We need the crypto space to be a general-purpose computer, not a casino.
By Scott Duke Kominers, a16z
Compiled by AididiaoJP, Foresight News
As the US government begins to recognize blockchain technology, the question now becomes how to best utilize it. Some may wish to promote unregulated laissez-faire, but this would be a mistake. History and economic theory show that thriving markets require clear, consistent rules, and the crypto space is no exception.
In some ways, resistance to centralized authority is inherent to the crypto world. Bitcoin's anonymous creator, Satoshi Nakamoto, designed the protocol to bypass financial intermediaries, envisioning a currency uncontrolled by governments or institutions. Many early adopters shared a spirit of radical individualism reminiscent of free-spirited "cybernetic computer clubs," the open-source software movement, and early cryptography advocates.
But crypto's potential can only be realized if it's widely accepted and integrated into ordinary commerce. And for entrepreneurs and consumers to embrace crypto, they must have confidence in clear rules that prevent fraud and ensure fair access. Without that confidence, people will hesitate to enter the market, let alone use crypto for everyday transactions.
Contrary to what some believe, a "free market" is not unregulated laissez-faire; it is a structured system in which individuals can engage in voluntary exchanges with a reasonable expectation of fairness and security. Without basic protections, markets will collapse. Without safeguards, uncertainty will scare off many investors and legitimate businesses, leaving only speculation and bad actors.
We need the crypto space to be a general-purpose computer, not a casino.
What kind of rules are needed in the crypto space?
Economists from Smith to Hayek, Friedman, and De Soto have long recognized that government plays a vital role in creating the market institutions that enable them to thrive.
Smith argued that property rights enable individuals to "secure the fruits of their own labor," and that the role of government is to "ensure the fruits of their own labor" by "a tolerable administration of justice" to safeguard these rights. Hayek, for his part, argued that the role of government is to maintain the rule of law while avoiding capriciousness. Friedman acknowledged that the role of government includes enforcing contracts and protecting citizens from crimes against themselves or their property. And de Soto argued that the lack of clear rules and property rights leads to "the entrenchment of capital."
New SEC Chairman Paul Atkins echoed these sentiments in recent remarks, stating that “regulators should provide the lowest effective level of regulation to protect investors while allowing entrepreneurs and businesses to thrive.”
The rules governing the crypto space, like those governing all markets, should aim to achieve four key objectives:
First, predictability and stability. A functioning market requires clear, enforceable rules. Entrepreneurs need to know how their businesses will be regulated. Investors need to be confident that the rules won't change arbitrarily. Consumers need to trust that their transactions are secure.
Second, protect property rights. Secure ownership is the foundation of any market. The crypto sector excels at encoding ownership through blockchain technology, but legal frameworks must strengthen and complement these protections.
Third, transparency and information clarity. Efficient markets rely on reliable information. Buyers need to understand what they are purchasing, whether it's a digital asset, a decentralized financial product, or an NFT. Regulations should promote disclosure, helping consumers and investors make informed decisions while preventing fraudulent schemes.
Finally, fair competition. Rules should prevent monopolistic behavior, market manipulation, and fraud. Without oversight and tailored guardrails, markets can become a playground for bad actors who exploit information asymmetries, defraud investors, or artificially inflate asset prices. Any regulatory framework needs to be consistent with existing rules to avoid inadvertently creating new workarounds for established protections.
These four characteristics are crucial for market function: stability and predictability help people engage in transactions; clear property rights are necessary for these transactions to occur. Transparency and open competition then help ensure that the transactions people choose to engage in drive markets toward more productive and socially valuable outcomes.
The Road Ahead
The crypto space hasn't always been known for its well-regulated landscape, but it's finally finding its way. Crypto startups have for years navigated a murky and often hostile regulatory environment. So, while blockchain technology offers strong inherent protections for property rights, the surrounding regulatory landscape has been far from supportive of a healthy market.
For example, the U.S. Securities and Exchange Commission (SEC) until recently held crypto companies accountable for alleged violations without first establishing clear legal standards. Entrepreneurs were left to guess which rules applied, only to face lawsuits after the fact. This created uncertainty, stifled innovation, and allowed bad actors to operate in the resulting gray area.
Furthermore, many crypto regulations are designed for the traditional financial system, viewing blockchain-based assets as simply new forms of traditional securities or commodities. But the crypto sector is more than just finance: it is also a network infrastructure platform. Effective regulation must recognize these two dimensions to ensure that financial oversight does not stifle technological development.
The crypto space has the potential to revolutionize the organizational logic of everything from personal identity verification to activity management and global payments. But realizing this potential requires legal and regulatory guardrails, such as a token taxonomy that provides a legal definition for digital goods; standards for evaluating decentralization and disintermediation; consumer protection; tax guidance; and a framework in which legitimate blockchain-based businesses can operate without fear of arbitrary prosecution.
None of this is radical or unprecedented. The principles that make markets work, such as stability, property rights, transparency, and fair competition, have long been understood. But they have not yet been consistently applied in the crypto space. This must change, and the industry must welcome it.
