Address to Blockchain Week, Sydney
21st March 2022
Opening the virtual frontier
Good afternoon. It is terrific to be here at Blockchain Week again, and thank you to Steve Vallas for organising this fantastic event. It is somewhat daunting to have been asked to be the keynote speaker at this conference. There are some amazing speakers lined up for this week – including some terrific Australian crypto CEOs, entrepreneurs and industry leaders, many of whom I have been fortunate enough to meet.
I do not pretend to be a crypto thought leader; very few ideas that I put forward today will be new or revolutionary to anyone here – and I acknowledge and thank those whose ideas I will blatantly rip off in the course of this speech. But it is my hope that what will be revolutionary is that these ideas are coming from Government.
And with that in mind let me first acknowledge the work done by my friend and colleague Senator Andrew Bragg. In a complicated and fast moving space, having a comprehensive fact base which decision makers can leverage is invaluable and I thank him for the diligence and enthusiasm with which his committee approached the task set for him. I think he, like you, will be excited about where the Government has landed.
I said in my maiden speech to the Australian Senate in 2016: “In 20 years, when I look my children in the eye, I want to assure them that my generation, and I personally, have done all that we can to create a productive and prosperous Australia in which they have every opportunity to thrive and to fly.”
We want to encourage innovation in crypto assets – innovation creates jobs and growth.
There are so many innovative use cases for crypto assets, many of which are not far at all away from becoming mainstream.
These include international payments, lending and borrowing, NFTs and asset tokenisation.
I know about these things because I have been there from the start. I was the original co-convenor of the parliamentary friendship group for blockchain. I will never forget the first event we organised back in 2017. The room was jam packed. It was a sign of the innovation that was to come.
Naval Ravikant says that “innovation requires decentralisation and a frontier”.
I think these two concepts are fundamentally important.
I want to begin by talking about this idea of a frontier. Innovation, growth, productivity increases and wealth creation require something new to explore.
There used to be lots of physical frontiers.
Anyone educated in my home state of Victoria knows about how much the opening of physical frontiers can create opportunities for success and growth.
On 5 July 1851 – the month that Victoria formally became its own colony – gold was discovered by a Melbourne publican at Warrandyte.
Within two years more than 160,000 immigrants had arrived in Melbourne from overseas to reap the benefits of the gold rush. These new arrivals sailed for up to ninety days across the world. Many had never seen the sea before. A further 110,000 arrived from other Australian ports.
These pioneers walked from Melbourne to the goldfields of Bendigo and Ballarat, carrying all their possessions on their backs.
The Government was rapacious about requiring the diggers to pay their dues, even if they had not yet found any gold. The authorities were aggressive and corrupt in their enforcement of the license requirement. Eventually, the diggers rebelled in the Eureka stockade – defending their rights and liberties against the heavy hand of the state and its brutal police force. Its spirit was against higher taxes and big government: a spirit that should be upheld in all entrepreneurial communities.
Melbourne quickly passed Sydney in population. The first telegraph poles were erected, the foundation stones of the university and public library were laid. Railway lines multiplied and criss crossed the state.
Melbourne became one of the greatest and wealthiest cities in the world – Marvelous Melbourne. The pioneering spirit of those who arrived, took risks, worked hard, and made their fortune were the people who built Melbourne.
And it wasn’t just the people who dug the gold out of the ground who benefited. There were whole cities that grew and flourished on the back of the industry.
Importantly, not everyone made money. Although hundreds of thousands of people traveled across the world, their success was far from guaranteed. As the great Australian historian Geoffery Blainey wrote: the seemingly small decisions, like which way to turn at a crossroads – whether to head for Bendigo, Beechworth or Ballarat – “often determined whether, a year hence, he would lie beneath a fall of clay in a shallow shaft or be sailing home to England with a bag of precious gold in the strong room of the ship”.
The frontier is a risky place.
There are now very few physical frontiers – although Mr Musk and Mr Bezos with their space exploration aspirations might want to disagree with me on that.
At least for us earthly beings, there are very few uncharted physical frontiers today.
The crypto ecosystem is a new virtual frontier.
I will not stand in the way of my fellow Australians chasing the opportunities and benefits presented by a new virtual frontier.
Crypto today is analogous to equity markets in the late 1970s prior to the boom in markets and trading technology and deregulation in the 80s; it’s similar to the internet in the late 1990s. And the decisions now are very much like the decisions then: we can either sustain the right regulatory settings to accrue the benefits of the crypto asset revolution, or we will simply miss out.
Australia’s digital asset economy could add 2.6 per cent to GDP and create around 200,000 new jobs by 2030.
I believe that we need to keep these virtual frontiers open and leverage the pioneer spirit of this country in new and growing areas. The crypto industry, and its applications in defi, is one of the most exciting frontiers I have seen.
So my message to the room is: if you want to be a pioneer on the virtual frontier of innovation, Australia is open for business.
As the Minister for the Digital Economy, and the Minister for Financial Services, I am backing you.
The second point I want to dive into is decentralisation.
The internet in the 1990s was dominated by open protocols like email or HTTP. It was fair game for teenagers in their mothers’ basement.
But then came the Microsofts, the Apples, the Googles, the Facebooks of the world who built on top of the open protocols and created closed systems.
These systems captured market share, and rightly so – they made the internet mainstream and user friendly.
But the platforms also centralised control of the internet. This led to enormous market power centralised in the hands of a few tech giants.
Now, I’m a small L as well as a big L liberal. I’m not keen on significant market power. I prefer free and competitive markets.
Google has a 95 per cent market share in search in Australia.
Facebook and Instagram’s combined share of the online display advertising market in Australia is estimated to be 51 per cent.
They are the dominant platforms through which Australians engage with the internet.
The tech giants – the largest digital platforms – have transformed from tools that index content or enable communication, to surveillance platforms and gatekeepers of innovation.
This has led to harvesting and hoarding of consumer data.
To de-platforming and censorship.
The growth of big tech has meant that software developers are prevented from using their choice of payments system, which has allowed monopoly pricing to flourish and suffocated small businesses and startups.
But most importantly, the centralisation allows tech platforms to change the rules on those who rely on them at any time. It has become much harder for startups and content creators to grow their businesses and their presence online. They do not have certainty. The rules of the game could change at any time and devastate their entire business model. This uncertainty stifles innovation.
Web3 will address these problems and provide alternatives and counterbalances to the power of big tech. It will be open, trustless and permissionless. Where users become the owners. Think Wikipedia rather than Encarta Encyclopedia.
Cryptoassets are a powerful way to develop consumer owned networks. They provide a level playing field and don’t change the rules.
Platforms and apps built on Web3 will not be owned by a central gatekeeper, but rather by users, who will earn their ownership stake by helping to develop and maintain those services.
It’s not sophisticated or revolutionary as Web3 – but there are other areas where the Morrison Government has been working to reduce the power of platforms and empower consumers.
Indeed, I think the government has already earned its stripes in empowering individual consumers; moving power from the centre to the periphery. I’m thinking particularly of the Consumer Data Right.
The Morrison Government believes that consumers should be at the very centre of the data paradigm.
That’s why we have established the Consumer Data Right – the protocols and pipes that allow consumers and businesses to tap into their own data in a way that, in the past, was either impossible, overly complex, or fraught with privacy and security issues.
The CDR lets consumers pick up and take their data, for example, from their current bank to a new bank, with full control, consent and security. It will allow for one click financial product switches. It will facilitate price comparison and switching across a range of sectors from energy to telecoms to finance, vertically within industry silos and laterally across them.
It shifts the balance of power from the businesses who accumulate and hold our data, back to consumers whose actions generate it.
Your data. Your right. Your benefit.
That’s a big change and it will take time before we’ve fully exploited the power of that shift. But, thanks to the foresight of this Prime Minister while he was Treasurer, it’s here, right now, and available to nearly all Australians today.
Its world leading. And once the CDR becomes ubiquitous it will be the ultimate manifestation of decentralisation, and individual empowerment.
Indeed, decentralisation and the distribution of power in general aligns strongly with Liberal values.
There are parallels here.
Cryptocurrencies are not run by a central authority – they are distributed across a network of computers. Those computers make decisions and advance their own private goals in line with pre-agreed rules.
This is a lot like a free market with clearly defined laws.
Participants can have equal opportunity, they get a fair go and they know what the rules are in advance. The rules don't change without the consent of the governed.
Bitcoin has a fixed supply: 21 million coins. That can never be changed. It is basically a law of nature.
And there's no more DAI in the world than MakerDAO users generate.
In a centralised system the odds are already stacked against you.
In a decentralised system, they are not. You are not beholden to a central counterparty.
And importantly, you don’t need the government telling you what to do or who to trust.
History has shown us that freedom, opportunity and a fair go is the best way to produce innovation. And its innovation that breeds productive economies, jobs and growth.
So with all this freedom and empowerment, what is the role of Government in all this? Let me take you back 25 years.
In 1997, the US government published a Framework for Global Electronic Commerce, which presented some key principles for the internet which I believe can be applied sensibly to the regulation of crypto assets:
- The private sector should lead.
- Governments should avoid undue restrictions.
- Where governmental involvement is needed, its aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment
- Governments should recognise the unique qualities of crypto assets
Let’s unpack these points a bit.
The private sector leading is self explanatory. Governments, on the whole, do innovation pretty badly. Far better that Governments enable innovation rather than actually do it.
On the issue of undue restrictions: this is an interesting one. There are a lot of calls for “more powers” and cracking down hard on scams and protecting consumers. And in a more fearful, less confident government may well find it too easy to travel down that path of least resistance is to say that “something must be done!”. Ban it! Abolish it! Limit it! Regulate it! But knee jerk reactions can easily lead to onerous red tape and undue restrictions. Every restriction and regulation must be made with the utmost care and attention to the cost benefit trade offs.
Government action should be predictable, minimalist, consistent and simple. How I wish that our current Corporations Act looked like that.
But with these aims in mind, today the Government is publishing a consultation paper. The paper outlines our proposed approach to the regulation of the crypto industry.
The Government is taking a stance on crypto assets. It is a stance that is forward thinking. We are leaning in.
Australia is serious about getting regulation right for the digital age. And emerging technologies like crypto are key.
We’re not just slotting crypto into a pre-digital regulatory world. That would be too easy for us in Government. But it’s not the way to encourage a thriving industry here in Australia.
We recognise that regulation must be fit for purpose, technology neutral, and it must be based on harms.
Let me address technology neutrality first. Regulation should seek to ‘look through’ the technology and apply regulation consistently, based on the risks created by the thing that we are regulating.
A title deed in electronic form is no different to a paper version. It is still a title deed. Regulation should not discriminate between the two. Similarly, if the title deed is put on a blockchain and turned into an NFT, it is still a title deed.
We should regulate the underlying thing, not the means through which it is represented, stored or transmitted.
The second point is that regulation should be harms-based.
The Government’s proposed regulatory approach identifies that crypto assets are novel.
This is a particular issue in the financial sector.
At present, the law asks you to consider the characteristics and structure of a crypto asset to determine which regulations apply.
A good example is whether a crypto asset is a managed investment scheme.
Today, to determine this, the current guidelines say that you must ask:
- Do people contribute money to acquire an interest in the scheme?
- Are contributions pooled to produce a benefit to the interest holders?
- And, do investors lack day to day control of the scheme?
If the answer to all of these questions is yes, then at present, the crypto asset is likely to be a managed investment scheme and regulated as such.
That doesn’t make sense.
A managed investment scheme is regulated as such because it has certain risks and potential harms. There is a “manager” who the investor has to trust. The investor has to trust that the manager will not be corrupt, that they will not be incompetent, that they will honour the terms of the agreement. Humans are not infallible.
In conventional financial products, these risks are significant.
In crypto, they are not the same.
Think about it.
A piece of code cannot decide not to turn up to work, or to suddenly decide not to pay you the money you were promised despite being programmed to do so.
In crypto, the trust is decentralised.
We don’t just regulate things just for the sake of it. We regulate because we have identified a potential social harm, and we use regulation to mitigate that.
So, when the harms are different the regulation should be different.
Many commentators have called for us to shoehorn crypto into the financial products regime. But crypto assets do not require the government to assure trust in the same way that financial products do. There is a lot more transparency. There are a lot less things that can go wrong. Crypto assets do not generate the same potential harms as financial products. So we will not regulate them the same way.
Crypto assets are an order of magnitude more trustless than pretty much any other good or service out there.
But there’s a catch.
However, once you introduce an intermediary – like an exchange – or any interaction with the physical or non-crypto would, you introduce a trust requirement.
In particular, buying through a centralised exchange introduces a trust requirement. The investor has to trust that the exchange is not going to run off with their money. They have to trust that the exchange will deliver the crypto assets that they purchase.
Similarly, using a third party custodian introduces a trust requirement. “Not your keys, not your crypto”: if someone else is looking after your crypto, it is not trustlessly yours – it is only yours if you can trust the third party.
The role for government is to help assure this trust.
That’s why the Coalition is regulating licensees and custodians - this is the Coalition’s plan to let Australians invest in crypto assets safely and securely.
To that end, as discussed in the policy paper that we are releasing this afternoon, the Government intends to:
1. Establish a market licencing regime for crypto exchanges
The Morrison Government wants to make sure that consumers can trust the exchanges they use to buy crypto.
Crypto values will go up and down. The Government will not be protecting consumers from market volatility.
But Australian investors will be sure that if they use a licenced Australian exchange, they can trust that exchange to deliver on its commitments to its customers, and have appropriate protections.
This will be a uniquely Australian stamp of quality.
The healthy heart-tick approval of your crypto exchange.
Our paper provides more detail on the proposed obligations for licensees.
2. We will also Introduce custody arrangements for crypto exchanges
The Coalition has a plan to ensure that crypto investors who hold their crypto on exchange can always access their money by introducing custody requirements for crypto assets.
Our proposal for a series of principled-based obligations will also be released today.
These two changes will make it better, safer and more secure for Australian consumers to invest in crypto.
Importantly, they will also send a signal to the industry – to the world – that Australia is a country that embraces innovation.
Under the Morrison Government, the digital asset economy has already grown to $AUD2.1 billion.
With the right regulatory settings, by 2030 it could be as large as $AUD68.4 billion.
I think this is truly exciting.
But there is a political reality here. I would love support of the crypto industry to be a bipartisan issue, but it simply isn’t.
Labor believes that those who trade crypto are “swimming outside the flags”. Their shadow financial services Minister in 2019 argued for banning crypto transactions of over $10,000.
And other members of the Labor Party either don’t understand the industry or they are simply playing dead. They are refusing to say what they would do to the crypto industry.
Well, I can give you a pretty good idea.
A Labor Government – out of timidity, an obsession with removing all risks and protecting consumers from themselves, or out of natural aversion to something that government can’t control – would close the frontier.
The contrast couldn’t be more stark. We want Australians to seize the opportunity. And we’ve been talking about this - leaning in to you and this industry – for some time now.
Pioneering legislation to deliver our custody and exchange proposals outlined today will be a top priority in the Coalition’s next term of Government.
Should the unthinkable happen in May, a Labor Government will have a shopping list of legislative priorities, and you can safely say that creating a light touch regulatory framework for the crypto industry isn’t on it.
I ask young people what they like about crypto and they tell me that they like the fact it is not controlled by anyone – including the Government. The small L liberal in me loves that. It gives me great hope.
You are the thought leaders and innovation pioneers in the crypto space. You know what it is about crypto that attracted you and led you here. Your priorities are our priorities.
The policy paper released today reinforces our commitment to a predictable, minimalist, consistent and simple legal environment. This will help ensure that Australian crypto businesses can have an Australian-made badge of approval. It will ensure that Australians can trust the services which they use to interact with the crypto ecosystem.
So my message today to you – to the thought leaders, the wealth creators, the entrepreneurs and the pioneers in this room, to those who are out there imagining, innovating, discovering the whole digital world beyond the frontier - the Morrison Government is backing you.