In 2011, engineers at John Deere were putting bitcoin wallets on tractors and implements (seeders and fertilizers), and every spin of the axel created a message on the controller area network (CAN bus), after which a small amount of bitcoin transferred to the implement’s wallet. The process of creating what was effectively a new payment system horrified the company’s internal accountants, but the fact that bitcoin had no apparent monetary value at the time somewhat assuaged their worries.
By 2016, the automotive standards group SAE (The Society of Automotive Engineers) began standards conversations regarding blockchain, and today most new automobiles have blockchains built in. This created a whole new range of possibilities: Today, a driver coming up behind a car wanting to make a pass can signal his intention by using a turn signal, honking, or getting aggressively close to the car. With blockchain, the cars can automatically execute a smart contract so that the faster vehicle can pay cryptocurrency to the slower vehicle to move aside, creating a cryptocurrency mechanism for virtual fast lanes. Ford holds this patent, incidentally.
In both instances there is value being exchanged. In the first case, cryptocurrency allows for automated micropayments based on precise usage rather than daily rental fees. In the second case the value – the position on the road – is temporary, transient, and occupied rather than owned, but a blockchain-based payment system allows for the monetization of a value that could not be monetized previously.
Web III – the internet of value – comes with dramatically increased risks. The blockchain industry understands this and has been pleading for some sort of regulatory framework for years. It is rare for an industry to ask to be regulated: it is even rarer for such a request to be refused.
Fortunately, a bipartisan regulatory consensus is quickly jelling around blockchain and cryptocurrencies. In May, the House passed legislation (the Financial Innovation and Technology for the 21st Century Act, or FIT21) that would facilitate the use of digital assets and place much of the necessary authority with the Commodity Futures Trading Commission --and not the Securities and Exchange Commission, whose current chairman--Gary Gensler--has been hostile towards these markets.
The crypto industry has been maturing from being solely the domain of engineers and cryptanalysts and now has the support of a variety of business and political leaders.
Blockchain applications are finding homes in a variety of industries that extend well beyond Web III and vehicles. Blockchain usage is well-established in the supply chain, intellectual property protection, healthcare, centralized and decentralized finance, accounting, software development, and back-office processes. For instance, Aquacoin is being developed to manage and track aquifer water usage. Peru has its property deeds on blockchain, and Dubai, Estonia, and Kazakhstan have vehicle titles on blockchain.
Banks are also using smart contracts to automate internal processes. Ripple uses digital assets like XRP as bridge currencies to take friction out of cross-border transactions. Unfortunately, regulatory uncertainty has driven much of this innovation overseas.
The maturity of the blockchain-cum-stablecoin offers the potential to reduce transaction costs across a wide variety of markets, potentially eliminating the proverbial middleman--which seems to be the bete noire for the Biden Administration. Its adoption is changing economies across the globe, but U.S. investors wait for regulatory clarity.
Blockchain applications are identical for the customer to any other type of applications: the only difference is they have a superpower in the back end that allows trust to be relocated from people to the system itself. This makes such applications appropriate for markets.
Paul Brody of Ernst and Young remarked that blockchain will do for digital ecosystems what ERP software did for enterprises. Implicit in that statement is the need for a regulatory infrastructure to recognize that legal patchworks and contradictory guidance will be more of a boot than a braking system. It is easy to imagine how e-commerce would have been deterred if U.S. regulators were unwilling to adopt regulations to protect online shoppers.
The excessive focus on cryptocurrency in its current form—and the concomitant resistance to the SEC acknowledging its potential usefulness—is very short-sighted.
This technology is, and will be, central to disruptive innovation for most major economies in the world, and America should allow it to be free to move about here as well. Companies like Ripple and stablecoin innovator Circle are focused on their products’ long-term utility – focusing on solutions that solve problems and drive revenues. These technology companies’ value in the space are not defined by tokens’ price fluctuation, but rather the efficiency and dynamism their new products add to legacy industries and institutions. [For example, although the chronically online crypto traders may insist otherwise, XRP is not defined by its minimal price volatility, but its use as a bridge currency for cross border payments and how that affects Ripple in the long term].
Economically superior innovations may eventually succeed, but often they get delayed by shortsighted politicians, inconsistent strategy, and poor management. The U.S. should establish a regulatory framework for blockchain and cryptocurrency so that its rules play a central role in dictating how the rest of the world ultimately regulates it as well, just as it has done so with many technologies in the past.
