What Is Crypto? The word “crypto,” as used today, has undergone an interesting evolution, one that is understood by few and not clearly defined, despite its mainstream adoption. The Digital Assets Working Group Report defines the term “crypto” for purposes of the report as an entire “ecosystem and technologies built around digital assets and blockchains, including the users, developers, businesses and enthusiasts engaged in these domains.” Notably, the word crypto is not referenced or used within the body of Satoshi Nakamoto’s 2008 white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” which was the impetus for the subsequent launch of the bitcoin distributed public ledger. Rather, in the words of the now infamous creator of bitcoin — fueled in 2008 by the global financial crisis — “what is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a third party.” This spurred modern-day interest in the application of blockchain technologies to launch payment systems and “cryptocurrencies” beyond the original bitcoin protocol. Before cryptocurrency became mainstream, there was cryptology, a long-studied field that included cryptography as a means of creating code for secure communication, including by the U.S. government. According to the U.S. Department of Commerce, “public-key cryptography was invented in 1976.” According to the National Institute of Standards and Technology (NIST), in “today’s connected digital world, cryptographic algorithms are implemented in every device and applied to every link to protect information in transmission and in storage.” Crypto has rapidly evolved in scope and application from shorthand for the “cryptographic proof” used to validate blockchain transactions, to shorthand for the countless varieties of “cryptocurrencies” launched since 2009, to now embracing an entire ecosystem of developing technologies, markets, and the varied stores of value and payment rails upon which they run. Although regulatory frameworks and mainstream adoption may feel new, the underlying concept of distributed ledgers as payment vehicles is not. Nakamoto’s white paper cites articles published in the 1980s, 1990s and early 2000s within the cryptology field relating to studies on how to digitally time-stamp documents through cryptographic means. However, it wasn’t until Nakamoto’s white paper proposed the use of cryptography, together with a decentralized and distributed ledger to create a digital asset that did not rely on intermediaries for settlement, that the bitcoin blockchain protocol became globally adopted in a decentralized manner through network effects. That global adoption only further ignited innovation and the exploration of borderless and trustless global ledgers, leading to the GENIUS Act, regulating stablecoins and pending market structure legislation. Digital assets are built on blockchain technology. The Bank for International Settlements published a working paper in 2023 titled “Distributed Ledgers and the Governance of Money,” exploring the economics and feasibility of various models of future global decentralized payment systems built on blockchain, and their limits, noting, “[M]oney, whether it be in the form of clay pots, precious coins or banknotes, is a social convention that serves as a record of goods sold or services rendered in the past. … [Today’s] centralized record-keeping system has been effective. However, the advent of blockchain technology and the concept of a free universal ledger of all past transactions, offers an alternative monetary system that eliminates the need for intermediaries …” In its simplest form, money is a medium of exchange requiring a ledger. Blockchain technologies innovate new ways to maintain a ledger and track exchanges of value quickly, efficiently and without third parties. When talking about any strategic or business use case for blockchain technology, digital assets or crypto in all forms, it is critical to understand not only the newly created legal definitions, but also the underlying technologies, applications, and applicable laws and regulations as the ecosystem develops. For all these reasons, it is essential to openly question and explore precisely what crypto means and how the term is being used. Further Clarity To Come Despite rapid-fire developments since the Executive Order was issued and the passage of the GENIUS Act — which kicked off an entire industry discussion on stablecoins — there is much more regulatory clarity to come that banks need to form a robust, effective, long-term digital assets strategy. Of note: 1. Working Group Recommendations. The Digital Asset Working Group Report includes over 100 policy and legislative recommendations to Congress and the relevant agencies that touch the crypto-ecosystem, digital assets and related markets. Specific to the banking sector, the report calls for specific guidance on the activities banks are most likely to engage in (custody, third-party relationships, stablecoin reserves and holding digital assets as principal); technology-neutral and principles-based risk management guidance, which could include the development of NIST-based or NIST-like standards; clarifying AML/CFT compliance expectations; and capital and liquidity management guidance. 2. GENIUS Act Implementation and Regulations. Although GENIUS was signed into law on July 18, it does not take effect until July 2026, at the earliest, once implementing regulations have been passed. The GENIUS Act requires a “coordinated” rulemaking process to occur within one year, involving numerous federal and state regulators, including the Department NEBRASKA INDEPENDENT BANKER 21
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