America’s lack of first principle will cause it to lose the competition to be a global crypto hub

In testimony before the Senate Agriculture Committee last Wednesday, CFTC Chairman Rostin Behnam threw down the gauntlet to SEC Chairman Gary Gensler, making it 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.” Gensler said the opposite in a recent interview.

This highlights a slow-motion regulatory failure 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 even possible for builders, developers, open source code projects and companies to have some security on the rules?

We are in a situation where there are different traffic police who enforce speed limits under completely different systems and rules. By definition, this means that there is no clarity and security for those who are trying to follow the traffic rules responsibly. And with roughly 50 million Americans holding a cryptocurrency (20 percent of the population) and about 80 percent of Americans saying 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 the responsible development and use of digital assets,” but the U.S. still does not have a “principles-first” approach to crypto. Instead, we’re left with an SEC chair that relies on press release (and sometimes YouTube videos) enforcement.

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 financial system faster, easier and more efficient. But America will not be in the driver’s seat of this historic growth ahead if we cannot move to first principles. The cracks are already showing – the United States ranked 25th for the second year in a row on the Heritage Foundation’s 2023 Index of Economic Freedom. And at Thursday’s House Financial Services Committee hearing on crypto, both Republicans and Democrats expressed concern that the United States is falling behind and abdicating its historic leadership role because of this lack of first-principles thinking. We need a strategy to guide the next generation of the internet because this enforcement of the press release approach is no way to run – or remain – a technical and financial superpower.

This lack of a first-principles approach stands in stark contrast to how the US government has historically led when it came to working as an ally with the nation’s inventors, innovators and entrepreneurs to build. We used to have a forward-thinking mindset that was animated by a clear goal: build for the future so that the ideas that drive the next generation would be based in the United States. We knew it was in the best long-term interest of our nation’s economy and national security. From building railroads to drive domestic trade, to building the World Wide Web to advance the digital economy, the United States understood that its superpower was inextricably linked to its ability to unleash its greatest natural resource: the talent of its people to imagine where the world could go . And we understood that it had 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 Telecommunications Act of 1996, America’s first principled thinking was on display. By focusing on making the United States the innovation hub of the global digital economy, we translated first-principles thinking into jobs and incomes, helping to extend the American century into the 21st century.

The rest of the world took note of the success of the Telecommunications Act of 1996. They realized that they missed a huge opportunity to host companies that built the last generation of the internet, and they are not going to make that mistake again with crypto – especially as US policymakers fail to keep pace. Countries from the UK to Switzerland to Dubai to Brazil to Australia are all executing national strategies to become the next “crypto hub.” Even China, which a year ago had attempted to ban crypto given the technology’s decentralized nature 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 to crypto development.

Crypto is the next generation of the internet, and this global wave of largely constructive regulation is generally good news for the crypto sector and the future of the web3. But it does mean 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, this path will take them to jurisdictions that demonstrate a commitment to leading the development of web3.

As we look to the future, we should also learn from the mistakes of our past. Over the past year, the Biden administration has made a huge effort to bring back the semiconductor industry after the United States allowed this critical economic and national security digital infrastructure to be built off shore. If we had applied first principles in retrospect, we could have avoided spending huge amounts of public money to bring the semiconductor supply chain back to the US. We cannot afford to make the same mistake with crypto. But the current approach to press release enforcement threatens to do just that. We have to do better.

Chris Lehane is Chief Strategy Officer at Haun Ventures.