Famous law scholar James Cooper Predicts More NFTs and crypto currency regulations

July 29, 2022

By Allen Cheng

James Cooper is Professor of Law and Director of International Legal Studies at California Western School of Law in San Diego, California, where he has also served as Associate Dean, Experiential Learning and an Assistant Dean. Professor Cooper is also serving as a Fellow of Singapore University of Social Sciences to 2023 and as a Visiting Professor at the Heidelberg University Center for Latin America. He has been a change agent for countries around the Americas for more than two decades, consulting for the U.S. Departments of Justice and State. He spoke to Allen Cheng, publisher of NFTmetta.com, about the state of the NFT markets.

Allen Cheng: Welcome to NFTMetta podcast. I am Allen Cheng, the founder of NFTMetta.com. With us today is a very well-known scholar Dr James Cooper. He is a legal reformer and legal scholar with many years of experience. He is also a professor of law and director of international studies at California Western School of Law in San Diego California. Professor thank you for joining our podcast today. We have many things to talk about so let’s go straight into it. So the first thing is can you tell us how did you come to follow cryptocurrencies and blockchain from a legal perspective? 

Professor James Cooper: Firstly, thank you so much for having me. It’s a pleasure to be here. Hi everybody. I have been doing for over 25 years something called legal reform, primarily in Latin America and my task was funded by a number of governments and ministries of justice and foundations and the Organization of American States and the Inter-American Development Bank. We pretty much take money from anybody. Latin America as it moved out of its military period in the late 80s and early 90s moved its legal system and its criminal law, procedural law from the inquisitorial system to the adversarial system so that’s like saying updating several hundreds of years away from the Spanish inquisition not exactly the highlight or the emblem of modernization or modernity or enlightenment to a system closer to Northern industrialized states but certainly an adversarial system that allowed for cross-examination, due process rights, the right to hear – you are allowed to confront your accuser to right here, the evidence right to a public defender – and a broad panoply of civil rights that are included in the International Covenant on Civil and Political Rights that are part of the Universal Declaration of Human Rights from 1948 that are part of the International Bill of Rights. And as America moved away from the inquisitorial system towards the adversarial system, they required change agents and I did that for more than two decades. That is training lawyers, judges, judicial administrators, politicians, and lawmakers, and why it was important to have transparency, participation and efficiency in their legal system. Now out of that first generation and now as a super long answer, but I’m a law professor so you know, I get paid by the word, For the record, there’s no money being transacted here. That was a joke. But a part of these first generation rights also allows for economic reforms to take place for privatization for a number of what are called Washington Consensus, International Monetary Fund, the World Bank, Department of Treasury of the US a series of policy prescriptions, that included things like criminal law reform, but not always, so as Latin America opened up its economy and to neoliberal reforms. I was a change agent for 15 different countries for a long period of time and spent a lot of time in Latin America working everywhere from Mexico to Chile and in between, and then started doing work in Asia.

As I’m doing work in Latin America once we were able to get a few success stories. That’s the key story here is a few because not everything worked. Often we just build the courtrooms and they’d wave a magic wand and say, ‘You’re here by adversarial system without training anybody”, but on the rare occasion, we got a victory we also started to see second-generation rights like intellectual property rights, and indigenous rights like DNA, which I didn’t realize was disruption. I realize now it’s disruption because you’re completely changing hundreds of years of the legal system and legal culture and moving into something completely different and more modern in a very leapfrog technology. We use a lot of case management software and a variety of other kinds of technologies or advocacy skills even mediation ballistics DNA, to do some of the early first generation reforms. The second generation reforms required a lot of listening and a lot of proactive community building. And what I started to realize and I started doing work in Taiwan, the People’s Republic and I got a chance to meet a lot of wonderful reformers who worked with such as Jason Chu, the ex-congressman from the KMT in Taiwan, who’s also a member of the Impact NFT Alliance, and I got to work with Dr Michael Sung, who’s at Fudan University and one of the co-founders and co-directors of the FinTech Research Centre in Shanghai at Fudan University. So I got to see not only the cross straits kind of way but in a Pacific Century kind of way. What we’re missing in Latin America, but the importance of other leapfrog technology. So I started as a comparative lawyer and as a legal reformer started doing work in the tech sector to find out ways to make Latin Americans and also the rest of the world’s economies, more integrated, more efficient, and to get rid of the very slow legal systems that get in the way of transactions and that’s what attracted me to the blockchain. So fast forward to 2018 January on the sidelines of the World Economic Forum in Davos, Switzerland. Michael Sung and I were the co-hosts and co-conveners of the One World Blockchain Alliance at the Hard Rock Hotel for three days and some young Chinese entrepreneurs came up to me and said: “We really like what you were talking about in your panel. Would you be open to being an advisor for our blockchain company?” So that was my gateway into blockchain. And it’s been a wicked ride ever since and it’s been just an e-ticket ride as we say about, you know, Disney World that and I’d say the best MBA that I never got. Better than that it’s amazing to have mentors who are half your age. So that was the very long winded way of saying I got here in a very heuristic, meandering kind of way. You know, I now write for Coindesk and Yahoo!Finance and Cointelegraph and The Hill and a bunch of other platforms about disruptive technologies increasingly about artificial intelligence, but I think blockchains are super important technology that we need to liberate from the scammers and the pump and dumps and the fraudsters and no good products out there and make it what it’s really meant to be. So I’m excited by that and then NFTs as well. I think that we’ve barely scratched the surface of what NFTs can do.

Allen: Excellent, as you say, you know a lot about Asia as well. And, of course, you know that some countries like China have outright banned non state-issued digital currencies, but are allowing very sophisticated central bank-issued digital currencies. Do you see countries in the West, ever outright banning private sector issues and launching government-led digital currencies?

Professor James Cooper: I think that’s going to be a more difficult road. It’s going to be it’s easier in command economies. It’s easier in more authoritarian contexts. In a free market. It’s a very difficult thing to outlaw these sorts of technologies because you also freed yourself out of new forms of capital formation. There’s a need in the West to constantly be innovating I like to be in the People’s Republic all sorts of other places, and that the West now is and Northern industrial countries are so much invested in particularly their capital market and you see the big sharks like Goldman Sachs or any of the other VC funds out there, they’re now getting involved or banks or near banks or merchant banks, everybody and their uncle is somehow, even in the midst of this crypto winter, getting involved. It’s too late to kind of pull back. I think there’s going to be a fear that if the West doesn’t continue to innovate in a private chain kind of way. It’s going to fall prey to the larger centralized decentralized systems, like the DCEP in China, the digital currency electronic payment initiative, when coupled with made in China 2025 with the Belt and Road Initiative is really propelling China to be hegemon in the blockchain. So the short answer is I don’t see the West and Western countries outright banning it as they did in the People’s Republic. And remember, they played in the People’s Republic years ago, and they kept saying: “No, no, we’re serious about it. No, stop doing that.” And then there wasn’t a lot of enforcement. Sometimes it was different economics ministries that would or sometimes more localized government officials just say no you’re not allowed to do Bitcoin mining here. No. And you know, people kept doing it. But now they’re there. They’ve gotten very hardcore about it and clearly, it’s not happening. That’s harder to do and more difficult to do in countries where there are too many freedoms and where capitalism is king.

Allen: Absolutely understood. Now that global regulators and lawmakers in the West are increasingly regulating and legislating cryptocurrencies and NFTs. Can you tell us where we are in terms of the legal world coming to regulate to work with the government to regulate where we are the state regulation?

Professor James Cooper: Well, that’s a great question, Allen, because, in the last two years, we’ve seen a change among the various international institutions, whether it’s the OECD or the Bank of International Settlements, the latter of which is the central bank, for central banks. Some of the other international organizations that are out there, the Bretton Woods, institutions like the IMF and the World Bank, formerly known as the International Bank of Reconstruction and Development after World War II they’ve all been searching for like what is next? What’s their next rule? Because, you know, allegedly liberal democracy and capitalism one which we all know is not true after 1989 that “end of history” idea of Francis Fukuyama didn’t count on Venezuela, Cuba VNM, the People’s Republic and a number of other countries that continue to practice command economies and non-market economies in a pure sense so we’re now we’re at a stage where, because the international agencies out there that these traditional financial institutions are now saying, well, initially, we weren’t so hot on central bank digital currencies, and we’re not so hot on these know the threat of fiat currency because that’s a total paradigm shift and it would change, not just their ability to centralized finance and control fraud and ensure depositor investments are protected and monitored and investors are protected but also depositors. Depositors’ money’s protected that are involved in Defi so forth. They’ve kind of changed your tune over the last two years and gone from well, we’re studying it to now we’re deploying but in a more, we’re still gonna study it. So there’s still a lot of navel-gazing. There are a few outliers out there. They’re the Marshall Islands and the Sands and Venezuela and the Petro which is always interesting to me to see how Venezuela did it because it’s clearly a play to evade US sanctions and other international sanctions. The Petro did it they the anchored or they collateralized the Petro(their version of a central bank digital currency) with future reserves. The only problem is it’s like a second mortgage that they’d already given China and Russia, other collateralization on the same reserves. It is not a very secure structure for the Petro if you look at the dynamics behind it. The US has looked at it, in fact, a lot of people don’t realize in March of 2020 with COVID, the initial Paycheck Protection Plan (PPP), I think initially had a digital wallet attached to it for the 17 million households in the United States that are unbanked. Seventeen million still in the US are unbanked and so they were going to give stimulus packages. Initially, some of the first bills that came out of the House version of the PPP had a digital currency piece to them. It got taken away the banks and their lobbyists and you know, the traditional legacy banks made sure of that, but it could have happened in the US too. Now there is Chris Giancarlos’s digital dollar project, you can check that out at Digital dollar https://digitaldollarproject.org/.

There are a number of other studies that are going on, but the US has not in a centralized way said we’re going to do this and we’re going to do it big and they should be thinking about this because if other countries do it and they’re able to get rid of the need to use Swift and a bunch of other legacy mechanisms, then the US runs a risk of no longer being the sole global currency, reserve currency and that’s dangerous from a geopolitical point of view for the US and its allies. China, the People’s Republic of China, on the other hand, with its DCEP you know, the day after Mark Zuckerberg first David Marcus from Facebook, now, Metta, and when they were and then Mark Zuckerberg in July of 2019, I believe it was, went to a congress or some committee and started talking about at the time, it was called Libra and now it’s called Diem, they started pitching their idea and they Mark Zuckerberg said, I’m paraphrasing, if you don’t let us do this Congress, the Chinese are going to eat our lunch, which was and suddenly the Chinese officials said Oh, got it. You know what’s going on? Because they’ve been studying this since 2014. So they went into high gear and then by October, they had national blockchain day in China. And then they started doing a couple of cities tests and then they rolled it out fully with the recent Olympics and what you’re seeing now is by connecting it to the Belt and Road Initiative with more than 70 countries as part of the international treaty system or agreement system that the PRC is probably getting around and promoting around the world, you know, cheap loans, collateralized and but you got to use or 5G and or blockchain or cryptocurrency, or decentralized crypto nationalist project, you have to then never seen the Chinese making a much bigger play and it’s part of their overall strategy and naturally this is all common knowledge. It’s part of 2020 Made in China 2025 initiative, which is we want to take the Chinese want to be the first mover and dominant in all the future industries whether it’s AI, 5G Robotics, semiconductor chips, blockchain, smart cities, autonomous vehicles, all and all the intellectual property going back to my previous work.

And I served on a US delegation to the World Intellectual Property Organization Advisory Committee on enforcement many years ago, so I had I am an IP scholar, so I was very interested in how now China’s actually filing since 2012. Probably more patents than the EU, the US, South Korea and Japan combined. Now, a lot of those are junk patents 90% of them or so are vacated after the first year. But the point is they’re playing the patent game. The state intellectual property organization of the People’s Republic of China is super busy with all these patents. And they’re filing depends and they’re using the Patent Cooperation Treaty to a limited degree, but they’re getting out there. So you know, the crawler underneath is China is no longer the pirate nation no longer the copycat nation. China is the innovator now, and I can foresee a time when the West will be copying and pirating what the Chinese are doing, if we don’t get our act together, and be less concerned about likes and being hot, which you can’t export. And more concerned about STEM (Science, Technology and Engineering and Math) and math and more math. As uncool as that and maybe if you look at the studies, you know that the US and Western countries continued to fall behind in terms of our scores. It’s time to step up our game, and more importantly, find ways and better ways to collaborate with the People’s Republic, the entrepreneurs and the massive capital machine that they have there. Whether it’s through state-owned enterprises or not there have to be ways that we can share these things. Because when we’re talking to each other, and when we’re working together, we’re less likely to be at odds and I think that’s, you know, yes. You have to be concerned about national security and national industrial policy, of course, absolutely. And export controls. Yes, that’s a given. But given the number of Chinese scientists that are doing work here and helping US companies file patents, it’s something to be concerned about. So it’s this again, a very long-winded answer to what is happening with central banks. The short answer is the US and the other Western countries are studying and Sweden’s made some steps. There are a number of other countries in the ECB with Christine Lagarde, everyone’s looking at it. But I’ll tell you what’s really going to hurt this crypto winter right now is putting the halt on that. Because they’re not seeing the private chains doing as well and the price of cryptos has fallen so precipitously that I think it’s a huge opportunity for central bank digital currencies right now. So you know, all of this negativity there we have to find ways to continue for true believers to make the internet and Web 3.0 and all that other stuff become a reality in a safe, measured and controlled way.

Allen: Excellent. So the next question is and perhaps you’ve already touched upon this, but basically what are the key legal and regulatory trends going forward guiding the developments and NFTs and blockchain-based financial instruments?

Professor James Cooper:  That’s the million dollar question. The short answer is regulators and the Chinese don’t have to worry about this because they’ve outlawed all the private chains, but the regulators here and elsewhere have to figure out is crypto a security? Okay, and when I say crypto or is it a commodity, or is it a currency? Or is it a utility like everybody is saying and you know who’s pushing it,: Oh, no, it’s utility because the Wild West environment helps fraudsters and others are no good mix. So what’s going on now is that there’s a push in the US, for example, and elsewhere to sort of get some rules together. That will make sense but not chill capital formation, and that’s a difficult dance. So you see Gary Gensler who’s the Chair of the Securities and Exchange Commission, you know, saying: “Look, we’re gonna have to regulate this.” This is a security and we need to do what it takes to protect investors without putting too much of a problem on capital formation. The other piece of the puzzle is, is it a commodity? Is it like pork bellies? Should it be treated by the Commodities Futures Trading Commission (CFTC), or should it be regulated by the Department of Treasury in the Office of the Comptroller the Currency (OCC) and because it’s a currency, and so that discussion needs to be a little more public, and much more robust right now. Because that’s where, you know, as Brian the head of Coinbase said: “It’s got to be a brand new institution. And here’s how you regulate.” That’s like, you know, regulatory capture alert when the people, when the exchanges are telling us how to regulate us. We should regulate them. That’s called regulatory capture that’s dangerous for democracy and dangerous for consumer protection. So we’re still in that struggle and I think the more we can educate the public on this, the more we can educate our legislators on this and I think that’s a great role that Impact NFT Alliance is fulfilling. What the folks at NFT Mettta, all of us together to our media partners, need to educate the regulators and consistently do it.

Allen: Very good. Professor, let’s look into, this is our last question, please look into your future scope. 20 years from now, in the 2040s. What do you foresee in terms of digital currencies in the West, how sophisticated a market might they become and how might they be used to regulate?

Professor James Cooper: That’s, there’s a thing there’s a great future for this. This is the Internet without intermediaries and anybody who’s watching this is already a true believer. So I don’t have to convince you but it’s convincing everybody else. What I need to convince all the true believers is this is not just about making money. This is not about obfuscating your ill-gotten gains it shouldn’t be about mobster money being hidden and then the forensic people from various law enforcement agencies have to come in with their anti-money laundering initiatives and we force everyone with Know Your Customer (KYC) which is, you know, banks do it. You want to be a big boy. So you need to wear your big boy pants. So, so you can’t be a trillion dollar industry, depending on whose numbers you believe, without expecting to be regulated. One, so I see some regulation coming down the pike. I also see a chance for NFT’s to be used more for things more than aboard a yacht club or you know silly ways for some of the greatest of all times the Tom Brady’s and the other collectables. That’s a great use of it, but it shouldn’t be the only use of it just like blockchain can be used for so many more things like food security, like land titling, well NFTs likewise can be used for that as well. A former student of mine and I wrote a piece in Coindesk at the end of last year about NFTs being used to promote the right of self-determination and other important human rights so you can see a future and I can see a future where self-determination which was Woodrow Wilson’s 14 points was one of the points there. It’s in the charter United Nations where all people can freely determine their political status and freely pursue their economic, social and cultural development. All peoples can. This is from the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights. So you get both the capitalist world and the Soviet camp during the Cold War, signing on to this article one which was the same and NFTs can be used to protect that, whether its voting rights and access to the electoral process, can be facilitated by NFTs, making everything more accessible, strengthening the process. We don’t have time today to go into that, but we have to find ways and this again is an important mission of the impact NFT alliance to do what it takes to get NFTs for carbon capture, carbon credits to reduce the global climate change challenges that we’re facing, and find ways where you can do good and do well at the same time.

Allen: Very good. Thank you, Professor, for taking your time to look at the past, present and future. Blockchain and NFT’s I’m sure many of your predictions will come out to be true in the coming years. You’re absolutely right: regulations will be increasing in the West and for the better. And ultimately, we’ll be making NFTs much more secure and much less of a scam-prone type of instruments. Thank you so much for your time today, Professor.

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