Cryptocurrencies are the fuel for a new type of internet. This new internet, called “Web 3.0,” will empower consumers, eliminate middlemen and give users control over their own data. Unfortunately, overstated fears about cryptocurrency threaten to kill it before it reaches its full potential.
Congress needs to protect crypto.
Efforts to ban or regulate cryptocurrencies are expanding across the globe. China has prohibited its citizens from using crypto, and Russia has proposed doing the same. In Europe, the Markets in Crypto Assets Regulation seeks to create a continent-wide regulatory scheme, while in the United States President Biden has issued an executive order calling on federal departments as diverse as Homeland Security and the Environmental Protection Agency to consider ways to regulate the product.
But cryptocurrency doesn’t need new regulation. Although proponents of increased oversight talk of protecting consumers from abuse, existing laws already make it illegal to defraud users. Both the Federal Trade Commission and the Consumer Financial Protection Bureau have broad authority to punish bad actors who engage in unfair, deceptive or abusive acts and practices. Meanwhile, state laws require registration for those that use crypto for currency services, a requirement backed by federal law. Using crypto to cheat people is illegal, just as it is for other products.
The greatest threat to crypto users isn’t a lack of regulation; it is regulatory uncertainty. The Securities and Exchange Commission has taken an increasingly aggressive approach to crypto. In a recent speech SEC chair Gary Gensler argued that most cryptocurrency should be subject to regulation by his agency.
The danger of this approach is obvious. The SEC has legal authority only to regulate securities. If cryptocurrencies are securities, it not only affects their creators or exchanges. Anyone holding such a cryptocurrency would also be holding an illegally marketed security; trying to sell such a “security” would also be illegal. Crypto users would be stuck.
Most financial services laws aren’t a good fit for cryptocurrency. This isn’t surprising, given that there is nothing inherently “financial” about crypto. Although some cryptocurrencies, like Bitcoin, are explicitly designed to substitute for cash, this is only one use of the technology. Crypto makes blockchains function properly; blockchain is the technology that underpins Web 3.0. Blockchain allows users of a network to confirm and validate transactions without having to go through a middleman; anything that can be done by a single company’s servers can be done by a blockchain’s distributed computers.
Blockchain empowers consumers to create their own social networks, search engines, shopping portals and other services without having to go through a big corporation. Blockchains run on cryptocurrencies, which users pass back and forth as incentive for the computing power required to make them work.
The current regulatory uncertainty recalls the early days of the World Wide Web. In the 1990s start-ups were creating companies that would eventually transform how the world communicates, shops and receives its news and entertainment. But early web developers and the internet infrastructure faced a problem; how to deal with the legal risk that a third-party user of their product, completely beyond their control, might use the internet in unintended or even illegal ways?
To address this risk in 1996, Congress acted decisively, passing Section 230 of the Communications Decency Act. That law, often called the “26 words that created the internet,” ensured that neither website creators nor internet operators are responsible for postings of internet users. The results speak for themselves:
America remains the undisputed leader of the world wide web, and internet-related companies employ millions of Americans while building wealth for investors.
Now, cryptocurrency needs this same kind of visionary thinking — a law to protect it from overzealous regulators and ill-fitting old laws. This new law would clarify that cryptocurrencies are not financial products unless they are specifically designed and marketed as such. The provision would be simple to write and provide the same clarity for crypto users and developers that Congress gave internet pioneers in 1996.
Cryptocurrency is part of a long tradition of Americans creating technologies and businesses that empower individuals and promote freedom. Congress needs to act now to protect crypto from unnecessary and inappropriate regulation — a Section 230 for crypto.