Regulating Software

fredwilson
fredwilson
0xB833
June 24th, 2021

I understand that regulators and elected officials need to raise concerns about new technologies and their impact on society. It is their job or at least part of their job. But I am also dismayed regularly by how poorly many elected officials and regulators understand the technologies they are talking about.

In particular, I am deeply concerned with how poorly many elected officials and regulators understand blockchains, smart contracts, and decentralized applications and organizations. They assume that these things are run by companies and people and can be regulated with traditional corporate regulatory activities.

What people need to understand is that blockchains, smart contracts, and decentralized applications and organizations are not companies. They are software. And they can and do run without any company operating them.

Let’s look at Bitcoin. There is no Bitcoin Inc. There is no company to sue. The founder is unkown and may not exist. So she can’t be sued either. There is nobody to call before Congress. There is no entity to make regulatory filings.

AMMs are smart contracts. These smart contracts operate liquidity pools that allow for decentralized trading of assets without any company operating them, controlling them, or managing them. Once these software programs are published on a decentralized blockchain, they just keep running without any intervention by anyone.

I could go on and on, but I expect you get the point.

So when someone says that one or many of these decentralized software applications needs to be regulated or, god forbid, shut down, I wonder the heck they are talking about. I don’t even know what that means.

Of course, using this decentralized technology could be deemed illegal in places and I fully expect that we will see that happen. But we won’t see it happen everywhere. And the places that embrace these new technologies will benefit immensely from them. So, like the criminalization of alcohol and gold, those approaches will eventually fail and will harm those regions that try it relative to the regions that embrace it.

I believe the more productive path for regulators and elected officials is to take the time to understand how this stuff actually works and think about new ways that society can mitigate the risks while gaining the benefits. That’s a harder path but a better path.

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