The past four years have focused on the fight for the survival of the U.S. crypto industry. Against a hostile administration and unprecedented legal action, the industry fought back bravely and won.
But now the industry faces a more pressing challenge: helping develop the laws and policies that will govern the industry for decades to come. The core of this struggle is the issue of “decentralization.”
Simply put, decentralization is about distributing control and decision-making, removing the need for a central authority and ensuring users more choice, transparency, security, and resilience. It may sound technical, but decentralization is a core premise of blockchain technology. The benefits of decentralization include fostering competition, creativity, and collaboration while protecting freedom and value, both financial and reputational.
But why should decentralization be legislated? Adopting policies that encourage it can ensure three important outcomes:
First, it can prevent large, centralized corporations such as Big Tech, Big Finance, and Big Entertainment from establishing dominance in the rapidly growing blockchain ecosystem. As we’ve seen across the Internet, banking, and entertainment networks, centralized control leads to consolidation and value extraction, to the detriment of the people who use those products. The next version of the internet should focus on uplifting the people of Little Tech. Because the world needs more choices, not the same few.
Second, we can ensure that founders and builders are rewarded for relinquishing unilateral control and building systems that function more like public infrastructure than proprietary technology. The Internet has evolved rapidly because it allows entrepreneurs to build on shared, open protocols such as email and the Web. Blockchain unlocks a similar, but even vaster world of possibilities.
Finally, it can protect consumers and encourage long-term investment and construction. Minimum standards of decentralization help ensure digital assets function more like commodities than securities, without stifling innovation, and protect against volatility, fraud, and pump-and-dump casino culture. This may be bad news for crypto hedge funds and day traders, but it’s good news for anyone looking to build useful products on blockchain.
Without these three incentives, the allure of centralization is too strong for builders. Although blockchain has made decentralization technically more possible and easier to implement at scale, it is still too much for builders to make unilateral decisions rather than build consensus. It’s too convenient. And there is a temptation to hoard the profits for the benefit of a few rather than distributing them to the community.
So how can we promote decentralization?
We need a new “fit for purpose” regulatory framework for decentralized technologies like blockchain. This does not assume the existence of a centralized intermediary, as securities laws currently require. Such a framework could encourage decentralization by reducing regulatory burdens. and by enabling broader market access to projects that not only extends ownership and control, but also provides customized disclosures.
While this approach is not new and builds on the SEC’s 2019 Framework for Digital Assets, it also resolves one of the key paradoxes introduced by that framework. This framework aimed to reduce risk to users by limiting dependence on centralized actors. But it also encouraged projects to obfuscate their ongoing development work, or even abandon it altogether, exposing users to significant risk.
This new regulatory framework reframes decentralization in terms of governance, combining governance-related decentralization and disclosure requirements to enable founders to build decentralized technologies and provide the convenience of centralization. It helps to fight against ease and ease. And it would do so without exposing consumers to the risks that securities laws seek to address.
This approach is also flexible enough to evolve as the industry grows. This will therefore foster innovation, accelerate the advancement of decentralized technology, and enable the cryptocurrency ecosystem to thrive in the United States for years to come.
While it is clear that there will be pushback from those in the industry who are trying to advance their own agendas and interests, let us not lose sight of the benefits of blockchain technology for everyone, not just cryptocurrency users.
Winning the decentralization battle will protect the purpose of cryptocurrencies.
