Op-Ed: Julia Cartwright: Congress should protect crypto by preserving decentralization
Julia Cartwright explains why decentralization is essential to the future of crypto in her latest op-ed.
Cryptocurrency — the once avant-garde monetary alternative — is going mainstream. The GENIUS Act, recently signed into law, and the CLARITY Act, passed by the House and waiting on a vote by the Senate, are central to the industry’s effort to obtain regulatory clarity and to level the playing field with traditional finance (TradFi).
In its quest for legitimacy, however, the crypto industry has been betrayed by the proposed legislation. These bills suggest abandoning the x-factor that made crypto so powerful and attractive in the first place: trustless decentralization. New crypto legislation would benefit from tapping into what makes this trailblazing industry so appealing by embracing regulation as technology itself.
Cryptocurrencies — digital currencies that leverage blockchain technology to enable secure and transparent peer-to-peer transactions — are decentralized. Their trustless nature, where no central authority is needed to verify transactions, is essential to crypto’s adoption, with a market cap of $3.78 trillion.
Until now, the industry has thrived without central oversight or burdensome government regulation. Crypto’s huge success is the culmination of no-holds-barred free market competition.
Over half of all cryptocurrencies have failed. Yet, through this process of trial and error, new and powerful technologies have emerged.
Blockchain technology is being utilized by 81 of the top 100 public companies. The global market for smart contracts, self-executing contracts built on blockchain technology, was valued at $684.3 million in 2022 and is expected to grow to $73.7 billion by 2030. The transaction volume of stablecoins, cryptocurrencies pegged to an asset like a fiat currency, has exceeded the combined volume of Visa and Mastercard. And the RWA market, tokenized real world assets, is expected to reach a $50 billion market cap by the end of this year.
Despite the successes and lessons learned from these technologies, new legislation in the GENIUS and CLARITY Acts, seek to bring crypto under the same centralized regulatory umbrella that controls traditional financial markets. These bills posit a regulatory framework that aligns state and federal stablecoin oversight.
The current legislative approach misses an opportunity to tap into the potential of self-regulation, where private legal bodies compete to test and refine regulatory approaches. Through experimentation, as the crypto industry demonstrated with money, ledgers, and contracts, regulation can become a powerful technology.
Private regulation and competing regulatory regimes are not just theoretical concepts cooked up at some egghead convention, they have a long history of success across various sectors.
Private regulation has been key in areas like environmental protection, human rights, privacy, employee and customer safety, and animal welfare, with companies setting strict standards to attract customers.
The NYSE and NASDAQ stock exchanges, as self-regulatory organizations, establish their own rules for listing and trading, going beyond government oversight to shape their respective regulatory environments.
Industry standards, such as those from the International Organization of Standardization for quality and environmental management, reflect another form of private regulation, with companies voluntarily adopting them to improve operations and meet market needs.
Other notable private regulatory systems include Financial Industry Regulatory Authority or FINRA, the American Arbitration Association, and the Centre for Effective Dispute Resolution.
These examples highlight the potential of private regulation to serve as a complement to, and in some cases, a substitute for, government oversight. If the crypto industry were allowed to embrace this model, regulatory technology could evolve, with private actors developing and testing regulatory frameworks that fit the unique needs of decentralized networks.
If the GENIUS and CLARITY Acts allowed private regulators in the crypto ecosystem, they would not only preserve the innovation that crypto brings to the market but also ensure that it remains flexible enough to adapt to an ever-changing technological landscape. This would mirror the way many industries, from finance to technology, have evolved over time: through trial and error, competition, and constant refinement.
To unleash crypto’s full potential, we must recognize that regulation itself can be subject to market forces. Crypto’s decentralized nature has already demonstrated its value, now it’s time for regulation to evolve along with it.
Julia R. Cartwright, PhD., is a Senior Research Fellow at the American Institute for Economic Research, and a professor of Economics and Game Theory.