While it is understandable for business leaders to focus on greater efficiency, using AI and other new technologies merely to upgrade current products and processes is not enough. Success lies in questioning longstanding assumptions about the way things are done, and whether they should be done at all.
Sunday, September 22, 2024
Crypto Policy Needs to Empower Builders, Not Speculators
If the United States is to lead in crypto, AI, and other cutting-edge technologies, it needs clear rules that recognize the value these innovations can bring to the economy, not least by restoring competition to the technology sector. Unfortunately, neither presidential candidate seems to understand this.
CAMBRIDGE – The cryptocurrency industry is going all in on November’s US presidential election, channeling hundreds of millions of dollars to promote candidates who may support sensible regulation. But for all the investment – the sector tops all others as a source of funds this cycle – it remains unclear how either candidate would approach the issue and prioritize builders over speculators.
Casual observers may have heard that former President Donald Trump, the Republican candidate, has taken up the cause. Addressing a recent Bitcoin conference, he promised to make the United States the “crypto capital of the planet,” create a Bitcoin strategic reserve, and embrace stablecoins. The crowd ate it up. Yet Trump’s brand of boosterism underscores the sector’s biggest challenge: for too long, those who want to use the technology for financial speculation have dominated policy debates, while those who actually want to build something with it are sidelined.
Vice President Kamala Harris, the Democratic nominee, has largely remained silent on the topic, but now has an opportunity to offer a more thoughtful and progressive approach to financial innovation. Crypto policy, like AI policy, is fundamentally about innovation and national competitiveness. To establish the US as a leader in this strategic sector, the next administration must first replace the current lineup of hostile financial regulators, led by Securities and Exchange Commission Chairman Gary Gensler, who has consistently rejected meaningful dialogue with the industry.
But installing regulators who are more sympathetic to the quick-profit mentality would hardly be an improvement. Crypto’s greatest strength – its ability to incentivize the construction of open networks – is also its biggest liability. As in the nineteenth-century railroad mania, cryptocurrencies have fueled the creation of valuable new infrastructure, but they have also been exploited by reckless actors to perpetrate scams and fraud – Sam Bankman-Fried being a prime example of someone who knew how to play the game within the existing, imperfect regulatory framework.
Businesses engaging purely in speculation, or even outright scams, benefit the most from the current regulatory chaos. Worse, many who have proactively advocated regulation or tried to collaborate with regulators have faced enforcement actions, resulting in a loss of access to essential banking services.
Regulators often lack incentives to adapt existing rules to new technologies, and incumbents often give them reason to defend the status quo. In crypto, accountability for criminality has come too late or not at all, leaving consumers burned. In the absence of regulatory clarity, market participants with established businesses or a need for banking services often shy away from exploring the technology, regardless of its potential. The result is a system that rewards recklessness and fraud while discouraging innovators seeking to improve payments, reform the financial sector, protect data privacy, or address market concentration in Big Tech.
Thoughtful crypto regulation will require more than Trump’s pandering. This is an issue that goes beyond crypto. If the US is to lead in AI, defense, and other fields, it needs rules that recognize how much value these innovation-intensive sectors’ can bring to the broader economy, not least by restoring competition. This is a complex undertaking. Success will require much more than courting Bitcoin maximalists and simply allowing stablecoins to exist.
Consider Trump’s proposal for the US government to hold Bitcoin as a strategic asset. It is obvious that this would benefit Bitcoin’s price, but not how it would serve the national interest. Instead, the federal government should recognize blockchain-based networks as critical infrastructure, akin to 5G.
Nor should the government blindly support domestic Bitcoin mining without encouraging methods that leverage renewables and stranded energy, or provide reinforcement for an increasingly fragile grid (as seen in Texas). Regulation should consider how Bitcoin mining and chip manufacturing could contribute to national security while ensuring minimal environmental impact.
In his Nashville speech, Trump accused the Biden administration of targeting crypto businesses’ relationships with their banks. But the real problem is a regulatory and supervisory environment that makes it difficult for banks to engage safely with crypto. Many banks recognize that digital payments and assets will play a major role in the financial system. Yet they have been hampered by unreasonable rules like Staff Accounting Bulletin No. 121 (SAB 121), which imposes punitive accounting standards on enterprises that cannot privately explore exceptions with SEC staff.
Trump also pledged to embrace stablecoins to reinforce dollar dominance. But, again, this issue is more complex than it may seem. To prevent the market from becoming as concentrated as the credit-card industry already is, the US needs to foster a competitive environment for stablecoin issuance. The dominant use case should not be dollarization, as this goal could weaken capital controls, destabilize emerging economies, and undermine sanctions. Instead, legislation should ensure that stablecoins become a safe means of payment enabling instant, global transactions.
Achieving this vision demands a robust compliance framework. Current stablecoin issuers either don’t know or don’t want to know if their digital dollars are held by sanctioned countries or criminals. But this dangerous blind spot is a major hurdle for mainstream adoption. The onus is on crypto entrepreneurs to develop innovative solutions that address identity and compliance challenges, but progress in these areas has been limited so far. New rules need to strengthen the incentives for the private sector to do the hard work.
At the end of the day, policymakers in Washington must come together and draft new rules, rather than trying to squeeze crypto use cases into laws from nearly a century ago. And the industry, for its part, needs to tackle the many problems that traditional financial services and crypto leaders have long ignored. A thoughtful crypto policy would prioritize builders over speculators. The upside, much like in the early days of the internet, is a technology that can restore competition to sectors that haven’t seen it in decades.
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While it is understandable for business leaders to focus on greater efficiency, using AI and other new technologies merely to upgrade curr...
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LINI , JAI MASSARI , and REBECCA RETTIG If the United States is to lead in crypto, AI, and other cutting-edge technologies, it needs cle...
BOSTON – From artificial intelligence and electric vehicles to blockchain and composites, we are in a golden age of innovation. To unlock value from these technologies, though, businesses must transform themselves, and, according to a McKinsey & Company study, over 70% of such efforts fall short.
Obviously, businesses adopting a new technology need the right key performance indicators (KPIs) and internal alignment of their operations to ensure they get what they want out of it. But there is a bigger, often neglected, factor that determines whether they are unlocking durable returns, rather than merely chasing expensive tech trends.
While upgrading old use cases and creating new ones both constitute innovation, only the latter creates lasting economic and social value.
This tension is playing out now with generative AI. As Goldman Sachs noted earlier this summer, companies have poured $1 trillion into AI without much to show for it yet. To maximize the return on investment in technology, business leaders should think like architects who are starting from a blank page.
When digital cameras emerged a generation ago, consumers still took memory cards to brick-and-mortar stores to print their files. Today, we share images instantly with our phones and social networks.
This evolution reflects a common pattern in technology adoption. As entrepreneur Chris Dixon notes in Read Write Own: Building the Next Era of the Internet, we initially use new technologies merely to continue old behaviors with greater speed, ease, or quality, or at lower cost. Only later do we leverage them in new ways to produce disruptive, lasting outcomes.
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The leap from “skeuomorphic” thinking (when digital interfaces are designed to mimic traditional physical ones, like the “desktop” on your computer) to native thinking takes time. For example, the journey from the first digital cameras to the rise of Instagram lasted 15-20 years. Businesses that deploy technology in skeuomorphic ways can improve margins, such as by using QR codes instead of printed restaurant menus. But those who come up with new uses can create entirely new markets, like GrubHub did with its food-delivery platform.
How can more businesses make the leap to a native mindset that unlocks greater gains? One way is to look for friction. When you assume that points of friction in existing business models are fixed facts, you will struggle to escape older ways of thinking. But when you identify and focus on the sources of friction, you will often discover that they can be eliminated.
The standard business imperatives of “faster, easier, cheaper” tend to keep us mired in skeuomorphic mode. They are so ingrained that we don’t question whether the product or process we seek to improve should be preserved at all.
Amazon’s approach to innovation at Whole Foods epitomizes this dynamic. In some locations, it has made checkout faster by allowing customers to scan their palms instead of inserting a credit card. Some of its stores have eliminated checkout altogether via “dash carts” that tally goods as you shop.
There’s a profound difference between speeding up a step and eliminating it. “How can we improve checkout?” is a skeuomorphic question. “Why do we still need checkout?” is a native one.
Friction points are the proverbial elephants in the room. In our own industry, financial technology, some of them feel like permanent market features. When was the last time you waited three days and paid $6 to send a “cross-border email”? The very notion is ludicrous because we all transmit messages instantly, globally, and for free.
Sending money across borders can and should be just as seamless, given that the internet financial system is now well established. But much of the broader industry is still captive to skeuomorphic thinking that views fees, delays, and walled gardens as facts of life. Globally, the average fee on remittances is 6%. It’s as if we were still printing photos at a brick-and-mortar store.
When it comes to applying technology, users and functions should trump materials and attributes. Every genuine innovation has a unique power. To think natively, we must identify and tap into it. Digital photography’s unique power wasn’t high resolution; it was instant distribution. AI’s power is pattern recognition, not truth-telling.
Using AI to augment a web search is skeuomorphic. Using it to scan medical images for anomalies that humans may miss is a superior application. Moreover, AI can reduce or eliminate friction points across health care. By monitoring changes to our baseline health metrics, for example, AI-powered wearables could help us spot an illness before it becomes serious. The US Defense Department has already piloted such a program to detect COVID-19 two and a half days prior to patients becoming symptomatic.
All business leaders seek greater efficiency. When it comes to gaining the most from technology, however, upgrading current products and processes is not enough. Success lies in questioning longstanding assumptions about the way things are done, and devising entirely new use cases.