Why the USA is Behind the Blockchain Curve

Latest guest post by Ian Scarffe, who is a serial entrepreneur, investor, key opinion leader and Blockchain consultant with business experience from around the world.

The US seems to be on a catch-up spree with the efforts and progress of other countries already piloting native central bank digital currencies (CBDCs) with President Biden’s calls for greater research into the subject. Biden has requested guidance from the Federal Reserve System (the Fed) and other regulatory organizations on how to resolve crypto loopholes while reducing economic risks and addressing the security issues associated with cryptocurrencies.

Why the USA is Behind the Blockchain Curve

Even before this announcement, the US had developed a keen interest in the formation of its own CBDC. However, compared to other nations, its efforts have fallen short. 

The reason?

The US is severely lagging in blockchain, Web3, and crypto developments because it treats them as “technologies of tomorrow”. Continued lingering could prove even more detrimental. Fortunately, there is hope for turning things around.

Crypto on the Global Stage: A Picture of Progress and Innovation

Today’s global market for blockchain technology and cryptocurrencies attracts a wide range of industries. Blockchain is being viewed as a major collaborative and value-additive technology for additive manufacturing, artificial intelligence, space architecture, and automation. 

Katie Haun, Founder and CEO of Haun Ventures, gets candid about crypto’s global performance in a Bloomberg interview: “I’ve been in crypto for a decade if you can believe it. We’ve seen crypto get really hot and then all of a sudden not…However, I think one of the things that’s a little bit different now is with each new crypto cycle more and more people come into it. And so it’s more and more pronounced each cycle.”

“What hasn’t happened is a crypto winter in the midst of kind of really serious global macro conditions. So we have inflation kind of at record highs for our generation and in our lifetime,” Katie adds. “And then we have also a war that’s broken out in the Ukraine. And we have a number of other factors going on here. So that’s very different. There was some serious carnage out there.”

Despite the ups and downs of the market due to geopolitical factors, financial organizations have shown no restraint in exploring blockchain solutions to revolutionize insurance, clearing, settlements, and payment applications. BlackRock CEO Larry Fink recently talked about the growing significance of blockchain as an underlying technology in the area of asset management.

According to numerous projections, the use of blockchain technology is poised to boost the global GDP by up to $2 trillion by 2030, making it a vital component of the global economy. Lessons can be drawn from the efficient and innovative adoption of the technology in various countries:

• Japan has been a pioneer and hub for blockchain technology and crypto advancements. It is currently the only country with actual, enforceable laws regarding cryptocurrency, recognizing Bitcoin as a legal tender way back in 2017. The Japanese Financial Services Agency (FSA) reports over 3.5 million crypto users in the country. To set the pace for new advances around the world, the Japanese government and tech-savvy population are both interested in and supportive of the use of blockchain technology.
• China may have announced restrictions on cryptocurrencies and crypto mining activities, but it hasn’t stopped experimenting with the development of blockchain-based services. The Chinese government officially supports blockchain technology and appears to be the technology’s most impressive global promoter. The country plans to incorporate blockchain into its financial and expansion plans. To support blockchain-based firms, China also intends to provide industrial standards, licensed property insurance, and tariff incentives.
• Switzerland offers lenient administrative and tax treatment to new blockchain enterprises in its country. The Swedish Parliament itself advocates Bitcoin as fresh money, and citizens have undisputed access to blockchain and crypto information, driving intensive activities in experimenting and adopting the technology. Blockchain-friendly regulations have also helped draw in a significant number of investors. The tiny Swiss town of Zug, also known as the “home of the Ethereum network” currently houses more than 450 blockchain-based groups and enterprises.

That’s not all. Argentina and El Salvador have recently embraced cryptocurrencies to fight currency depreciation and inflation. The EC has inaugurated the European Blockchain Regulatory Sandbox as a proactive stance in the field, connecting regulators, experts, and innovators to advance blockchain projects under supervision.

While these and other countries are actively working towards the integration of blockchain, data, and information environments to spur innovation, the US is lagging with its restrictive views. The need of the hour is for the US government to view blockchain as a technology of today, not tomorrow. It needs a well-thought-out, coordinated blockchain strategy together with a conducive policy environment to compete across all spheres of prowess in the domain.

Here are some suggestions.

What the US Needs to Do to Take the Lead in Blockchain

Improving the Regulatory Landscape

The absence of crypto regulation in America is one of the main reasons it falls behind several competing countries. With the European Union releasing the first draft of its crypto assets’ legislation in June, Europe is already much ahead of the US in terms of crypto commerce, especially market awareness. 

However, Lizzy Fallon, a policy advisor for the U.S. House of Representatives, asserts that America has a significant potential to seize the initiative in the sector. Fallon asserts that more regulatory clarification is required in the nation regarding the distinctions between digital assets as securities, commodities, and currencies. 

The existing cryptographic architecture is “more of a state-based, fragmented architecture.” Policies ought to respect American principles of privacy, individual sovereignty, and free markets while also avoiding pigeonholing technology. At the same time, regulations should take the nuances of the technology and US-specific conditions into account. A critical first step would be defining standards, protocols, and ethics of blockchain technology for government and industrial use.

Katie Haun also talks about this landscape in her Bloomberg interview. “I think crypto is under the microscope,” she notes. “…A lot of what I call legitimate actors in crypto wanted to usher in this new wave this new ecosystem. And then we brought together the heads of all kinds of agencies really in an effort to kind of talk about building bridges you know the government and the crypto industry. We’re never going to see eye to eye on a lot of things. But we did think there were some commonalities.”

Diversification of Investments

“Although crypto has had its ups and downs, a lot of people in the last cycles have seen the kind of venture style returns that can be had in crypto,” notes Katie Haun in the Bloomberg interview. “A lot of new funds have entered the space. And that’s driven up the competition.” 

More funds and investments in blockchain and crypto will automatically translate into greater innovation and experimentation with the technology in the US. Diversified investments would be a welcome move. Funds and investors should look to invest in companies abroad, like in Europe and Asia. Investors may also engage with Web3 advisors and consultants to get a nerve of the market.

Investors looking to support early-stage companies with developed products may do so through smaller seed rounds. The focus can be on adding value through fostering community networks within the US, driving larger funds, and arranging innovative partnerships for Web3 companies. 

Focus on Technology R&D

Blockchain as a crucial and enabling technology for the information ecosystem needs more recognition as an area requiring concerted R&D efforts in the US. To kickstart that conversation, government agencies should investigate blockchain technology with the same zeal as other new technological research. A cross-functional interagency team may be formed comprising security, technology, and financial agencies along with industry and academia to investigate blockchain and curate long-term policies. 

The Road Ahead for the US in the Blockchain Space

Recent thrusts and activities in the US are directed at blockchain adoption and experimentation. States like Texas and Montana are advancing as welcoming hubs for new blockchain-based businesses. To create a more effective organization to handle financial transactions, many national financial organizations are investing in blockchain technology. 

The US Federal Government, for instance, intends to increase investment in blockchain development ten times over, according to a report. Investment banking giant JP Morgan Chase introduced and integrated an Interbank Information Network to enable the Ethereum blockchain across 200 distinct banks in the country.

However, with countries like China and Russia investing heavily in blockchain technology and cryptocurrency, it seems that the US is playing catch-up. Katie Haun also highlights this in her Bloomberg interview: “It’s the U.S. government that needs to start taking stock of the fact that right now in China there’s a quarter of a billion CNY wallets… We are falling behind…I think one of the things that’s not appreciated is how quickly the infrastructure here is catching up. And once you have really scalable block chains that can handle a lot of throughput and are very efficient I think that unlocks a whole lot of use cases.”

“That curve is up and to the right whether we like it or not,” Katie adds. “That is the future.”

The US needs to recognize the potential of Web3, blockchain, and crypto industries and create an environment that fosters innovation and investment, encouraging founders and venture capitalists to invest in this space. Otherwise, it risks being left behind in this technological revolution.

About the Author:

Ian Scarffe is a serial entrepreneur, investor, key opinion leader and Blockchain consultant with business experience from around the world.

An expert in Startup, Investment, Fintech, Web3 and Blockchain industries. Ian currently consults and advises for a range of multi-million dollar companies.

Ian’s overall mission is to foster a society of economically independent individuals who are engaged citizens, contributing to the improvement of their communities across the world.

Follow Ian Scarffe:

https://uk.linkedin.com/in/ianscarffe 

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