White House web page from 1997, “frozen in time.”

Regulating Cryptocurrency Markets: First, Do Something

Coinbase CEO Brian Armstrong posted a long tweetstorm about his visit to Washington DC to meet with policy-makers. He linked a video of the Clinton Administration’s 1997 E-Commerce policy rollout as a model the US should use today, based on Al Gore’s statement, “first, do no harm.” The message, according to Armstrong, was to “think about the downstream effects” of signals sent to the market.

I was in the room for this, having served on the White House task force and edited the Framework for Global Electronic Commerce. It was hugely important, but not entirely as Armstrong suggests. Our main audience was other governments, who wanted limits on the internet.

Startups in 1997 didn’t need a signal to innovate and build in the US. The Netscape IPO, as seismic a market-defining event as the Coinbase one, happened two years earlier. The dotcom boom was in full swing. But the direction of government policy globally was uncertain. The Clinton Administration’s E-Commerce policy was issued just a year after the US Congress adopted sweeping internet censorship, the Communications Decency Act. It was overturned by the Supreme Court a week before that White House ceremony. So yes, a message needed to be sent.

In 1997, telecom was still government-run in much of the world. The FCC was under pressure to impose per-minute charges on internet access to preserve subsidy flows. And the International Telecommunications Union was negotiating a foothold in the domain name system. “Do no harm”, which Al Gore referenced, doesn’t mean “do nothing.” In the report itself, the first principle was, “The private sector should lead.” And then it detailed a series of areas where government action was needed, under an overall mindset to avoid undue restrictions.

The genius of the Clinton-Gore E-Commerce Framework was twofold. It signaled other countries why the US was the dominant source of internet activity. And it forced the various parts of the government to engage each other and the private sector, with high-level direction.

The situation today in cryptocurrency has some similarities to the internet in 1997. But also important differences. There is far more commercial activity, startup innovation, and government engagement outside the US. And financial services are a regulated sector. E-commerce services operated on top of regulated communications infrastructure. Outside of censorship, the big internet policy issues of the 1990s were at the connectivity layers. Those were the battles we fought (and mostly won) at the FCC. But they were different. No one was going regulate IBM, or Parent Soup, the other company that spoke at that 1997 event, because they offered online services. Those businesses could have been dramatically hamstrung, though, by decisions at the connectivity layers.

Safe harbors and sandboxes are valuable tools. They may well be worth implementing for crypto. But the ultimate issue isn’t how to keep new technologies out of the financial regulatory system; it’s how to put them in. Even if that means changing the system.

Financial markets run on trust. People learned to trust typing credit card numbers into their computers in the 1990s thanks to technical advances in security, and regulated payment rails limiting their exposure in cases of theft. Both sides matter. A great data point that well-regulated financial markets promote trust is…the Coinbase IPO. The most successful public crypto startup is located right here. There can be no better signal that, as Brian Armstrong puts it, “crypto companies are welcome in the U.S.”

Not screwing things up is a great starting point. It can’t be the end goal. That’s a crucial lesson from the Internet. The US was right to avoid regulating too soon and stupidly. The dominance and abuses of Big Tech today happened because we took that mindset too far.

This is where the second insight of the Clinton-Gore E-Commerce strategy comes into play. Bringing the agencies and departments together under a White House agenda, and having them engage actively with the private sector, makes all the difference. So in 1997, when the Justice Department proposed that the law of each user’s jurisdiction always apply to foreign online service providers (to clamp down on offshore gambling), I could point out that would make US firms subject to the whims of every repressive state. Again, though, that was just the starting point. There are many situations where we appropriately insist that foreign companies follow US law (such as cryptocurrency exchanges soliciting business that violates US securities laws). But they are necessarily targeted. Anyone who suggests the regulatory issues around a major emerging technology like cryptocurrency are simple, or answered through a slogan like “get out of the way,” is either deluding themselves or misleading you.

These are the kinds of conversations we need more for cryptocurrency regulation today. There have been some task forces, events, and legislative proposals. And lots of individual interaction with the crypto industry. There hasn’t been a coordinated federal initiative. Global engagement is also essential. The US is a much smaller fraction of the crypto market today than the internet market in 1997, by every measure. And several other governments have much more seriously developed regulatory frameworks (good and bad).

It’s commendable that Coinbase is investing time and money in engaging with policy-makers. As are other companies in the space, directly and through trade associations or thinktanks. There is much work to be done.

Personally, I’ve been convening global regulators, legal experts, and the crypto industry for four years through the Wharton Reg@Tech Roundtable and other activities such as the Wharton/World Economic Forum collaboration on Defi. We plan to do much more.

The lessons from Internet policy are extremely valuable here. It’s important to understand the history, though, in order to learn the right ones.

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Wharton prof, tech policy maven, digital connector, pesctarian, feminist. Co-author, For the Win; author, The Blockchain and the New Architecture of Trust.

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Kevin Werbach

Kevin Werbach

Wharton prof, tech policy maven, digital connector, pesctarian, feminist. Co-author, For the Win; author, The Blockchain and the New Architecture of Trust.

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