In the mid-1970s, a cutting-edge group of hackers founded the Homebrew Computer Club in Silicon Valley. Their specialty was developing tools to break into the telephone systems of major corporations, and they went on to create innovative technologies that changed the world, generating millions of dollars in value along the way. One of those hackers was Steve Jobs.
It was in the days of an innovation economy that fostered risk and was free from crushing regulations that I found my start and built a career in technology, as did the founders of companies like Apple, Microsoft, Intel, and Cisco. The disruption of incumbents, however uncomfortable, placed Silicon Valley on the map and put the United States at the forefront of an economic revolution that forever changed the way we live.
As we near the end of the coronavirus pandemic and step into a new chapter of our nation’s economy, one that’s more digitally connected than ever before, we should create policies to foster this same sense of innovation within today’s tech sector. Under the new leadership of the Biden administration, America has an opportunity to take a fresh look at one such disruptive technology: blockchain and cryptocurrencies.
The federal government’s approach to cryptocurrencies today reminds me of Washington’s approach to the telecom sector in the late 1990s, when the United States faced a challenge. The nation’s decision to favor a centralized telephone network — akin to the railroads — forced legacy networks to rely on expensive, unpopular long-distance calls to fuel their growth. This slowed U.S. innovation to a glacial pace, creating a vacuum filled by foreign companies like Nokia, Ericsson and DoCoMo.
Ultimately our government turned to Joseph Schumpeter’s idea of “creative destruction,” passing the 1996 Telecommunications Act. This deregulatory approach fueled two decades of technological innovation that put the United States squarely at the front of the pack.
Even in today’s increasingly digital world, the U.S. financial system still relies on antiquated technology to transfer capital, using tech that’s about as outdated as the fax machine — something for which there is an emoji but no person under 25 has likely ever set eyes on. Newer and more efficient technologies replaced faxes with digital emails and text messages. Blockchain is poised to replace slow and expensive wire transfers.
Today’s global economy has been digitized in almost every way. Like Uber and Airbnb, blockchain and cryptocurrencies represent packets of information sent across networks between two parties without friction. That same process is already remaking our entire economy. Whether a digital token, an available ride, or a furnished apartment, the concept and the trend are the same. Businesses succeed when friction is eliminated and when consumers are offered faster, cheaper, and more secure alternatives, disruption becomes inevitable. Just as the yellow cabs in New York City were not immune from disruption, neither is its financial industry.
The future of our financial services infrastructure and America’s role in it means our regulatory system can’t get this wrong. Digital currencies already exist, conventional banks already use them, and the market cap of the cryptocurrency industry recently exceeded $2 trillion. We need a regulatory framework that builds on this growth, not one that squanders it.
Two regulatory actions in December indicate that Washington doesn’t understand that: The Securities and Exchange Commission sued Ripple Labs, the inventor of the XRP token, claiming that the cryptocurrency was an unregistered security when they sold it. Many say the lawsuit reflects a failure to understand the nature of cryptocurrencies and the networks on which they operate. The Treasury Department also proposed a set of rules for self-hosted wallets that U.S. cryptocurrency exchanges say could put them out of business.
The backdrop of all of this is an $84 trillion global economy struggling against negative growth, carrying $270 trillion in debt that grew by roughly 10 percent in the past year. The only way to reverse this dangerous trend is to move more people back into the productive economy — and that will take embracing innovation. The Biden administration needs to understand that it must set clear rules rather than take wasteful rear-guard actions.
A failure to create a regulatory framework that supports cryptocurrency growth means that the United States will not only fall behind in global financial services, but it will also endanger the value of the U.S. dollar itself. If we don’t innovate, the dollar could become the long-distance call in a WhatsApp world. America and its regulators need to support regulatory frameworks that encourage innovation both for and from our nation to maintain our lead.
Bill Tai has been a venture capitalist since 1991 and has served on the board of eight publicly listed companies; he was among the earliest investors in Canva, Dapper Labs, Wish.com and Zoom Video.
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