Brandon Possin, a foreign service officer with the U.S. Embassy in Tokyo who has formerly worked as a blockchain business strategist, wrote in an opinion piece for Politico that the U.S. government's attitude toward blockchain technology is putting the country at risk of falling behind in a global technology revolution, while China is charging full speed ahead.
Possin said the benefits and possibilities of Web3 and blockchain go beyond cryptocurrencies, pointing to the technology's use in areas such as royalties for artists, recordkeeping and social organization.
"As rocky as the crypto road has been lately, Web3 is still a competitive area of technological progress around the world," Possin said. He warned that the federal regulations surrounding banking and technology in the U.S. are "becoming more obsolete by the day," but Washington officials seem to be ignoring the fact that "a digital land rush is on."
Possin said the U.S. risks losing influence over the next era of the internet.
"Too many inside government are clinging to the past," Possin said. "Because of this, the U.S. is at risk of blowing its approach to the next generation of the internet. When it comes to formulating digital asset policy, we need to embrace the internet’s inevitable evolution. We need more technologists, fewer lawyers and less bias in favor of financial sector incumbents. As it stands, China’s government is working to capture huge swathes of economic activity within its closed, authoritarian but fast-growing internet infrastructure. At the same time, much of the rest of the world is adopting open blockchain networks, while U.S. government indifference and hostility toward open network blockchain technology is squandering the potential for Americans to benefit from it."
In his article, Possin said digital assets can now be saved in “self-custody” digital wallets instead of banks. Non-fungible tokens (NFTs) can be used to protect intellectual property of inventors and artists. Property exchange and lending can take place over an emerging network of networks without intermediaries. He said that the Chinese Communist Party (CCP) "is not making the same mistake" as the U.S. government. Although some in the West believe that China has turned away from blockchain after cracking down on Bitcoin mining in 2021, Beijing has actually been supporting and funding innovative financial technology projects, Possin said.
For instance, the blockchain-based Services Network is a government-backed suite of software tools launched in October 2019. Users of the service can build “smart contracts” to facilitate exports to China or for supply chain-tracking purposes. The closed network serves as a state-backed competitor to open blockchain systems like Bitcoin, Ethereum or Solana.
"On this network, the Chinese government has the power to shut out people, companies or countries that lose its favor. And the data Beijing gathers from it offers an intelligence trove far more consequential than anything it might gather from Americans watching TikTok videos," Possin said.
He said the Chinese government has also been "aggressively promoting" the digital yuan, its central bank digital currency, sparking privacy concerns and supporting China's goal of displacing the U.S. dollar as the world's reserve currency.
"The dollar’s influence on the digital future is at stake. Just as the dollar has projected U.S. economic power in the analog world, digital assets pegged to the dollar, called stablecoins, project the dollar into the digital economy," Possin said. If China's digital yuan becomes more widely used, it could harm the U.S. financial system. Companies that want to export their goods to select markets will soon have to choose between interoperable systems built on open blockchains and firewalled, closed systems like those used by China.
"If U.S. regulators continue to antagonize open blockchain systems, economic participants will continue to view them as legally risky. This makes China’s closed alternative more appealing by comparison," Possin said.
According to Possin, the U.S. is lagging in its support of innovation and instead is putting too much support behind "domestically oriented financial sector incumbents." He said other countries are viewing the U.S. as "anti-innovation," with policymakers focusing too much on the risks of digital assets while overlooking the benefits.
"The result is erratic 'regulation by enforcement' and onerous tax policies that drive away commerce," Possin said. He warned that continuing down this path will push innovation out of the U.S. and into other countries. He said the "brain drain" has already begun, citing a study that found that over the last five years, the share of blockchain developers in the U.S. has dropped from 40% to 29%. Innovative financial companies are choosing friendlier locations like Singapore and Switzerland.
Possin said that while the U.S. is at risk of "losing out to the new digital world order being built by authoritarian China," it's not too late to correct the path. He called on U.S. lawmakers to send "positive signals" to the Web3 industry, which he believes would attract talented workers and innovators. He said that Congress also needs to clarify regulatory guidelines for the industry, as many have been calling on regulators to do.
"Without greater legal certainty in the U.S., investors and entrepreneurs will gravitate elsewhere," Possin said.
