How Washington's new regulations could result in a brain drain in the blockchain industry

Описание: The internet is what it is today—capable of connecting people across countries, time zones, and cultures—because of the tolerant regulatory environment in which it was born. Regulators will be far less receptive to disruptive technologies in 2021, unfortunately. This is detrimental to the future of innovation in the United States and the emerging blockchain industry.

Whichever approach Washington takes to cryptocurrency regulation over the next few months could make a multi-trillion dollar difference over the next few years. To appreciate how much we stand to lose as a result of poor blockchain policy, it's necessary to first appreciate how much we gained in the 1990s as a result of sound internet policy.

It's easy to forget that during the early years of the tech boom, the success of today's internet behemoths was far from certain. For example, during the late 1990s Dotcom Bubble, numerous businesses were written off as scams (and some of them were). Even the most promising businesses, however, were viewed as speculative bets, with their stock prices subject to extreme volatility.

Additionally, it's easy to forget that the internet's early years were unfamiliar territory for the majority of people. By modern standards, it was slow, overly complicated, and difficult to use for anyone lacking a strong technical background. Many dismissed the internet as a fad, including Nobel laureate economist Paul Krugman, who predicted in 1998: "By 2005 or so, it will become clear that the internet's economic impact will be comparable to that of the fax machine."

"A swindle," "a fad," "a bubble," "excessively complicated," and "excessively volatile." Do any of these statements ring a bell? History often plagiarises rather than rhymes. And it's impossible to ignore the fact that today's crypto sceptics use the same lingo as yesterday's internet sceptics.

Consider what might have happened if policymakers in the United States had heeded the internet's critics in the mid- to late-1990s. Consider what would have happened if they had stifled e-commerce, digital publishing, and fledgeling social media platforms in order to preserve the old way of doing things. Consider what might have happened if they had crafted regulations to stifle the free flow of physical goods, ideas, and information enabled by the internet.

The American people would have been denied trillions of dollars in economic opportunity—and the rewards of the digital age would have gone to countries with more tech-friendly policies.

This is the danger we are confronted with in the modern era.

We have entered a new era of American innovation. As with the internet, cryptocurrency has the potential to rewrite the rules of business, politics, media, finance, and even interpersonal relationships. However, if legislators succumb to cryptocurrency critics by adopting a draconian regulatory approach, the United States will miss out on the economic benefits of this game-changing technology—and entrepreneurs will flee to safer shores.

Already, the groundwork for a blockchain brain drain is being laid. Consider the Senate-passed infrastructure bill, which includes a provision that would classify crypto miners, validators, and even software developers as "brokers," requiring them to report to the IRS information about anonymous blockchain participants that they would otherwise be unable to obtain. In effect, this provision would kill the nascent DeFi (decentralised finance) industry and make investing in new cryptocurrencies nearly impossible for average Americans. In other words, this latest move sends a hostile message to blockchain advocates: "You are not welcome here."

At best, the Senate proposal demonstrates a fundamental misunderstanding of how cryptocurrencies work; at worst, it demonstrates regulatory capture and lawmakers' willingness to cave to special interests.

Regrettably, the danger of ineffective regulation does not stop there. Gary Gensler, chairman of the Securities and Exchange Commission, has stated that he believes that many digital assets are not commodities but rather securities and should be regulated as such. Using a similar logic, he has indicated his intention to crack down on the use of stable coins—cryptocurrencies pegged to the value of the US dollar. Americans are using stable coins to earn an annual percentage yield of between 4% and 8% on their savings through a variety of lending programmes. However, the SEC wishes to end these lending programmes, ostensibly to "protect investors." (What is unknown is which government agency will safeguard investors against the unlimited money printing that is devaluing their dollar savings at a rate of 5.3 percent per year.)

When it comes to cryptocurrency, Washington is off to a bad start. However, reversing course is not impossible....

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