The Case for Technological Neutrality in Web3


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The cliché is that the only inevitable things in life are death and taxes. We can probably also add new technology to the list. Artificial intelligence (AI), the metaverse, autonomous vehicles, flying cars – they are all coming.

Policymakers, if they want to stay on top of a paradigm shift, need to approach technology regulation in a way that is reflective, perceptive and understanding. But reaching a consensus in our state chambers is challenging, and finding some kind of common ground in Washington, DC, is next to impossible.

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To make matters worse, a comprehensive approach to tech policy typically occurs only after a crisis forces lawmakers and the media to be on them, which only increases the risk that the law will be rushed or ill-conceived.

While new regulatory frameworks will be needed in some areas of Web3, the blockchain-powered version of the Internet, there are other areas where innovators and investors can move forward by building on existing laws and regulations, while making the task simpler. . for policymakers.

So let’s talk about technological neutrality.

By “technological neutrality” in the context of Web3 and technological innovation, we mean this: If the new technology allows activities that are mostly the same as existing activities, let’s start with the assumption that the law treats the two activities equally. Similarly.

Put another way, whenever possible, the law should be technology-neutral and any variations in legal treatment should stem from (and accommodate) significant variations in the business or risks associated with the technology.

The recent statement by US President Joseph Biden executive order on crypto, while leaving much unresolved, gives an implicit nod to this approach by declaring, “same business, same risks, same rules.” The approach the Securities and Exchange Commission (SEC) takes is likely to be hated by the crypto community, but at least now it is in a context that we can all understand.

See also: As federal agencies get organized, US states continue to lead digital asset regulation | Opinion

In Web3 and crypto, regulators and innovators have sometimes got this backwards. For example, in the midst of the initial coin offering (ICO) boom; a chairman of the SEC once said every ICO token I had seen was a security. That suggested that although the digital tokens in distributed ledgers are infinitely variable and could represent anything from book club points to shares in a corporation, the legal risks in Web3 stem from the technology rather than what the lawyers call it a substantive activity.

Under this paradigm, tokens in distributed ledgers were/are “high risk”. However, that barely makes sense. This kind of thinking is undoubtedly part of the US’s inability to effectively regulate cryptocurrency today and, if we don’t learn from it, Web3 in the future.

Seeking a unified regulatory framework for overseeing “distributed ledgers,” a general-purpose technology with widely varying uses, is like seeking a unified regulatory regime for the uses of spreadsheets.

adequate supervision

Instead of starting with technology as the classification function, let’s start with how people actually use technology (their substantive activities) and the assumption that blockchain technology is irrelevant.

What is the business? What rights are being created between the parties? How are those rights communicated from the seller to the buyer? What risks are associated with the business?

If we start with these questions, we usually find that there is relevant precedent in existing laws, regulations or case law. And more importantly, if innovators, investors and regulators can use this as a shared starting point, we could take a couple of significant steps.

First, technology innovators and investors must have a common framework for assessing the risk associated with cutting-edge companies. The vague feeling that Web3 businesses are “risky” can be replaced with specific questions and answers. What existing businesses are you most like? How are those businesses regulated? How is this business different from those businesses? Which of those differences are legally significant and what are you doing to address the risks arising from that? What really affects ordinary people and how?

Second, it can simplify the task of policymakers. With technology as broad as Web3 and crypto, asking a regulator for clarity on Web3 and crypto is understandably daunting. The internet is a broad technology, and of course the regulation would change depending on whether it is e-commerce or social media, consumer protection or data privacy, etc.

If our technology-neutral starting point can give us good answers about most problems associated with a particular Web3 activity, then we can rely on policymakers for a smaller subset of truly novel problems.

See also: Dragonfly’s Haseeb Qureshi remains bullish on crypto winter | the node

Inevitably, there will be areas where comprehensive legislation and regulation are needed, and the industry don’t be shy about advocating for it. But there will also be great extensions to Web3 and crypto that are just new ways of doing the same old things. Not everything is revolutionary. And when that is the case, let us rely on what clarity exists under the law.

In other words, if the government’s failure to properly understand and regulate Web2 has taught us anything, it’s that we need to make things a lot easier for them. Even if we do, they can still drop the ball. Or their politics may cause them to favor entrenched interests regardless of the impact of any particular Web3 business.

Protecting consumers, protecting businesses from fraud is what matters. Do not make value judgments about the merits of one technology over another.