Vietnam’s leap into legalizing cryptocurrency with the Law on Digital Technology Industry is certainly a bold leap, without a doubt. So, let’s not kid ourselves. Are we really toasting to a win of innovation, or are we merely seeding another tangled regulatory web that favors the incumbents and drives real disruptors back into the darkness? I'm skeptical, and you should be too.

Regulation: Friend or Foe Of Crypto?

The million-dollar question is not whether Vietnam should regulate crypto, rather how. The devil is always in the details. It is now up to the federal government to use their authority to develop robust guidelines for implementation.

Consider the landscape of regulation in other industries. Often, the regulations designed to protect consumers end up protecting incumbents, creating barriers to entry that stifle competition and ultimately harm the consumer. Will Vietnam’s crypto law become the latest case in point? Will the credentialing requirements be onerous? Will the compliance costs become so extreme that only the biggest and best-connected firms will be able to bid?

Personally, I’ve always seen a lot of parallels between that time and the early days of the internet. Just picture, for a second, if in the late 90s, governments around the world had decided to clamp down on the internet. They would have required draconian controls like the ones found in tradfi. Would we have Google? Facebook? Amazon? Unlikely. The early internet was an experimental success precisely because it wasn’t heavily regulated. That newfound freedom created untold levels of experimentation and innovation, giving rise to the miraculous explosion of new technologies. Crypto needs that same breathing room.

The law narrows the definition of “crypto assets” to exclude “virtual assets,” but is that enough to provide a safe harbor for innovation to flourish? Or will the result be just a bizarrely confusing and ultimately arbitrary line in the sand that suppresses innovation and has entrepreneurs wondering what the hell just happened?

Crypto Fraud: Can Rules Really Stop It?

The law's focus on AML/CFT compliance is understandable, especially given Vietnam's FATF gray listing and the prevalence of crypto scams. Let's be realistic: criminals will always find ways to circumvent regulations. It’s like playing Whac-A-Mole. Real whack-a-mole stuff, you shut down one of the scams and another one reemerges in a different state.

The recent high-profile scams listed above (MTC/Matrix Chain, BitMiner, “Million Smiles”) serve as a chilling reminder of the dangers. The answer is not always more regulations. Focused and effective enforcement goes a long way. It requires resources, expertise, and a powerful will to doggedly pursue criminals, even when they are connected.

Will this new law make a difference in helping them get the tools and resources they need to tackle this fraud? Instead, will it lead to a red herring or a false sense of security? Investors can easily be lulled into a false sense of security, unaware that scam artists are continuously adapting.

Unintended Consequences: The Real Danger

Here's where my anxiety really kicks in. The new law is designed to restore confidence in the market and encourage institutional investors. What if it does the opposite? Consider that if the regulatory environment is confusing and overwhelming it prevents legitimate businesses from setting up shop in Vietnam.

What if the government interprets “crypto asset” too narrowly? This would preclude some as-yet-uninvented new technologies and drive them to greener, more crypto-friendly pastures. This isn’t limited to Bitcoin and Ethereum. Blockchain technology has the potential to transform industries ranging from supply chain to healthcare.

I'm reminded of the story of Kodak. What they developed was the digital camera. Their concern about salvaging their film industry dominated their vision to see the opportunity plant. Will Vietnam repeat this same mistake, suffocating its own crypto industry in the pursuit of regulation?

Just legalizing crypto is not sufficient. Vietnam needs to focus its efforts to balancing a regulatory environment that encourages innovation, drives consumer protection, and attracts the needed investment. It’s a little ballet at the same time. I’m still not convinced that this law, in its current form, strikes the right balance.

Vietnam’s crypto gamble could pay off handsomely. If successful, the initiative has the potential to help the country become a regional leader in blockchain innovation. It could backfire spectacularly, chasing away legitimate businesses, stifling innovation and competition, while leaving consumers more vulnerable to fraud. Only time will tell which way Vietnam goes, but the next few years will be critical in deciding which fortune Vietnam ultimately realizes.

Let's hope they don't fumble the bag. The future of Vietnam’s digital economy might just hinge on it.