Coinbase & SEC: A Pivotal Moment for Our Industry
Recent events surrounding Coinbase have promoted outcries among industry leaders. Here's what's going on and why it's relevant for all of us.
This week, Coinbase received a notice from the SEC identifying potential violations of securities law. Threatening to enforce the biggest, publicly listed crypto player in the US has prompted outcries among industry leaders (e.g. Brian Armstrong (Coinbase), Rian Selkis (Messari), and Ryan Wyatt (Polygon), and Jeremy Allaire (Circle) among others).1
And it concerns us all.
Beyond Coinbase, beyond the US
Because what has been happening in the US lately is not only about Coinbase. It’s not even about the US and its allegedly systemic crackdown on crypto (here’s a timeline2).
It’s questioning the most fundamental principles on which this space is built upon.
Let’s step back for a moment.
On its most fundamental level, Bitcoin enables a new foundation of distributed trust, allowing human coordination at scale without relying on centralized, trusted intermediaries. This becomes possible thanks to advances in cryptography and distributed computing, and elaborate economic, and game-theoretical systems.3
This technology, with Bitcoin as its first use-case, is the foundation of most of what we today call “crypto” and “Web3”.
Why is this so crucial? It eliminates intermediaries and rent seekers, which have become ever more powerful in our digital-native society.
We’ve all witnessed the rise of global platform monopolies, monetizing their users’ privacy, misusing users’ data to influence public opinion, or marginalizing the profit share of creators.
Of the 8 million people that uploaded music to Spotify in 2021, only 2.5%, earned over $1’000. The Apple App store takes 30% of all app sales from developers. Youtube takes 45% of all creator profits.
We’ve all witnessed the collapse or hyperinflation of currencies in countries like Venezuela or Argentina, which led to the erosion or destruction of people’s wealth.
We’ve witnessed the rise of autocratic, populist leaders across the world. In fact, the number of people living in autocracies has increased dramatically, while the number living in democracies has shrunken.4
This is why trust in centralized institutions is eroding. Crypto can play an important part in rebuilding trust.
Bitcoin, and all that’s derived from it, called “crypto” and “Web3”, is not only a technology, but also a cultural movement.
It’s a movement of technologists who believe that technology is a tool to give more power to people. By reducing centralized, trusted systems, it seeks to increase democracy, transparency, and fairness. This is why decentralization, openness, and privacy are so inherently ingrained in Web3’s culture. You cannot understand nor build in the space without starting there.
Not everyone in the space shares those principles. Flippers, traders and profit-seekers have infested the industry in recent years. It’s one of the reasons for major failures such as 3AC or FTX. It's also why crypto experiences lots of hype, noise, and fraud.
2022 was a big blow to the reputation of crypto, Web3 and everything associated to it. But these failures had nothing to do with the technology or culture that crypto was built upon. They were driven by greed, incompetence, and short-sightedness.
More importantly, it’s noise distorting the signal: We’re on the cusp of a paradigm shift to a more user-powered and community-driven digital society.
We are just starting to understand what it means to have digital ownership, and therefore more agency in the projects, communities and ecosystems we participate in.
So, what’s next?
Web3, and certainly Bitcoin will survive without the US. But it would be a bitter loss.5
Bitcoin, crypto and Web3 can change the way we transact, interact and create value for each other in an increasingly digital world. They can make the world more trusted, transparent, and fair.
It’s a pivotal moment for our industry.
Let’s seize this opportunity by building, educating and being vocal about the principles and vision this space. We all play a vital part in it.
I still believe technology is a force of good in the world.
We need to get this right.
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What happened this week is yet another major blow to Coinbase and the crypto industry in the US. Many argue that this is not only harming the US but also harming its consumers, as they will look for unregulated services off-shore, which is exactly what happened with FTX.
Let’s look at what happened in the US in the last months:
The SEC announced a lawsuit against the Paxos for issuing the BUSD stablecoin.
Crypto exchange Kraken agreed to a settlement with the SEC for offering a staking product.
SEC Chair Gensler’s op-ed on saying crypto firms should do their work within the bounds of the law.
SEC Chair Gensler openly labeled every cryptoasset other than Bitcoin a security.
The White House blasted digital assets in a new report, seeing little value in crypto
Biden also proposed a 30% energy tax on Bitcoin mining, which would make mining in the US unprofitable.
The NY Attorney General declared Ethereum, the second-largest cryptoasset, a security.
The SEC continued its anti-consumer protection efforts by doubling down on their attempts to block a spot Bitcoin ETF in court
And most recently, the SEC sent Coinbase a Wells Notice, indicating its intent to bring enforcement actions against them for a variety of their business lines.
Further reading by:
I highly recommend reading this if you want to dive deeper into the technological foundations of Bitcoin: Bitcoin’s Academic Pedigree
This tweet sums it up: