Finance

Washington Must Get Serious About the Digital Economy

In the first 100 days of the Biden-Harris administration, we saw ambitious steps taken to end the COVID-19 pandemic, a push to get on a stronger footing to compete with China and the announcement of a historic infrastructure plan. Missing from all of this was a much-needed commitment to strengthening the United States’ position in the technological revolution around blockchain and cryptocurrencies.

The army of developers and visionaries building this technology didn’t wait for the government’s notice to bring blockchain to life and build electronic networks that can change the way we do many things in the global economy. But now that their efforts have amassed a total value for cryptocurrencies that recently exceeded $2 trillion, Washington can’t ignore the space any longer. A regulatory framework is vital and overdue, and further delay could become dangerous for investors and innovators alike.

Today, the regulatory framework governing these technologies is a mixed bag spread across multiple agencies. Developers and innovators lack clarity on what is and isn’t a security and what does and doesn’t have utility. A comprehensive proposal, hammered out with developers and industry stakeholders, must reimagine existing securities laws, create a safe harbor that encourages innovation and reduce the legal uncertainty that has stoked fear and hindered growth amongst nascent developers.

Taking these much-needed actions will not only aid the government’s efforts to rebuild the economy after the pandemic — they will be crucial in America’s campaign to build a next-generation digital economy that can compete with China, which has already developed a digital currency of its own.

The current proposals coming out of the White House lack the ingenuity needed to ensure global competitiveness, particularly by ignoring the $2 trillion elephant in the room. For example, the United States has been playing catch-up in the digital world for years, pushing to deliver a robust nationwide high-speed broadband network but not crossing the finish line. Certainly, the Biden-Harris administration’s proposal to spend $100 billion providing this access may get the country where it needs to be, but politicians can’t continue to spin their wheels playing catch-up and falling behind in other important next-generation technologies like blockchain and cryptocurrencies. It’s no secret that cryptocurrencies have revolutionized our financial systems, creating a digital economy that could rival our central banks. The Biden-Harris administration should acknowledge this and take the necessary steps to foster this revolution.

That’s why the Blockchain Research Institute released “New Directions For Government in the Second Era of the Digital Age: Strategy, Policy, and Action for the Biden-Harris Administration” in February to provide a framework for how the United States can further this trend.

One of our main concerns was the use of public statements, enforcement actions and lawsuits by federal agencies such as the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission to set policy. Such actions merely kick the can down the road on an issue that is too important.

Just six months into this administration, the Biden-Harris team has plenty of time to chart a new course. But it is concerning to see that under the new leadership of SEC Chairman Gary Gensler, the Biden-Harris SEC committed to seeing through its lawsuit against Ripple Labs, the digital payments innovator. A Hail Mary pass during the final days of the Trump administration, the SEC’s case hangs its hat on an archaic legal standard called the Howey Test, arguing that Ripple illegally sold an unregistered security when it began distributing the XRP cryptocurrency.

In our report, we take issue with the use of the Howey Test and are concerned with its application here as well. Not only do we feel that this 1946 Supreme Court ruling has been carelessly applied over the last decade, leading to an imbalance in the SEC’s enforcement across the sector, but it is outdated and simply unfit for today’s digital economy. What we feared has largely played out — both in this case and with other half-baked enforcement actions. There’s a lack of stability in the token economy and a chilling effect in the air that has halted the progress of these important technological and economic innovations.

If the United States is going to lead the world into the next phase of the digital revolution, we need to spend less time playing catch-up and more time developing future technologies. Whether it’s the creation of a regulatory sandbox or bipartisan comprehensive legislation, if the United States is serious about competing on the world stage, then its leaders need to get serious about the future of cryptocurrencies and other digital blockchain solutions.

 

Don Tapscott is the co-founder and executive chairman of the Blockchain Research Institute, an adjunct professor at INSEAD; he was recently a two-term chancellor of Trent University in Ontario and is a member of the Order of Canada.

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