Diogo and I recently sat down to discuss crypto regulation, CBDCs, DAO, and his journey to web3 and blockchain technology. Read on!
Mr. Diogo, can you briefly tell us about yourself?
I have been practicing law since 2018, when I started my professional internship as a trainee lawyer in a renowned law firm in Portugal.
After successfully completing the internship, I enrolled as a Lawyer at the Portuguese Bar Association in January 2021.
For the past year, I have been in private practice and focused on helping my clients overcome the increasingly demanding legal challenges related to Web 3.0.
As a lawyer practicing at the intersection of law and technology, what was your route to blockchain and web 3?
After completing my Law degree in 2017 and before starting my internship as a trainee lawyer, I worked for a year at an international bank, in a financial instruments implementation department.
From this experience I was able to extract some knowledge regarding the complexity of legal situations associated with financial markets. More or less at that time, between 2016 and 2017, I started to follow Bitcoin, as well as the associated blockchain technology and crypto markets.
As a result, I ended up transporting these topics to my studies at an academic level. I have been carrying out research on matters related to Web 3.0. since 2017, especially on crypto-assets and blockchain, both in the context of master's studies, as well as in the context of some postgraduate courses.
Later, already in the scope of my practice as a trainee and associate lawyer, I had the opportunity to be involved in legal situations that interconnected Web 3.0. with the areas of criminal law and tax law, which was also very rewarding.
CBDCs are central banks' response to the growing influence of cryptocurrency. Does the mandate to provide a viable digital alternative to Bitcoin come naturally or do you smell a rat?
This question is quite curious, because I have a very peculiar perspective on this subject. As has been argued over the last years, Bitcoin was created after the great financial crisis of 2007-2008, with a view to serving as an alternative to the traditional monetary and financial system, widely considered by the crypto ecosystem as corrupt and obsolete.
After its launch and the natural initial skepticism, the underlying principles of this technology, associated with decentralization and the end of intermediation, ended up winning over entire communities from the most diverse social, cultural and economic backgrounds.
Over the last few years, this achievement has resulted in an unconscious acceptance and use of digital/ virtual currencies as a means of exchange/ payment. If we combine crypto-assets with home banking, most people are already used to digital payments and also managing their money digitally.
It is in this sense that, after analyzing these points, it seems that the emergence of crypto-assets, DeFi, etc., actually ended up contributing to the acceptance of digital currencies from central banks.
The initial idea of crypto-assets was to decentralize the system, however, at least in social and cultural terms, everything indicates that it only contributed to the acceptance of a system that will be even more centralized.
The truth is that nobody knows who created Bitcoin. There is only one story that seems to be more romantic than true.
For all we know, the creation of Bitcoin may have been just another PsyOp. Who knows.
Jokes aside, like all technologies, CBDCs have several advantages and disadvantages, therefore, it is up to governments to weigh them on a scale and decide if and how they should be implemented.
The SEC chairman has recently been accused of stifling innovation. Where do you see the US heading in terms of crypto regulation?
I have been closely following the activity of regulators in the US since the beginning of the year and they seem to be determined to “clarify” the framework for all types of digital assets and also all types of operations related to digital-assets.
After the scandal related to the FTX, among others, the regulators seem to be under some pressure to act. Since the beginning of the year, both the SEC and the CFTC have been involved in several legal conflicts with a view to measuring certain assets or operations respectively as securities or commodities. In the midst of so many cases, they even ended up making some contradictory statements.
In any case, all these conflicts also ended up having some practical results. A draft law that aims to provide requirements for issuers of stablecoins was recently published.
In this sense, it doesn't seem that the SEC or even the CFTC intend to boycott innovation. It does seem that, at an international level, we are facing a phase of greater regulatory pressure. It was inevitable. It is happening now, but it could have happened 5 or more years ago, if the regulators had not taken so long to react.
How do you think the crypto industry should be regulated?
Due to the characteristics that certain legal situations associated with operations related to crypto-assets appear to have in common with certain legal situations associated with traditional financial instruments, I was initially of the opinion that a new and diverse notion of financial instruments should simply be created, with crypto-assets simply being considered digital financial instruments.
Currently, and after all the developments of recent years, including the emergence of DAOs and NFTs that can represent any type of asset, whether physical or digital, I am no longer so sure that the creation of a new and diverse notion of digital financial instruments would be enough. Also because traditional financial instruments are already being tokenized.
Eventually all of our public records will be based on blockchain technology. Eventually, all kinds of values and goods will also be represented by digital tokens. Even virtual values and goods within the scope of a metaverse that, over the years, is supposed to be confused with physical reality. Eventually, organizations will also be autonomous and equally "managed" via tokens.
As such, given the multiplicity of matters that digital assets and underlying technologies involve, for the time being, I still cannot find a definitive answer to this question.
When I think of DAOs, I think of how blockchain is capable of upending our working lives. Do you think DAOs are here to stay?
Undoubtedly. Everything points to the idea that digital and even artificial autonomous organizations will be the future.
From companies to universities, there will be few types of organization that, over the years, will not be completely restructured and adapted to rapid technological advances.
While some professions will be adapted or reinvented, others will end up being replaced by machine efficiency.
On the other hand, in my opinion, the social and cultural implications are not being discussed enough, or at least with the importance they deserve.
Crypto-friendly countries such as El Salvador and Congo are hoping to achieve financial inclusion through Bitcoin. Is this an economic gamble taken to the extreme?
It seems to be, but we are not dealing with isolated conducts. In the case of El Salvador, we are facing a true digital strategy, which apparently aims to attract foreign investment.
For example, in addition to Bitcoin being considered a legal tender, there are other legal initiatives that aim to create tax incentives for companies related to technology, including artificial intelligence.
These are innovative and courageous measures. As the saying goes: "no risk, no gain".
The number of high tech crimes in the crypto industry is fast growing. What's your experience relating to this?
At my former law firm, I had the pleasure of working on multiple cases related to technology. From what I have been following in recent years, everything indicates that the trend will continue to increase and not just in the crypto sector. Not least because technology development levels also continue to increase dramatically.
Nowadays, cyber-attacks can take on different forms and, as technology advances, more and more possibilities are available for this purpose.
With the digital transformation and the entry into the Digital and Artificial Era, in particular with the implementation of central bank digital currencies, the metaverse as a workplace and the general use of applications based on artificial intelligence, people will be increasingly vulnerable to this type of attack.
In this sense, investment in people's technological literacy is increasingly important, essentially with a view to mitigating the high risks associated with the use of new technologies.
What's the government of Portugal, your home country, doing to leverage cryptocurrency?
Until the year 2022, Portugal was considered a tax haven for crypto-assets. In fact, Portugal was part of the increasingly short list of countries that do not tax income from operations related to crypto-assets. For this reason alone, Portugal was already part of the Web 3.0 ecosystem.
With the entry into force of the State Budget for 2023, Portugal ended up giving the first official big statement.
Nowadays, along with Germany and some others, Portugal is considered one of the most advantageous jurisdictions in Europe in terms of income tax from operations related to crypto-assets.
Our tax regime presents multiple exemptions. Only fiat conversions are taxed (not crypto-to-crypto) and NFTs are excluded.
Furthermore, if the crypto-assets are held for the period of 365 days, they are also exempt from capital gains. We are, therefore, facing a very beneficial tax regime.
Any parting words?
I just want to encourage legal professionals in the Web 3.0 area to contribute to technological literacy. With the rapid evolution of new technologies, the combination of technological literacy with legal and financial literacy is increasingly essential.