History of Disruptive Technologies and Government Regulations
Will History Signal How the 5 US Agencies Decide to Regulate Cryptocurrencies?
Since the start of 2018 increased speculation surrounding how the US government agencies will classify and regulate cryptocurrency has sprung up more than ever before. The most substantial fear of speculators is that the regulating bodies may not even permit different aspects of cryptocurrency space to operate at all in the United States, specifically for ICOs.
A lot of “hodlers” are concerned about the regulations possibly suppressing or even permanently crushing the growth of this booming space.
The biggest issue with disruptive technological innovations throughout history is the changes always happen way faster than government and regulations can keep up with them.
Every time there has been a genuinely disruptive technology introduced into an established marketplace, the regulating authorities more often than not interfered to stop the technology from growing any further. It’s almost always a vain attempt to stop the inevitable, and only protects the established status quo within the marketplace a little bit longer.
History is essential to study and evaluate because it tends to repeat itself.
3 Times in History Regulations Attempted to Interfere with Disruptive Technology:
1.) One of the more shocking and triumphant stories of government interference with innovation dates all the way back to Roman empire under the emperor Augustus. There was an inventor who created, “vitrum flexile” which was a type of glass that wouldn’t break. The inventor did a demonstration in front of the emperor, and sure enough, it didn’t break.
This demonstration scared Augustus that this new type of glass would devalue his gold and silver, so he had the inventor promptly executed and the glass destroyed. As a result of these actions, civilization didn’t have access to this glass until 2,000 years after that. This occurrence is one of the most successful government interference with suppressing innovation.
2.)A more recent failed attempt at government regulations interfering with a disruptive technology was ridesharing. The local state and federal governments trying to stop ride-sharing apps like Uber and Lyft from operating their business in a vain attempt to protect the taxi industry.
Numerous local governments tried to ban the ridesharing apps from even running in their city. Then when they failed at that ridesharing services were restricted from going to the airports. Fast forward to 2018, and there are none to minimal government restrictions in place in the United States.
Ridesharing was going to ruin the economy and destroy our cities, but it hasn’t. Ridesharing has created a lot of opportunities in the new gig economy and provided a much-needed service to consumers nationwide. When all is said and done, if a large enough need exists in the market for consumers, regulations will not be able to crush the disruptive technology from expanding. Instead, it is only able at best to slow its inevitable growth down.
3.)Sometimes it doesn’t even need to be governments that try to strangle disruptive technology from changing the existing market. The cable and television industry had a stranglehold on the production and distribution channels for popular media for decades. Then once streaming video became accessible for consumers on the internet, piracy started to happen a massive scale.
A noteworthy example of a specific media company is Time Warner missing out on 19 million dollars of revenue on the hit series Game of Thrones because they only would distribute HBO through premium cable packages. Consumers worldwide no longer saw the necessity to pay extra money for channels they’d never watch, so they watched pirated copies of the show instead. Time Warner worked with the government to try to catch everyone who pirated their content to no avail.
Eventually, TIme Warner came around and offered a la carte HBO streaming services worldwide in 2017. They didn’t want to provide a la carte options because they thought they would lose revenue from more profitable cable subscriptions. But when technology made it readily available to deliver the content the specific consumer demand, Time Warner had to adapt their decades-old distribution model to meet it.
After looking at the three above examples of how disruptive technologies were handled in the past, history shows us that government regulations and marketplace leaders can try to suppress the innovation from successfully entering the market. However, eventually, the consumer demand is so high it’s no longer artificially held back from entering the market. The technology then expands exponentially despite the early attempts to squash the growth.
What does this mean today for cryptocurrency and the 5 different US government regulatory groups?
Right now there isn’t a consensus within the US government agencies evaluating cryptocurrency. They don’t even know how to define what it is because nothing quite like it has existed in the market before.
Breakdown of the 5 US Regulatory agencies and how they view crypto:
1.) The Securities and Exchange Commission (SEC)
The SEC is an independent federal agency liable for protecting investors from fraudulent investments. This regulatory agency primarily oversees the US securities exchanges.
What is crypto? Security
2.) The Commodity Futures Trading Commission (CFTC)
This independent federal agency protects derivative market participants from fraud. Regulating body of all future and options markets in the US.
What is crypto? Commodity
3.)The Financial Crimes Enforcement Network (FinCEN)
This a bureau of the US Department of the Treasury. This bureau analyzes financial transactions to combat money laundering, terrorist financing, and other financial based offenses.
What is crypto? Money
4.)The Internal Revenue Service (IRS)
The infamous government agency that collects taxes and then enforces a variety of tax laws.
What is crypto? Property
5.) The US Office of Foreign Assets Control (OFAC)
This U.S. Treasury Department agency enforces penalties to violators of economic policy. This agency helps uphold U.S. foreign policy and national security.
What is crypto? Fiat currency or Money
What is the most important objective of each agency?
1.) The Securities and Exchange Commission (SEC)
The SEC is directly collaborating with the CFTC on developing regulations surrounding cryptocurrencies and ICOs. They want to allow growth to happen in both blockchain technologies and cryptocurrencies.
They want to help aid in the overall expansion of these financial system paradigms. They are both in agreement that they need to crack down on fraudulent ICOs. RIght now it’s estimated that 18% of ICOs are apparent scams.
2.) The Commodity Futures Trading Commission (CFTC)
They are directly collaborating with SEC to help develop reasonable regulations that will aid the growth of cryptocurrencies.
3.) The Financial Crimes Enforcement Network (FinCEN)
The FinCen has full authority for enforcing Know Your Customer (KYC) and Anti-Money Laundering (AML) matters and sees tokens as a form of money. ICO sales are subject to the money transmitter rules under the Bank Secrecy Act. ICOs are required to register with the government, collect information about their customers, and report any suspicious financial activities.
4.)The Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) main priority is to collect taxes. The IRS thinks that cryptocurrencies are not currencies, but properties. If it’s a property, this means that if you sell your cryptocurrencies for a profit, you will be subject to a capital gains tax, but they won’t accept payment in cryptocurrencies it has to be in the fiat currency.
5.) The US Office of Foreign Assets Control (OFAC)
US citizens will have the same sanctions compliance obligations regardless of whether transactions involve fiat currencies or cryptocurrencies. Sanctions violations involving crypto are going to be treated similarly to those involving fiat currencies.
Future Outlook
Ultimately it appears that the US government regulatory bodies aren’t trying to hinder cryptocurrency innovation in the US. They want to make sure investors aren’t being scammed, the government is getting tax revenue, and that it’s not being used to commit international crimes.
The three historical examples explored earlier in this article are a positive indication that disruptive technologies will not only survive but thrive despite early regulation bottlenecks.
The current climate with the US agencies isn’t actively attempting to shut down cryptocurrency or ICOs, so there is still hope that the cryptocurrency and ICO innovations can thrive in the US. Hopefully, they will, and all legitimate crypto and ICO companies will be welcome in the US after the changing regulations are made official.
