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Digital Transformation Needs to Embrace Regulators

The Cypherpunks, libertarians, and anarchists are always antagonizing the regulators but if cryptos and the Digital Transformation are to progress, the industry will need to work with the regulators.

If there is one thing I learned from history, it is that mankind never learns from history. We think about money all the time — how to save it, how to spend it, and how to make more. We have been programmed to become obsessed with money from a young age. Greed, as the Wall Street antagonist Gordon Gekko, calls it, works.

Money is the basic universal unit of account for humans. There is happiness, family, and health, always mentioned as the consolation prize when one loses a lot of money. Time is the correlative to health, not just for yourself but also for your pets, friends, and family. Once lost it can never be replenished. But lets not get sidetracked — time is money.

Money Should NOT be used as a Proxy Battle

Bitcoin and cryptocurrency rose from the ashes of the US subprime mortgage crisis when Satoshi Nakamoto released his groundbreaking 2009 whitepaper, the potential mother of all NFT’s. Was Bitcoin created as a socioeconomic movement spurred by the anarchist and libertarian or did the group hijack cryptos as the critical weapon of their ideology?

Only Satoshi really knows for sure but in any event the cypherpunks played an important role as the catalyst to jumpstart initial crypto adoption. The drug dealers and money launders helped but they are no longer significant players in crypto and even less so when compared to traditional finance, just to be fair and balanced.

I admire and support libertarian views. However, it is not in the interest of the people to engage money in a proxy fight against the authorities. Anarchy can not work in a global population of almost 8B. It is time to end the needless statements that the government can’t stop Bitcoin, and cryptos.

In practical terms, it is true that the government can’t stop Bitcoin, but it can and will definitely regulate it, irrespective that most governments are not doing a good job in this respect. But it will get there one way or another.

The other aspect is the increasingly blurred relationship between cryptos and traditional finance, which are also the other popular target of the crypto crowd. That effort is also greatly misguided which is explained later in the article.

Extreme Libertarian is a Lost Cause

When the internet and the world wide web was launched in the 90’s, the prevailing thought was that it would be completely free from any regulatory intervention. That hasn’t happened.

China has its great firewall while globally, transmission of child porn is strictly illegal. Then there is privacy, fraud, defamation, and spam just to name a few of the regulatory apparatus laid over the internet. And who legislates and administer these regulations? Not the anarchists.

Internet messages, including any crypto transaction, have to ultimately be relayed through telcos. And who grants the telcos their licenses? The FCC. In a broader analogy, fiat money is still under the control of the authorities.

Hypothetically, one can maintain cryptos and live completely off-grid. But if one desires to transact with on-grid parties, then the interface is always going to be with fiat. While there are workarounds for those fully committed in doing so, it is difficult and costly. This fact alone means that it will not be a viable option for most people.

Blockchain is the Steam Power of the Digital Transformation

Steam power kicked off the industrial revolution, while electricity and the internal combustion engine further disrupted traditional agrarian societies as complementary technologies. Population growth exploded and societies became largely urbanized. Likewise, cryptocurrencies were built on the infrastructure of the internet, and although it is an important step, we are still in the early phases of digital transformation which will be an even more significant progress for mankind.

After Bitcoin, Ethereum further advanced the state of cryptos. Then came ICO’s, which was a misstep but part of the learning process. Then DeFi moved the chain. Now NFT’s are the hot item. These are incremental changes yeah, but the progress is actually quite rapid.

Blockchain enables us to coordinate on shared information and the truth. We can all use this technology to figure out who owns a thing, what is the fundamental truth about ownership, who has agreed to buy something, or about identity, which is important for establishing reputation and rights to such things, or just anything else where we need shared agreement about information.

Similar to the shift from farming to factories, we are now firmly in the grasp of information. AI and automation will squeeze out the remnants of manual related labor. But we are now finding that the quality of information is based on truth and trust. This is now the key understanding and challenge that we arriving at.

Blockchain technology isn’t just the next generation of the internet, it’s a fundamental way to create shared agreement about the sorts of facts that underpin a modern economy and to represent those in a purely digital form and to a great degree of truth.

But in order for this transformation to work, we need to work with the regulators. If the underlying copyrights, or land deed of an associated NFT is violated, who is going to enforce those rights. Not the anarchists.

Crypto is Not Yet Ready for Prime Time

Crypto Wars (Stanford, 2021), a must-read for anyone interested in cryptos chronicles the incredibly daring and blatant scams that have siphoned off billions and are still prevalent in the industry. Cryptos are complex and the average person needs the authorities and traditional finance firms to collaborate with the nascent industry in order to create an easier to use and safer ecosystem in order to onboard the masses.

Conventional crypto investment advice is to review the smartcontract code of a project, perform a security audit, scrutinize the project’s business model and perform an impermanent lost pricing (risk) analysis. That is way beyond most people’s ability to gauge an investment potential.

In the old days, popular bank architecture was always in the form of Greek and Roman temples in order to portray trust. But when the Federal Reserve Act was enacted in 1913, the US government took over the responsibility of trust and bank building architectures tended towards glass and steel modernism. In other words, as banks were relieved from the burden of trust, they turned their focused on innovation.

Conclusion

It is time to end the tribalism between the libertarians/anarchists and the authorities. Governments are not the most efficient institutions, but they [usually] are the legitimate body of the people for whom they serve. On a pragmatic basis, whatever the laws and regulations on the books are or how they are decreed, the authorities can’t simply be excluded to a great extent from the process.

My previous article proposed a working framework which allows for a multiple tier of opting in to allow for varying degrees of participation with the regulators. This facilitates greater innovation and offers a choice to the people to opt-in and balance their desired choice of risk vs ease of use, which further accelerates greater participation of the populace in the digital transformation.

By all means I don’t want the cypherpunk and libertarian movement to go away as they were and will continue to be important in the revolution. In 2017, Jamie Dimon, Chairman and CEO of JPMorgan Chase, decreed that he would fire anyone who dabbled in Bitcoin only to take a complete 180-degree turn in stating that he changed JPMorgan will indeed be working with cryptos. While folks call Jamie nasty names, he should be credited for falling on his own sword and fulfilling his fiduciary duties as JPMorgan Chairman and CEO.

Digital transformation is just evolving and will be even more complex. The crypto industry needs to work in a more collaborative effort with the authorities and traditional finance in order to help shepherd a greater majority of the people into the new ecosystem. The crypto movement manifesto is to be more inclusive for all people. It’s time to beat our swords into ploughshares — for the people.

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Edward Wong

Edward Wong

Co-founder QuantDart. Co-founder Shanghai Futures Exchange. Former Treasury Architect at the Federal Reserve. World Champion Spicy Eater. Cat lady.