When public or private investors are planning a landmark project in the form of a highly visible building – the Guggenheim Museum in New York, the Aqua Tower in Chicago, or the Walt Disney Concert Hall in Los Angeles – it is common practice to conduct an architecture competition to find the solution that best meets the expectations, with elegance and efficiency.
In conducting an architecture competition, the developers admit that they only have a rough idea what they want to accomplish but need creative input from professionals that usually have a better understanding and better ideas for the desired project. By asking several architects and architecture firms to compete, the developers are going to get the best possible proposals at the lowest possible price.
When public authorities – legislatures or (independent) regulatory agencies – are planning to develop a signature piece of legislation or regulation, they are in much the same position as a developer of a signature piece of real estate: They usually only have a rough idea what they want to accomplish and they need creative input from professionals that typically have a much better understanding of the issues and better ideas for the desired solutions.
Unfortunately, regulatory authorities around the world rarely, if ever, conduct open and transparent competitions for the best regulatory solutions to complex political, social, or economic challenges. In most countries, the regulatory or legislative drafting job is given to insiders in the administration in a complex procedure involving endless hours of meetings of dozens if not hundreds of committees until it is virtually ensured that the outcome is a formulaic compromise that is unlikely to meet all the expectations, let alone with elegance and efficiency. Anyone with experience in Washington or Brussels will know that I am being diplomatic here.
The United States, in particular, has added insult to injury by relying heavily on lobbyists from the private sector when it comes to drafting complex legislation and regulation. The difference between private interests submitting proposals in an open architecture competition and private interests submitting proposals as lobbyists to legislatures could not be more drastic and consequential: While the former is organized in a public and transparent manner, the latter is happening behind closed doors with expensive dinners and generous political donations as lubricants.
Granted, not everyone will always be enamored with the final choice for the design of a signature building and, arguably, a different proposal might have ticked all the same boxes with regard to expectations, elegance, and efficiency, just with a different design. However, that is the nature of democracy. We vote, we win some, we lose some, and we accept the wins and the losses, as long as the process is fair.
By contrast, nothing is fair when lobbyists meet with politicians behind closed doors. Instead, we are virtually guaranteed to get a solution that primarily benefits special interests rather than the common good. After all, if the lobbyists actually had the proposal that best meets the expectations and does so with elegance and efficiency, they would not need to conduct their business in secrecy and with all that lubricant.
The appropriate regulation of blockchains and digital currencies is one of the most intricate and complex challenges facing us today. And while an ugly building will only offend those in a radius of a couple of blocks around it, an ugly package of crypto regulation will drive away talent and opportunity and harm an entire nation for years, if not decades.
In his executive order of March 9, 2022, President Biden set out certain expectations, for example that cryptocurrency regulation should ensure a high level of consumer and investor protection, protect U.S. and global financial stability, mitigate illicit finance and national security risks, and promote U.S. leadership in the global financial system, as well as economic competitiveness. Those are similar to the expectations a developer would enunciate to the participants of an architecture competition. They make a lot of sense. President Biden went on to require collaboration among various federal agencies in the quest for legislation or regulation that meets these requirements. That is the standard approach we take to governing these days and opens the floodgates for those dozens and hundreds of committees and thousands of lobbyists to get busy until we have a typical piece of verbose legalese that we pass off as solutions to problems these days. It makes no sense at all.
Giving the job to regulators with limited understanding of the technology and its implications, or a general sense of suspicion of its disruptive powers, virtually ensures that much of the actual drafting is going to be done by special interests “advising” our public officials on the matter. And the “advisors” with long-standing friendly relations and deep pockets full of lubricant are much more likely to come from the traditional finance industry than from some technology startups in Silicon Valley. The New York BitLicense Regulation is a perfect example for the outcome of this kind of a process. It is widely considered to be the most restrictive set of rules for cryptocurrency businesses. As such it primarily serves to protect Wall Street against any kind of disruption from the emerging technology.
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If the Federal Government – or any State Government for that matter – is serious about getting regulatory solutions that not only meet the perfectly sensible expectations expressed by President Biden but do so with elegance and efficiency, and before all the horses have bolted, it is time to try a different approach. Why not announce an open and transparent competition with a nice award for the consortium that presents the best regulatory proposal that meets all the expectations and does so with elegance and efficiency? And let the SEC, the CFTC, the OCC, the IRS and all those agencies compete with private parties like the ABA or the ALI? At the Blockchain Law Alliance we would certainly enjoy giving them a run for the money :)