What is the public responsibility of the crypto industry?

Cryptocurrency – despite nearly 14 years of history dating back to Bitcoin’s 2008 and Ethereum’s 2015 launches – today remains a highly controversial, confusing and contentious concept for experts and laypeople alike. The crypto world has been a spiritual battleground between its believers and haters, and more recently those who exploit the differences for private gain. The battle is so fierce that it divides the faithful into camps (eg BTC vs. ETH vs. SOL vs. ADA vs. XTZ) that loathe each other and fight for supremacy.

For those who believe in traditional finance (TradFi), fiat is the only reliable medium of exchange, store of value and unit of account. It is equipped with proof of authority from governments, which are the “trusted public face” that all market participants can relate to. Fiat is a social contract that comes with terms and conditions for engagement among participants, with authorities as its guarantor. Rather, for TradFi believers, crypto is an incoherent, absurd concept rooted in the “greater fool theory”, which seems to be based entirely on hype and empty promises. Nothing else. “How can anyone create money out of thin air?” they ask.

For those who believe in decentralized finance (DeFi), crypto is practically useful and rooted in the “greater good theory.” Most cryptoevangelists attack “fiat” for its detachment from the gold standard, the history of which dates back to the Bretton Woods agreement that decoupled the US dollar from gold in the 1970s. Therefore, crypto is no different from fiat, as their values ​​are merely a social construct. Another attack by crypto advocates on the status quo is over intermediaries which runs higher transaction costs for the participants and create market inefficiency. Moreover, public data is exploited by the few for profit. But intermediaries are a more efficient model of supervision, creating lower monitoring costs for regulators. Without oversight, there is no public trust. The two worlds are incompatible.

Crypto’s social contract—anonymity, trustlessness, permissionlessness, and decentralization—is a strength as well as a weakness. To gain legitimacy, however, crypto can no longer afford to be a secretive sector. With crypto, what has been missing so far and yet necessary is an open discussion about its public responsibilities. Crypto cannot escape ideals of public accountability because its existence – all ICOs (initial coin offerings), IDOs (initial decentralized exchange offerings), IEOs (initial exchange offerings) and INOs (initial node offerings) – affects lives and the assets owned by millions of people: “the public interest”. The word “public” here is used to distinguish crypto used for private or close-knit groups such as families and friends where trust already exists. Therefore, the cryptosphere should embrace public responsibility to realize its social contract. There are many ways to do this, but let me illustrate the 3S strategy: self-regulation, self-protection and self-cooperation.

First, self-regulation. The difficult issue is for the crypto world to decide the need for a public guarantee for crypto projects to prevent fraud of all kinds. How will crypto be guaranteed in adverse events?

There are some questions to consider. For example, how long does a crypto project have to operate well before it can launch to the public, does it have a clear business model, and is the operator qualified to manage it? Should crypto projects rely on existing legal structures (eg LLC or general partnership), or if a new type of legal structure is needed, what should it look like? Do all crypto projects need a legal entity even if they are launched by individuals rather than organizations?

To self-regulate, the cryptosphere could take a leaf from other self-regulatory initiatives that have been quite successful, such as the “Certified B Corporation,” a voluntary standard for ESG practices that puts public interest at the heart of modern corporations. The advantage of self-regulation of crypto is that the crypto players know better what works, what doesn’t and why and thus will have a head start on regulators in determining crypto’s future.

Through self-regulation while protecting its own interests against those of regulators, the crypto world can determine the criteria for who is allowed to launch a cryptocurrency to the public (criteria), the legal basis for crypto to operate in public (legality), and the accountability mechanisms for public-serving crypto (accountability).

A self-regulated cryptosphere may be a better path than waiting for it to be governed by regulators, as is happening right now in various countries. Although anonymity is the culture, it is beneficial to have someone as a public face to ensure good self-governance, a form of self-reporting of what a crypto project does and achieves, and the state of the crypto founders’ wallets. .

Second, self defense. Self-protection is another public liability issue for crypto, as hacking is a common threat for crypto projects. Crypto is basically a bunch of codes that can be hacked. The 2016 hack of The DAO, one of the largest for an Ethereum project, and the attack on Axie Infinity’s Ronin chain earlier this year caused hundreds of millions of dollars in losses. The list of other major crypto hacks is endless.

However, many hacking cases are also not due exclusively to technical problems, but to behavioral problems, such as a lack of due diligence on the part of the participants. Code audits are a common practice, but still often do not meet a secure standard. As a self-regulated, self-governing sector, the crypto world must continually invent better ways to protect itself and the public funds.

Finally, self-cooperation. The crypto players – from kings, knights and bishops to pawns – must abandon their egos and begin to unite to pursue three common goals: survival, legitimacy and mainstreaming. Key to this is the recognition that crypto is still at the beginning of its life cycle. Whether crypto could be the next currency or a store of value is unknown and debatable. Only time will tell. However, there is a general consensus among crypto players worldwide that it is the “use case” of crypto that makes it valuable. “Use case thinking” – or what I call “affordance orientation” – is a safer bet for the future of crypto, as it can reconcile the differences between the fiat and crypto camps and entice the wider public to embrace crypto in a more compelling way.

Think of the cool futuristic ways crypto could be used: as a digital key to open and pay for Airbnb homes or Uber rides; as a reasonable and verifiable identifier for vehicles, property and university certificates; as assets for market exchange inside the metaverse, and an efficient way to automate tasks in smart organizations such as decentralized autonomous organizations (DAOs). Imagine if an All Crypto DAO – composed of all competing crypto camps and their chosen group of leaders as the public face – could be formed as an alternative governance structure that could offer proof of authority to cryptos of all kinds and allow for collective action.

Crypto needs a rebirth, rechristening, reframing and a new identity. It is the public – the decentralization ethos – that gives way to its rise, but also possibly its demise. This crypto winter is a perfect time for all stakeholders to rethink crypto’s alternate history and chart its plausible future. It is not too late to embrace public responsibility to discipline the sectors and rebuild trust, while supporting the spirit of innovation and equal opportunities.