China and the U.S. just concluded trade negotiations in Beijing, with intellectual property chief among the topics of discussion as efforts to defend American IP from Chinese abuses are long past due. Rather than continue to allow Chinese interests to steal and subvert our trade secrets and advanced technologies for their own uses, U.S. negotiators took a stand for American innovation — and companies will reap the benefits of more strict enforcement of their developments.
The approach to fostering technological development taken by our regulators in Washington, however, paints a starkly different picture from their colleagues in the State Department — particularly when it comes to cryptocurrencies. While diplomats at the State Department are negotiating hard to pave the way for American innovation, U.S. regulators such as the Securities and Exchange Commission (SEC) have been slow to make pronouncements regarding cryptocurrencies. This has hampered innovation and left many American businesses in regulatory limbo, particularly with respect to whether or not their tokens are classified as securities. From a legal perspective, experts have concluded that securities regulations simply do not apply to cryptocurrencies. It’s time policymakers share that approach, allowing innovation to continue to flourish.
This lack of regulatory clarity has opened the door to bad actors from abroad. During a December congressional hearing, Paul Knierim, a deputy chief of operations at the U.S. Drug Enforcement Administration (DEA), relayed that drug cartels are increasingly employing Chinese money launderers to cover up their financial transactions. Janice Ayala, a director at the U.S. Department of Homeland Security (DHS), went on to note a “recent significant increase in money laundering using cryptocurrency.”
In addition, a recent Princeton study highlighted the extent to which China could manipulate — or even sabotage — cryptocurrencies like bitcoin. Due to a rapid buildout in the country’s ability to “mine,” or validate transactions, the Chinese government has accumulated as much as 74 percent of the bitcoin “hash rate” — or processing power of the total network — and thereby has the ability to disrupt the currency through censoring transactions or interfering with other validations. It is increasingly clear that China has come to play an outsized role in the cryptocurrency space.
Some have seized on such stories to attack blockchain and cryptocurrency innovation as dangerous, but that is a case of blaming the victim. In fact, these developments merely underscore the pressing need for U.S. lawmakers to protect and promote American efforts in the development of these technologies. Instead of ceding control to Chinese interests and other bad actors, elected officials must act decisively to provide a clear framework under which our companies can thrive. These innovations shouldn’t be hijacked by others, nor should they be strangled by poorly considered regulation.
Cryptocurrencies and the underlying blockchain technology should be neither feared nor dismissed. While certain bad actors may be taking advantage of crypto in the short term, they represent a tiny fraction of the total users and applications of these technologies.
Recent reports of Facebook, Amazon, J.P. Morgan, Walmart and IBM all exploring blockchain applications could well indicate we are on the cusp of mainstream adoption of cryptocurrencies. The potential benefits of widespread cryptocurrency adoption — from seamless international financial transactions to enhanced logistical tracking abilities — offer a far more compelling argument for protecting this nascent industry than for discarding it.
It’s important to keep in mind that many of the advances in cryptocurrencies are occurring right here in the U.S. From individual entrepreneurs to rapidly growing organizations, these developers continue to explore the ways in which blockchain can enhance our quality of life across a diverse spectrum of business models. So-called “utility tokens” in particular hold promise due to their focus on transactional capabilities — because they are not mined, utility tokens are not susceptible to the same predatory tactics as other cryptocurrencies. And startups of this variety are partnering with some of the largest corporations in the country to explore how blockchain could improve not only financial transactions, but also shipping and logistics, healthcare recordkeeping, and any number of other applications.
Fortunately, elected officials in Washington are taking note — in late December, Rep. Warren DavidsonWarren Earl DavidsonCongress needs to step up on crypto, or Biden might crush it Watchdog: 7 members of Congress allegedly failed to disclose stock trades On The Money — Yellen sounds alarm on national default MORE (R-Ohio) and Rep. Darren SotoDarren Michael SotoCongress needs to step up on crypto, or Biden might crush it Ohio GOP congressman tests positive for COVID-19 North Dakota Republican latest House breakthrough COVID-19 case MORE (D-Fla.) introduced the “Token Taxonomy Act,” which would define a “digital token” and ensure that securities laws would not apply to cryptocurrencies once they become a fully functioning network. This is an important first step in crafting a sensible, comprehensive regulatory framework for cryptoasset companies.
Ultimately, fostering American innovation is a two-part effort — we must take the necessary steps to protect technologies from foreign bad actors while also building the ecosystem at home that will allow these same innovations to thrive.
We cannot relegate cryptocurrencies to being used only by bad actors who would subvert American progress. Instead, we should focus on facilitating all the benefits that blockchain and cryptoassets stand to provide. That starts with clarity — lawmakers and regulatory officials should be working together to ensure that cryptocurrencies are not wrongly and hastily categorized under decades-old securities law, but instead are allowed to thrive under sensible new regulation.
George Nethercutt Jr. is the founder and chairman of The George Nethercutt Civics Foundation and was a Republican member of the U.S. House of Representatives from 1995 to 2005, representing Washington’s 5th Congressional District, where he served on the House Appropriations Committee.