It seems that the part of financial crypto sector through failure is demonstrating the value of one of crypto’s core values: decentralization.
Crypto didn’t fail, centralization did.
Risk comes through a single point of failure; in trusting one entity.
If a person or entity is untrustworthy, virtually no amount of regulation will guarantee their honesty and secure funds. Motivated people can be clever and no system is foolproof. Indeed extensive regulation could create a pressure cooker environment that fosters extra levels of creativity to bypass them, where someone might be more sloppy if unregulated.
Regardless, we do have a system that lowers the trust risk: decentralization.
In centuries past decentralization wasn’t very practical with slower communication methods, but today fast communication is a common commodity.
In the financial sector going bankless is a route to greater security. And then for investment and trading going DeFi where smart contracts define the rules and take the place of any paperwork or terms of service.
One may argue that vigilant regulators can secure systems through licensing, paperwork, and audits.
This is doing things the hard way that stifles innovation and freedom of honest and moral people.
And also is inherently flawed.
Assumptions that can fail:
– That all regulators are themselves honest (and how hard is it to fire an unelected state bureaucrat with powerful friends)
– That regulations are fool proof – failure point: a motivated and clever human
– That there is sufficient resources to monitor all actors – covering all possibilities is pretty resource intensive and it only takes one major failure to slip through the cracks and lots of market value is lost
Government bureaucrats aren’t inherently bad; they can serve a valuable role. But giving them power is risky and can lead to problems. People who work for states are people too, and government decentralization can be of value as well.
For a government that is acting in the interest of the public, it is in their best interest to encourage a self regulating system that requires minimal case by case intervention where honesty and preventing the use of force are the core goods.
A public blockchain with private endpoints can help achieve this.
The transparency through being public, with public smart contracts, can enable crowdsourcing auditing, and privacy can help protect individuals from bad actors who would use force against them.
If we can prevent wrong doing in the center where the activity is happening, then we don’t have to care about who is doing it.
Rules ideally should be enforced by distributed systems, rather than trust in centralized corruptible points of failure. No solution is perfect, but some things are less perfect than others.
