Tree of Web3 Wisdom
Innovation is the soil from which we can create a better Internet. Blockchain is its root system — decentralized, transparent, secure, and traceable. Sensible regulation is how we guide the transformative power of Web3 to empower individuals and businesses, drive economic inclusion, and benefit the planet.
Enter the Tree of Web3 Wisdom: five branches to guide the thinking of policymakers everywhere considering how to regulate blockchain, crypto, and Web3.
1. Understand the technology
Before planting a tree, it is important to dig deep and understand the soil conditions and environment.
Blockchain technology allows for digital ownership and transfer of value across the Internet, with enhanced security, transparency, auditability, programmability, and scale.
Users can program on these databases to leverage their computing power and create applications that are part of a larger tech stack for anything people's creativity can imagine.
Significant applications are emerging that go far beyond crypto-trading, demonstrating the potential to empower communities, remove friction, verify credentials, and create new efficiencies in commerce… all through the power of digital uniqueness.
2. Beware of misconceptions
It's not just money that grows on the Web3 tree - it's a diverse ecosystem featuring a wide array of use cases.
Blockchain is not just FinTech, it is new infrastructure for the internet.
Cryptoassets and blockchain are not synonymous: blockchains facilitate cryptoassets, but they also facilitate many other types of activities by allowing data integrity and digital uniqueness through tokenization.
Cryptoassets are not just financial instruments, they are a way to digitally represent something on a blockchain.
Decentralization does not necessarily mean “permissionless and public.” Decentralized systems promote transparency and security by having no single point of failure, no single source of truth, and no single entity or authority with the power or obligation to change data or transactions.
DeFi is more than the trading of financial instruments. It is an avenue to democratize commercial systems by using blockchains and smart contracts to replace traditional intermediaries with in-built trust mechanisms.
NFTs aren't only about collectibles and art with revenue streams; an NFT is a type of token that is digitally unique, allowing for more specialized representations regardless of the industry. (It's in the name: Non-Fungible Token… NFT.)
3. Classify tokens sensibly
Just as there is a biological taxonomy that categorizes plants, it is crucial to employ a sensible classification system for tokens.
A token is a digital representation of something on a blockchain (e.g., an asset, item, bundle of rights).
Tokenization allows the item's ownership to be established and transferred globally on one or more blockchain networks.
Tokenizing an item does not change its essential nature any more than describing it on a piece of paper changes it.
Learning the nature of a token (its functions and features) unlocks the key to understanding its utilization, valuation, and legal classification and therefore its appropriate regulatory treatment.
Treating all tokens as financial instruments or the trading of tokens as financial activity will unnecessarily limit their use in commerce, communications, entertainment, recreation, governance, and anywhere else establishing ownership.
A sensible classification system recognizes the nature of a token based on the item or rights it represents by asking: is it a physical item, intangible item, a type of service, or simply a native token integral to the functioning of a particular blockchain network?
4. Enact context-appropriate regulation
Plants need specific care depending on their nature and location: a tropical hibiscus plant that is treated like a desert cactus will rarely blossom.
Responsible actors want sensible policies that incentivize growth and good behavior, punish bad actors, and regulate intermediaries — and are willing to provide guidance to policymakers to achieve those aims.
Appropriate laws and regulations traditionally have been determined according to the type of asset or technology and its context, i.e. how it is being used, by whom, and the associated risks. This same approach should apply to blockchains and tokenization, which are just a new way of establishing ownership and transferring value.
What has been regulated a particular way in the physical world should be regulated the same way in the digital world, applying the guiding principles of "same asset/activity, same risks, same regulation."
Many innovative programs and features on a blockchain are run by autonomously-functioning code, and its role needs to be carefully considered when regulating.
5. Think global
Root systems don't stop at a border but are interconnected with each other. Acknowledging this is a critical step to help them thrive.
The growing reliance on the Internet for communications, commerce, and recreation demands policies that foster innovation, promote inclusion, and support digital infrastructure (hardware and software).
Just like the Internet, blockchains and crypto assets are global and require a coordinated regulatory approach, based on certain "first principles," including disclosure, market integrity, anti-fraud, privacy, and operational integrity.
Policymakers should coordinate across nations and regions to align their approaches and foster innovation that benefits everyone.
Markets rise and fall. Trends come and go… But quality builders will keep creating new and exciting ways to use blockchain technology for a multitude of purposes.