This article first appeared in CoinDesk yesterday, under the title – The Crypto Industry Needs to Fix Itself Before It Can Progress. Below is a re-publishing of it on my blog.
Crypto is stuck between the proverbial rock and a hard place, and there’s a lot of blame to go around.
Choose the culprits: The Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and their panoply of lawsuits, the U.S. Congress’ inability to pass any significant blockchain law, a lackluster Biden administration “Economic Report of the President” with 30 pages bashing the industry, the closure of two of the most crypto-friendly U.S. banks (Signature and Silicon Valley Bank), the Terra implosion and its ripple effects, the FTX failure and its ripple effects, the ongoing flurry of decentralized finance (DeFi) exploits in vulnerabilities, blockchain bridges failures, token prices tanking, increased negative public opinion, decreased institutional holdings – just to name major ailments facing the blockchain industry today.
While some of these can be classified as “they did this to us,” others are clearly in the “we did this to ourselves” bucket.
One could easily argue the increased heat coming from external sources is the result of the internal mess for which the industry itself was responsible. Judging by the timing between the internally originated issues and the rise of external pressures, there is reason to believe in a strong cause and effect relationship between these types of factors.
The crypto/blockchain industry didn’t intend to create spectacular failures as part of its evolution, but it happened. Although no one expected the industry to grow flawlessly (as no revolution is orderly), the scope of hiccups and frequent meandering have been excessively distracting and damaging, despite the fact that, fundamentally, the blockchain’s promise was un-dented.
As I look around to take some perspective, I see three reasons why the industry is in the doldrums.
The first one is the SEC’s onslaught on the industry. The second is Congress’ inability to pass any laws that might set the industry in a significantly new direction, or even slow down the SEC rampage. These are well-known reasons, but they are a prelude to the third one.
There is no point re-hashing details around these two factors except for a couple of observations.
Pertaining to the SEC, then-FTX CEO Sam Bankman-Fried’s donation bread crumbs pointed to the Democratic Party, and that was a vexing situation which SEC Chair Gary Gensler saw as an opportunity to vindicate his party by turning up the volume on enforcement actions, therefore erasing the belief that Democrats were not strong enough on crypto regulation.
Ironically, the SEC acronym might as well stand for Sue Everyone in Crypto.
As for the U.S. Congress, the blockchain has been uncharted territory. Its members are not well informed on crypto. Perhaps 95% of Congress continues to be challenged by the blockchain and they still have a steep learning curve about it, despite some efforts to cram knowledge.
Both the SEC and U.S. Congress are the crypto rainmakers today. But if there was a race for change, the SEC wins hands down because it has been much more nimble than the Congress. While the Congress sees one bill after another pass through the two chambers like a revolving door (over 50 bills have been proposed in the past two years), the SEC already has a playbook on which it can act. Meanwhile, the U.S. Congress continues proposing bills by throwing darts on a board.
Mirror, mirror on the wall
This brings us to the third factor, and it is related to us, the industry.
So, let’s look at ourselves in the mirror because we are also part of the problem.
Let’s stop giving pundits, regulators or politicians free ammunition to mount attack after attack on crypto. Those critics have been feasting on crypto’s mishaps of the past year, to the point where they want to define us by our failures and not by our successes, potentials or benefits.
- We have already seen the blueprints and patterns of failures. Can we identify them earlier and squish them before they can be systemically damaging? Can we call out bad actors early and often?
- Can we improve by a factor of 10 on smart contract vulnerabilities and not leave one hole unplugged?
- Can we stop the creation and pumping of useless tokens that have no future but to scam uninformed consumers?
- Can we intelligently discriminate between good projects and bad ones? At least, could we leave the early parts of their journey in the domain of private investors and shield consumers from the extreme risks that accompany any startup project?
- Can we raise the compliance and transparency standards for token projects such that there is consistency and relevancy across their disclosures, similar to how public companies report their progress?
- Can we work on real industry interoperability standards such that a user doesn’t need to choose which blockchain layer to send their transaction on? (Imagine if you had to choose an internet subnet each time you connect the internet.)
- Maybe there is too much “finance” in crypto and blockchain, which make it an easy target for regulators and legislators because that’s all they see and all they pick on. Could we go back to working on, and highlighting, user-based use cases in mobile apps and websites?
- Could we place a moratorium on new tokens for a year? It might help shift the conversation away from regulation and lawsuits and more towards Web3 adoption.
- Can the media do more investigative journalism to dig up the more interesting projects instead of being an echo chamber that regurgitates and rewrites the same news day in and day out?
- Could we build killer use cases with mainstream user experiences so we can stop being on the defensive and start showcasing the real potentials of the blockchain beyond just price speculations and stock market-like activity?
- Could there be more “build with no code” solutions so that non-technologists are empowered to create blockchain-based features and integrate capabilities into their own businesses, as easily as it is to build a website, add a WordPress plugin or a Shopify widget to launch a new capability?
We can point to regulators and government all we want, but we also need to start fixing a few things ourselves.
If we can stop the failures, we will irrevocably increase the successes.