able to capture vast profits from operating closed-access payments systems and low-portability banking and lending services. (Still, open banking support is taking years to arrive in Aotearoa). Conventional financial transactions are still largely “dumb” and difficult / expensive to program into broader software applications. (An exception here is recent payments innovation by large venture-capital funded centralised payment giants such as Stripe and Alipay.)

From the viewpoint of an independent global citizen and willing user of cryptocurrency as a medium of exchange and store of long term value, cryptocurrencies promise significant advantages and freedoms over traditional fiat currencies:

  • Cryptocurrencies and decentralized finance (DeFi) applications provide rapid new avenues for financial innovation, promising universal accessibility, lower transaction costs, non-geographic transaction pricing and the broadest possible global democratization of economic participation.

  • Cryptocurrencies operate free of the accumulated deadweight of incumbent financial institutions, their shareholders and their legacy technology infrastructure.

  • Cryptocurrencies are peer-to-peer: no intermediaries needed. (What exactly are banks for, in the future?)

  • DeFi applications continue to innovate rapidly, providing support for “smart contracts” - promising “programmable money” which is easily integrated into new software applications solving previously intractable problems.

  • The decentralized nature of cryptocurrencies and other blockchain protocols also enables new large-scale business model innovation which differs from the “surveillance capitalism” of global tech giants and “rent taking” of incumbent financial institutions. Game-theory-based protocols also promise more even distribution of wealth and political agency within societies2

  • Use of cryptocurrencies is permissionless - anyone on the internet can open a new wallet address for free

  • Use of cryptocurrencies can be anonymous - and hence can prevent friendly (or unfriendly) surveillance of private financial activity by states or corporations

  • Cryptocurrencies and their underlying decentralised blockchains and protocols operate in a rapidly-emerging “metaverse” - a new virtual financial plane largely unconcerned with national borders or jurisdictions - creating unprecedented resilience against nation state interference or manipulation. (Witness recent Chinese crackdowns on Bitcoin mining which have just displaced mining activity elsewhere, while the Bitcoin network continued to operate3).

  • Cryptocurrency protocols have clear and transparent non-inflationary monetary policies - providing a rational hedge against the quantitative easing (QE) policies of many central banks - which some might consider unsustainable in the medium-long term.

2. Sophisticated Decentralised Governance Mechanisms and Regulation

Governance systems of decentralised permissionless cryptocurrencies can be made transparent and clearly accountable with “on chain” automated governance mechanisms4. (In practice, though, much governance still happens “off chain” in more conventional human-centric decision making forums.)

Governments and aspiring crypto-regulators should study these novel on-chain and off-chain governance mechanisms and reflect on how they can (1) more actively participate, perhaps in coordination with other governments and (2) look at opportunities for applying these sophisticated innovations to their own internal structures, operations and decision making.

Fundamentally, because cryptocurrency operates in a borderless “Metaverse”, it is highly unlikely that any one nation state can hope to govern or regulate decentralised cryptocurrency protocols without cooperating with a critical mass of other likeminded nation states, and even then the costs may outweigh the benefits of attempting to do so.

Furthermore, given the increasingly decentralised and autonomous nature of many blockchain-based protocols, the tools available to centralised, state-based regulators are limited. Perhaps most radically illustrative of how future corporate forms will evolve to adapt around centralised regulation attempts is this recent (July 2021) post by Erik Voorhees, founder of DeFi trading platform Shapeshift which is morphing into a DAO (Decentralised Autonomous Organisation)5:

“ShapeShift is open-sourcing everything. ShapeShift’s entire corporate structure will wind down. Control of ShapeShift will migrate to those holding FOX Tokens. To facilitate decentralized governance, the largest airdrop in history today distributed FOX to over a million customers and DeFi community members.

The journey so far:

Starting last fall, ShapeShift began integrating decentralized exchanges (DEXs) to replace its own trading systems…on April 15 we enabled THORChain upon its launch for trading Bitcoin and other leading chains in a decentralized model.

That day, native, non-wrapped digital assets (such as Bitcoin and Ether) could be traded at scale, with no intermediary, for the first time in history. With our integration of these DEXs, ShapeShift no longer provided trading services, and yet users didn’t lose their ability to trade. We outsourced the regulated activity to an immutable decentralized protocol.”

Given that these innovative technologies are evolving at lightning speed, state regulators must either evolve and innovate at an equivalent or faster pace (unlikely), or attempt to intervene to block the development of the underlying software code which runs these protocols. There is an unsettled argument that regulators attempting to outlaw the development of certain software functionality would be contravening principles of freedom of speech6. Even if this was technically feasible, it is again likely that new innovative ways will be found to adapt around regulatory interventions within a short amount of time.

Ultimately, state regulators may be better advised to focus on encouraging citizens to educate themselves on how to safely and beneficially engage with new financial technologies rather than attempting to control these new cryptocurrencies themselves. By their very open source, broadly participatory and consensus-based nature, many of these new cryptocurrency protocols are, to some extent at least, self-regulating.

3. Central Bank Digital Currencies (CBDCs)

Above all, cryptocurrencies raise fundamental, existential questions for current national currency and banking systems. They are rapidly demonstrating that existing centralised monetary and financial systems may not be fit for purpose in the modern era. 

As a result, central banks around the world are investigating the use of cryptocurrency technology to develop “govcoin” or “CBDC” digital currencies.

China currently leads the world in CBDC development and has run multiple city-scale trials of its forthcoming ‘digital yuan’ - which if recent analysis7 is to be believed, will involve “managed anonymity” - but still with the potential for mass state surveillance of every financial transaction by every user.

In parallel, Facebook Finance (F2), a leading member of the Diem Association, recently announced its intention8 to launch the “Novi” wallet based upon the Diem “stablecoin” payments network, providing free peer-to-peer payments to Facebook users “throughout the metaverse” and monetizing their business model over time. (The article referenced signals limited approval from US financial regulators).

In the Aotearoa context, there are advantages of being a small, technologically mature (if not especially advanced) nation to seize early opportunities to innovate with digital money. Experimental trials of a national CBDC should begin as soon as possible to enable the RBNZ and government to establish and maintain a sufficient capability in future digital monetary systems. Otherwise this may well be the latest in a long line of missed opportunities, leaving Aotearoa as a “technology taker” for CBDC protocols internationally.

(However, accelerating this innovation may cause discomfort among incumbent financial institutions whose very business models depend upon intermediation between the central bank and fiat currency users.)

Some further considerations about CBDCs in the Aotearoa context:

  • I suggest that a suitable name for New Zealand’s new Central Bank Digital Currency might be the “Aotearoa Tāra”. Tethered 1:1 to the NZ$:

  • Local crypto skills are in short supply… how would RBNZ actually source and implement a CBDC? Options include:

    • Build one or more decentralized implementations and begin carrying out trials alongside the NZ$ and the incumbent banking system

    • Build a centralized implementation: For example, RBNZ may decide to outsource development and implementation to an international tech services vendor as a “safe” (but not exactly nimble) implementation partner.

    • Buy up tokens in an already established (but perhaps distressed) cryptocurrency to establish a controlling stake

    • Or would the Facebook-initiated Diem consortium offer to be the underlying platform…and would this create long term strategic leverage over Aotearoa’s economy for Diem?

  • Would a national digital currency guarantee anonymity like cash, at least for transactions below a certain threshold?

  • All Governments / central banks operating CBDCs will surely have to offer more carrot than stick to win users: otherwise why would citizens transact in Digital NZ$ vs. other decentralised crypto or international digital payment providers?

    • Potential answer: Zero transaction fees. Socialise the currency so that all Aotearoa residents get free transactions and are incentivised to stay “inside the garden” when transacting domestically.

  • Therefore…what role would traditional banks play? If every resident has a free checking account(/wallet) and a savings account(/wallet) which pays the base interest rate with the Central Bank… why would most of the population engage with a commercial bank at all?

    • There may be impacts on the stability of the whole national financial system in this case.

4. Smarter fiscal and monetary policy targeting, wealth redistribution and government cost savings

Finally, one large-scale opportunity of CBDCs worth exploring is the potential to radically increase the efficiency of government and also achieve longer term societal aims of lower wealth inequality. This could potentially be achieved through implementing a redistributive algorithm into the CBDC protocol itself - effectively a self-correcting system built into Aotearoa’s “digital money” which ensures that wealth inequality (of financial assets at least) operates within certain defined thresholds.

This could also have the added benefit of removing the need for a state welfare system by effectively delivering a Universal Basic Income (UBI) - saving ~NZ$25Bn of costs per year to operate the state welfare machinery. It might also remove the need for large parts of the revenue collection machinery to exist as well.

I have written on this subject in my article Redistributive sovereign cryptocurrency - an alternative to a "wealth tax"? Can wealth redistribution be designed into money to reduce economic inequality?9


While the terms of reference of the inquiry are largely focused on understanding the risks and potential regulatory mechanisms for cryptocurrencies, this submission emphasises many of the more positive potential opportunities for Aotearoa citizens and residents from the explosion of financial technology innovation which is happening around the world.

Government should approach regulation of cryptocurrencies cautiously, continuously seeking to better understand the technology and its potential implications, both positive and negative. It may be that these decentralised technologies cannot be regulated effectively by centralised institutions such as nation states and that regulation attempts turn into expensive affairs, with damaging side-effects for fundamental individual freedoms and economic efficiency.

Actively participating in international cryptocurrency and DeFi projects and governance, running local CBDC trials and providing regulatory “sandboxes” would help to build domestic skills, knowledge and deeper understanding and support more informed government policy decisions.

About The Author

Ben Reid works as an independent strategic advisor with software and technology businesses in Aotearoa and internationally. His professional focus areas include growth strategy, innovation management, digital transformation and technology governance. He brings 25+ years of diverse tech sector experience including a background career as a software developer and architect. He is a Beachheads Advisor with New Zealand Trade and Enterprise and was previously the Executive Director of the Artificial Intelligence Forum of New Zealand from 2018-2020. He is the author of the popular weekly Memia email newsletter covering emerging technology trends and accelerating global change.


Thanks Oliver Bruce for the prod…!


Financial Times: China’s crypto crackdown delivers windfall to global bitcoin ‘miners’ , 24 August 2021


Coin Telegraph: Is Bitcoin Protected as Speech Under the 1st Amendment? Experts Answer


Cato Institute: China’s Digital Yuan: A Threat to Freedom


David Marcus: Good stablecoins, a protocol for money, and digital wallets: the formula to fix our broken payment system