Simply sign up to the Technology myFT Digest -- delivered directly to your inbox.
Big Crypto is in the midst of a big reckoning. Following a series of spectacular crashes and implosions last year, two of the most powerful and profitable crypto companies still standing — Coinbase and Binance — were hit by lawsuits from US regulators on successive days this month. A third, Ripple Labs, is still fighting a case brought against it in 2020, having spent more than $100mn in legal bills so far.
It is not the most overt scam artists and conmen in cryptoland that are being targeted here (there are many of those around, but they tend to be relatively small fry). It is the companies that have done their utmost to look like legitimate businesses; the ones that have tried to make themselves palatable to regulators, Silicon Valley and politicians alike.
These are the suited-and-booted types who have dinner with presidents and who cosy up to Tory MPs-cum-Z-list celebrities in the House of Commons. The types who boast of “great meetings” with the economic secretary to the Treasury and who write altruistically about their desire for the UK to “be a big part of [crypto’s] success” and their belief that Britain must “put Web3 and blockchain at the heart of government” (groan).
This “sensible crypto” crowd has relentlessly pushed crypto by framing it not as a miraculous way to make obscene amounts of money out of thin air, but as a crucial “innovation” that countries must embrace if they do not want to be left behind. Now, they and their backers are trying to fight back against the US Securities and Exchange Commission’s crackdown with the same rhetorical argument: any move to regulate or punish the Wild West of crypto will stifle said “innovation”.
“The SEC is looking to kill crypto innovation in the United States,” Ripple chief executive Brad Garlinghouse said in a video posted to social media last week, after the release of some documents pertaining to the SEC’s case against his company. “The SEC is creating a regulatory environment that is hostile to innovation,” Tim Draper — venture capitalist and friend of another famous innovator, the incarcerated fraudster Elizabeth Holmes — told Fox Business last week.
So prevalent is this charge that the SEC has even had to explicitly deny it: “We are not here to stifle innovation, we are here to stifle fraud,” the SEC’s director of enforcement said last week.
But what do we even mean by “innovation”? The Cambridge Dictionary defines it as “a new idea or method”, or “the creating and use of new ideas or methods”. Yet the way it tends to be used is more along the lines of “a tech-y thing that nobody quite understands but that might one day be useful and could definitely make some money at some point”.
“It works very well for the industry to frame every technology that they put out into the world — whether it’s crypto or generative AI, or whatever else — as an innovation that we must pursue,” Paris Marx, host of the Tech Won’t Save Us podcast, tells me. “But Silicon Valley and venture capitalists are not actually interested in developing technology for the betterment of society . . . What they’re interested in is making money off of whatever hype cycle they are going to gin up next.”
Sometimes the problem with innovation is that while the idea in question might be new, it is not actually very useful: it is a solution looking for a problem, as in the case of blockchain technology. And sometimes the problem is that the innovation, while not without its uses, is incredibly harmful: synthetic opioids have provided millions of people with pain relief, but they have also created an overdose epidemic, killing almost 80,000 Americans in 2022 and helping to drive US life expectancy down to a 25-year low.
Why is it, therefore, that we have come to see “innovation” as such an unalloyed good, and why is “stifling” it so unequivocally bad? Surely the objective of the innovation — and the possible repercussions — should matter, too. Innovation might be crucial in making progress in all sorts of areas, such as medicine or science, but we seem to have got to a place where it is the idea itself that we venerate. That is wrong-headed: innovation should not be seen as an end in itself, but as a means of making something better.
Crypto might be novel but that does not make it useful or valuable to society. We cannot go on imagining that all innovation is a force for good. In practice, “innovation” often just means exploiting gaps in existing rules until the regulators catch up — so called “regulatory arbitrage”, a strategy that the crypto industry has very successfully deployed and indeed relied upon. Unfortunately for these ingenious crypto “innovators”, catching up is exactly what regulators are now doing.