Computers and Casinos: Two Cultures of Blockchain

Blockchain technology has triggered two completely different cultures. One is the computer culture, which sees blockchain as a way to build new networks and has sparked a new computing movement. The other is the casino culture, which mainly focuses on speculation and making money, viewing blockchain merely as a tool for creating new trading tokens.

Media reports often exacerbate the confusion between these two cultures. Stories of making and losing money are always dramatic, easy to understand, and eye-catching. In contrast, stories of technological development are more subtle, progress is slow, and require historical context to be fully understood.

The culture of gambling has obvious problems. An extreme example is a certain defunct offshore exchange, which had a devastating impact. It divorced tokens from context, wrapped them in marketing language, and encouraged speculation. While responsible exchanges can provide useful services such as custody, staking, and market liquidity, reckless exchanges encourage bad behavior and even abuse user assets. In the worst cases, they may degenerate into outright Ponzi schemes.

Fortunately, the basic goals of regulatory agencies and Blockchain developers are aligned. Securities laws aim to eliminate information asymmetry related to publicly traded securities and minimize market participants' reliance on management teams. Similarly, Blockchain developers seek to eliminate the centralization of economic and governance power, reducing users' trust requirements of other network participants.

However, the current regulatory environment remains complex. There are discrepancies among major regulatory agencies in the United States regarding the nature of certain tokens, and this uncertainty provides opportunities for bad actors and non-U.S. companies.

The Indivisibility of Ownership and the Market

Some rules proposed by policymakers may effectively prohibit tokens, along with prohibiting all their actual uses, including the Blockchain itself. If tokens are purely used for speculation, these proposals may be reasonable. But speculation is merely a subsidiary function of the true purpose of tokens; tokens are essentially the necessary tools for the community to own the network.

Tokens can indeed be traded like other owned items, which makes them easily mistaken for mere financial assets. However, well-designed tokens have specific uses, including serving as native tokens that incentivize network development and drive virtual economies. Tokens are not accessories of a blockchain network; they are a core feature. Without a way for people to own a community and network, ownership cannot be discussed.

Some have suggested that through legal or technical means, tokens could be made non-tradable, in order to reap the benefits of blockchain while eliminating gambling culture. However, this is essentially equivalent to eliminating ownership. Even intangible assets like copyrights and intellectual property can be freely bought and sold by their owners. No trading means no ownership; the two are inseparable.

One proposal worth discussing is to prohibit the resale of tokens for a certain period after the launch of a new Blockchain network or until specific milestones are reached. This way, tokens can still serve as incentives for the development of the network, but holders will need to wait for a period before transaction restrictions are lifted. This time limitation may effectively align people's incentives with broader social interests.

Although the industry does need further regulation, the focus of regulation should be on achieving policy goals, such as punishing bad behavior, protecting consumers, providing a stable market, and encouraging responsible innovation. This is crucial because Blockchain networks are currently the only known technology that can rebuild an open and democratic internet.

Limited Liability Company: Successful Regulatory Case

History shows that wise regulation can accelerate innovation. Before the mid-19th century, the dominant company structure was the partnership, where all shareholders bore full responsibility for the company's actions. This structure limited the ability of companies to raise capital.

With the arrival of railway prosperity and industrialization in the 1830s, there was a need for new and broader sources of capital. This sparked a debate about adopting limited liability as the new standard for companies. Ultimately, the industry and lawmakers found a balance and established a legal framework that made limited liability the new norm. This gave rise to public capital markets, which propelled subsequent wealth creation and technological marvels.

The Future Development of Blockchain

The history of economic participation is a process of interaction and gradual integration between technological and legal advancements. From a few owners in partnerships to the expanded ownership scope of limited liability companies, and then to modern publicly listed companies with millions of shareholders. Blockchain networks further extend this scope through various mechanisms, and future networks may have billions of owners.

In the era of the internet, enterprises have new organizational needs. Imposing old legal structures onto new network structures has led to numerous problems. The world needs new, digital-native ways for people to coordinate, collaborate, and compete.

Blockchain provides a reasonable organizational structure for the network, while tokens are a natural asset class. Policymakers and industry leaders should work together to find an appropriate regulatory framework for blockchain networks, just as predecessors did for limited liability companies. These rules should encourage decentralization rather than default centralization. Through wise regulation, the casino culture can be controlled while encouraging the development of the computer culture, allowing innovators to focus on building the future.