Fred Campbell
Blockchain and digital asset technology are reshaping key facets of the U.S. economy by improving systems used to move money across borders and laying the groundwork for the next economic boom. Unfortunately, growing regulatory uncertainty threatens to tip the scales in favor of technologies largely controlled by our geopolitical rivals—and crowd out innovation here at home. The main culprit: A bitter turf war in Washington, with multiple regulators from the SEC, CFTC, Treasury Department, Federal Reserve, and individual states all jockeying to give the final word on how we should regulate this new economic engine. Are these technologies commodities? What qualifies as a security?
The result has been broad uncertainty. The government’s own accountability body acknowledges the problem in a recent reporthighlighting how our regulatory structure is stifling innovation. Many of the recommendations haven’t been adopted.
There are also grave national security implications if regulators choose to pick winners and losers while inadvertently empowering our foreign adversaries.
Just consider this: Three mining pools (and at least two are affiliated with the same Beijing-based manufacturer, Bitmain) control 51% of the Bitcoin network, and three miners account for 61% of Ethereum’s weekly capacity. Further, 80% of the mining on the Bitcoin blockchain is centralized in China, despite the country’s ban on trading digital assets.
This gives the Chinese government effective control over Bitcoin and Ether, particularly given how miners can effectively control their ledgers.
In a nightmare scenario, miners of the Bitcoin or Ethereum blockchains could collude to unilaterally rewrite their transaction history. Control over more than half of the mining power on a cryptocurrency network is enough to change its ledger. A so-called “51% attack” by miners could result in verified transactions being unvalidated, allowing fraud to occur.
This isn’t a merely theoretical problem. A fatal attack like this has already happened to the Bitcoin Gold blockchain, with hackers falsifying the currency’s ledger and stealing at least $18 million from online exchanges.
Imagine what could happen if only three Chinese miners were influenced by the whims of an authoritarian regime.
While U.S. regulators are wrapped up in their own turf wars, other nations are moving fast to create a welcoming regulatory environment for cryptocurrency. This poses a threat to America's dominance in finance and tech, as well as our future competitiveness in a global economy.
Our allies have moved quickly to address the problems and the opportunities of this technology:
In 2016, two different UK Government agencies collaborated on a strategy to increase the adoption of blockchain technology in the country: “In distributed ledger technology, we may be witnessing one of those potential explosions of creative potential that catalyse exceptional levels of innovation. ...We are both, therefore, delighted to be jointly leading efforts in this area, and look forward to working with other departments on seizing the opportunity as well as understanding how its use can be implemented for the benefit of UK citizens and the economy.”
Europe launched an effort to drive blockchain and digital asset innovation that is designed to provide the necessary certainty needed for new innovation to take root.
Japan has adopted regulations in a bid to become “The New Heart of Bitcoin” by establishing clear and workable rules of the road.
The U.S. cannot afford to rely on Europe and Japan while its policymakers bicker. There is too high a risk of allowing bad actors to gain traction and ceding U.S. leadership in the blockchain space to foreign rivals.
Any regulatory framework contemplated by Washington should be carefully crafted to encourage innovation, address bad actors, and protect America’s national security interests.
I am the director of Tech Knowledge, a Senior Policy Advisor with Wireless 20/20, and an adjunct professor in the Space, Cyber, and Telecommunications Law program at the Nebraska College of Law. I headed the Wireless Telecommunications Bureau at the Federal Communications Co...
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