In testimony before the Senate Agriculture Committee last Wednesday, CFTC Chair Rostin Behnam threw down the gauntlet to SEC Chair Gary Gensler, making clear that Ethereum is a commodity and has been listed as such for some time. He stated that “We would not have allowed the Ether futures product to be listed on a CFTC exchange if we did not feel strongly that it was a commodity asset.” Gensler said the opposite in a recent interview.
This highlights a slow-motion regulatory fiasco that is now painfully obvious: if the two leading agencies responsible for determining whether Ethereum is a commodity or a security cannot agree, how is it at all possible for builders, developers, open-source projects, and companies to have any certainty on the rules?
We are in a situation where there are different traffic cops enforcing speed limits under totally different systems and rules. By definition this means there is no clarity and certainty for those who are trying to responsibly follow the rules of the road. And with approximately 50 million Americans holding a crypto currency (20 percent of the population) and around 80 percent of Americans saying that our financial system needs an update, the current approach makes no sense.
Just over a year ago, President Biden’s executive order called for the U.S. to “support technological advances that promote responsible development and use of digital assets,” yet the U.S. still does not have a “first principles” approach to crypto. Instead, we’re left with an SEC chair that relies on enforcement by press release (and sometimes YouTube videos).
This lack of first principles thinking is a huge disservice to America’s economic and innovation leadership.
The next generation of the internet is designed to make our economic system faster, easier and more efficient. But America won’t be in the driver’s seat for this historic growth in front of us if we can’t move to first principles thinking. The cracks are already showing — the U.S. ranked 25th for the second year in a row on the Heritage Foundation’s 2023 Index of Economic Freedom. And at Thursday’s hearing on crypto before the House Financial Services Committee, both Republicans and Democrats voiced concerns that the U.S. is falling behind and ceding its historic leadership role due to this lack of first principles thinking. We need a strategy to guide the next generation of the internet because this enforcement by press release approach is no way to run — or remain — a tech and finance super power.
This lack of a first principles approach stands in sharp contrast to how the U.S. government has historically led when it came to partnering as an ally with the nation’s inventors, innovators and entrepreneurs to build. We used to have a forward-leading mindset that was animated by a clear goal: build for the future so the ideas driving the next generation would be based in the U.S. We knew it was in the best long-term interest of our nation’s economy and national security. From building railroads to drive domestic commerce, to building the world wide web to advance the digital economy, the U.S. understood that its superpower was inextricably tied to its ability to unleash the country’s greatest natural resource: the talent of its people to imagine where the world could go. And we understood that it needed to be built here at home, so we could lead that journey.
When a Democratic White House under President Bill Clinton and a Republican-led Congress came together to pass the 1996 Telecommunications Act, America’s first principle thinking was on display. By focusing on making the U.S. the innovation hub for the global digital economy, we translated first principles thinking into jobs and revenue, and helped extend the American Century into the 21st Century.
The rest of the world took note of the success of the 1996 Telecommunications Act. They realized they missed a massive opportunity to host companies that built the last generation of the internet, and they aren’t going to make that mistake again with crypto — especially as U.S. policymakers fail to keep pace. Countries from the UK to Switzerland to Dubai to Brazil to Australia are all executing on national strategies to become the next “crypto hub.” Even China, which a year ago had sought to ban crypto given the decentralized nature of the technology poses an existential challenge to an autocratic state, recognizes that the future architecture of the internet will include blockchain technology and has reportedly opened up Hong Kong for crypto development.
Crypto is the next generation of the internet, and this global flurry of largely constructive rulemaking is generally good news for the crypto sector and the future of web3. But it means that countries that prioritize responsible, crypto-forward policy frameworks will be best positioned to benefit. One of the first principles of innovation is that new ideas and technologies will follow the path of least resistance. Increasingly, that path will take them to jurisdictions that are demonstrating a commitment to lead in developing web3.
As we look to the future, we should also learn from mistakes in our past. Over the last year, the Biden administration has made a huge effort to bring back the semiconductor industry after the U.S. allowed this critical economic and national security digital infrastructure to be built off shore. If we had applied first principles thinking back then, we could have avoided pouring enormous amounts of public money into bringing the semiconductor supply chain back to the U.S. We cannot afford to make the same mistake with crypto. But the current enforcement by press release approach threatens to do just that. We must do better.
