Blockchain technology is on the cusp of revolutionizing the way companies do business, and it’s been a long time coming. The web has evolved from dial-up to the current Web2, dominated by companies that offer services in exchange for personal data. Web3, which is fast replacing the Internet that most users have become familiar with, refers to decentralized applications (DApps) running on the Blockchain, where users can participate without compromising their privacy and ownership of data.
Blockchain for business is built on a shared, immutable ledger that is permissioned to increase efficiency among trusted partners. This enables businesses to transact more smoothly and efficiently. This is the future of the Internet for business, but there’s a problem.
Technology evolves at the speed of thought, and the current legislative process is far too cumbersome and slow to produce legislation that can order and regulate the use of Web3 and Blockchain technology.
One person at the coalface of Blockchain innovation is Andrea Perlak, Founder and CEO of Crypto Accounting Group (CAG). Aside from her current responsibilities at CAG, Perlak is a thought leader of accounting services in the Web3 space and former World Bank Lead, CFO and Board Member of several Web3 Companies.
The increasing reliance on Blockchain technology and processes in the business environment has Perlak worried, but it’s not about the technology, it’s how Big Government is handling the challenges of legislating Blockchain technology. This is particularly evident in the Biden government’s apparent tardiness/unwillingness to embrace the possibilities of cryptocurrency or pass substantive legislation to bring order to the Blockchain environment.
Perlak says, “We simply have to move faster if we want to leverage innovation in the Blockchain space. I am hopeful that with the most recent elections, this will be a legislative priority.”
Strike While the Iron is Hot
According to Perlak, time is of the essence when it comes to business use of Blockchain-cased solutions. Currently, both federal and state governments are simply not moving fast enough to allow businesses to take advantage of the technology.
Perlak is especially worried about the lack of legislation in the area of DeFi (Decentralized Finance). This blockchain-based system lets users lend, borrow, trade, and invest without needing banks or brokers. It uses smart contracts to automate and secure these processes, making them transparent and decentralized.
“The idea that this technology will simply stand idle while legislative discussion occurs is fiction. Like all innovations, it evolves incredibly quickly. The fact that it took the U.S. ten years to come up with a regulatory approach to Web3 doesn’t bode well. For instance, the Philadelphia Federal Reserve, the Federal Reserve Bank of Cleveland, the House Ways and Means Committee (part of the U.S. Congress), and the Financial Services Committee are engaged in a series of meetings to agree on the framework for dealing with Blockchain and crypto.
“It’s admirable that they’ve scheduled around 400 meetings in a week to reach some sort of agreement. But, at the same time, it’s almost inevitable that the process is going to be drawn out. I hope for better over the next 4 years.”
Although Perlak lauds the urgency of holding meetings and is the first to admit that the tempo to implementation is exponentially faster than the decade it took for Web3 legislation to pass, she points out that U.S. startup founders who are innovating in the Blockchain space have been leaving the United States for greener pastures, or at least pastures that have made strides to regulate Blockchain. With the most recent election, industry builders are already talking about coming back to the states.
“If this process is delayed in the U.S. there’s every reason to believe that any new legislation will not keep pace with innovations in this field. As a startup founder you cannot cope with that sort of uncertainty,” says Perlak. “I hope that we can leverage the incoming pro-crypto legislators to move the space forward and make the United States a hub of innovation.”
Leveraging Existing Models
Perlak points out that the United States is behind the curve when it comes to Blockchain regulation. She cites the landmark MiCA legislation introduced by the European Union as an approach that U.S. legislators as an example.
“The European legislation shows what can be done when industry and government work together. The crypto industry wants common sense legislation, a more permanent legal infrastructure that won’t change with every new administration. We want to protect consumers and promote innovation. We want to stay in the U.S. MICA provides that for the E.U. Passing FIT21 and stablecoin legislation would be a good start for our country.
Perlak is upbeat about the sense of urgency that legislators are showing while simultaneously stressing that in the absence of new legislation governing Blockchain and crypto, there will be two losers, government and innovators.
“Without new legislation, the risk of innovating in the Blockchain space may be too much for startup founders to tolerate. They find themselves cut off from funding due to uncertainty, and they don’t have a clear picture of what boundaries they have to take into account when developing new tech. The upshot is that the U.S. is losing some of its most valuable innovators and we want to incentives them to come back.
Perlak also points out that without legislation, the government losses. “We lose jobs and tax revenue, and create a brain drain. We also lose the next wave of technological advances to Dubai, China, Singapore…
“We haven’t even worked out the rules around taxation of eCommerce activity yet, and that affects the amount of tax that the IRS can collect. In a world where eCommerce is rapidly approaching the amount that is spent in brick-and-mortar stores, that’s unforgivable.
“The U.S. is in last place among developed countries when it comes to appropriate legislation. What is needed is more winter-agency cooperation. The fact is that the government can’t drive the pace, the tech drives the pace, and they have to react. We need to urgently match the pace of tech evolution, not the other way around. The genie is out of the bottle, and robust regulatory guidelines are urgently needed.”
To learn more about Andrea Perlak’s advisory services and the Crypto Accounting Group, visit her LinkedIn page.