The Curious Case Of Web3 Politics (Pt. 2)
Since last week, the global political atmosphere surrounding the blockchain has become even more polarized. With the stakes now higher than ever, what could the future look like?
Last week, we discussed an important aspect of modern internet decentralization (read it here). Little did I know that an avalanche of global events would soon make this topic even more important.
Yes, it’s a difficult conversation to have. But in the words of Dave Chapelle, “modern problems require modern solutions.” Over the past decade, the blockchain has operated like a Wild West of sorts. Bad actors have acted really, really badly without rebuke.
So yes, I agree that in 2023, the use of blockchain technology should be regulated. It’s the next logical step towards widespread adoption. Oddly, some political figures have turned the mandate for blockchain regulation into an anti-crypto crusade.
The U.S. government continues to tighten its leash on all things crypto. Meanwhile, the rest of the world sees things differently. For the most part, the American regulatory approach feels like an attempt to shove round pegs into square holes.
We’ve already established why this is such a bad idea. Centralized political influence in such a rigid regulatory system will stifle innovation. The pillars of our industry should be entrenched in properly structured legal systems.
Today, we’re taking a closer look at how it should be done.
The month of March wasn’t all doom and gloom for the crypto industry. It ended on a rather high note with an announcement from sunny Central America. The President of El Salvador, Nayib Bukele, signed a historic bill into law.
You might remember him from the time when El Salvador famously became the first country ever to recognize Bitcoin as legal tender. Now, the new 11-page law has eliminated all taxes on technological innovation.
This is bound to attract businesses dealing with software programming, coding, apps, AI development, etc. It also solidifies El Salvador’s reputation as one of the most attractive places on Earth to build a Web3 venture. But there’s more.
It’s very crucial to note that the new law itself says nothing about the regulation of crypto financial products and services. By simply removing a blanket tax embargo on tech innovation, the law creates room for positive growth. The door to future regulation remains wide open.
The U.S. government plans to make billions of dollars from the sale of seized bitcoin.
In contrast, the U.S. government has doubled down on its anti-crypto stance. Last week, we examined the implications of the SEC’s pursuit of Coinbase. The Commodity Futures Trading Commission (CFTC) shortly took up the baton.
Its target? Binance, yet another industry giant.
They claim that Binance facilitates the trade of “unregistered crypto derivatives.” These so-called contraband include bitcoin (BTC), ether (ETH), Binance USD (BUSD), litecoin (LTC), and tether USD (USDT). The allegations also claim “insider trading” by Changpeng Zhao, Binance’s CEO.
The question here isn’t whether or not these cryptoassets are financial commodities. The bigger issue is why the U.S. government is copying and pasting laws from its broken financial system to regulate the blockchain.
There seems to be a brazen ignorance of how the blockchain was designed to circumvent the weaknesses of traditional finance. Or maybe it’s willful or feigned ignorance. After all, it’s a system historically designed to keep banks and the Federal Reserve happy at the expense of retail money.
The CFTC sought to justify its lawsuit against Binance with the allegation that most of Binance’s profits come from the U.S. So far, there’s no publicly available proof to back this up. Since 2017, Binance has insisted that it restricts access to U.S. customers.
Peer-to-peer (P2P) transactions account for a huge chunk of Binance’s profitability. So, where does the U.S. rank in terms of global P2P transaction volume? Adjusted by population and purchasing power, America ranks 111th in the world.
Now let’s assume the U.S. proves its case against Binance. What would the consequences be? The lawsuit asks the court to immediately halt all of Binance’s trading operations. They’re also claiming all of Binance’s profits, including the salaries of Binance executives. In addition, there will be extra fines to pay.
Yesterday, the U.S. government sold bitcoin assets that it seized in the aftermath of the Silk Road case. With $215 million in profits netted from the sale, they plan to rake in another $1.2 billion before 2024.
FedNow has enjoyed free advertising from the Federal Reserve. Last week, they proclaimed the government-run crypto payment system faster than traditional banking. The news came as a marvelous shock. Who knew crypto was better than fiat?
So there you have it. Some countries create a positive atmosphere for crypto innovation. Others use the law as an engine to extract money from the ecosystem.
Last week, Brazil and China agreed on a deal to trade in their own currencies. While its economy is still in the throes of inflation, the Federal Reserve pumped out $3 billion to bail out failing banks.
I guess we’ll never know why the U.S. government chooses to take crypto money and inject it into their ailing banking system. One thing’s for sure, though: It’s not for the sake of taxpayers.
The U.S. dollar is quickly losing its relevance as an international trading instrument. It’s also quickly building a reputation for hostility toward crypto businesses and investments. The implications for the future are clear.
Entrepreneurs and investors should become wise to the state of affairs. The concentration of political influence in Web3 should extend to more welcoming climates. American taxpayers should pick up the phone and express their concerns to their representatives in Congress.
Any form of crypto regulation must give room for diverse circumstances. There’s so much more to blockchain technology than financial engineering. Hence, the law needs to create a conducive atmosphere for innovation to thrive.
We have been gifted a chance at something that could truly change the world. It’s our moral responsibility to keep the bigger picture in sight.
