There’s a kind of policy argument around technology that relies on inevitability. It surely must rankle a given technology’s foes, and it probably does not persuade them. But it may help policymakers near or on the fence to consider that a technology isn’t going away. Trying to make it go away only harms the United States. A new instance of that argument emerged at a recent AEI event on cryptocurrency and on venture capitalist Chris Dixon’s new book, Read Write Own: Building the Next Era of the Internet. It may help thoughtful American regulators to embrace the idea of a better regulatory environment for cryptocurrency.

One of the most prominent examples of the inevitability argument inhabited the first crypto war in the late 1990s, involving export controls on encryption. The argument went like this: Cryptography being a mathematical technique about which people communicate digitally, there is no practical way to control its spread. Working to prevent access to encryption would encumber law-abiding users in increasingly intrusive ways, making them and our country worse off with little long-term effect on dedicated adversaries of security and peace. 

Given that inevitability, it makes more sense to embrace the use of cryptography by good actors while containing and facing down bad actors other ways. That conclusion is (still) rankling to some participants in that debate, but the debate effectively ended in a win for technology when President Bill Clinton signed Executive Order 13026, which changed the US federal government’s treatment of encryption from a military subject to a commercial one.

Today, inevitability is at the heart of one argument for better treatment of cryptocurrency in the United States. My AEI colleague, former House Speaker Paul Ryan, featured it in a July 2023 event here at AEI entitled The Economic and National Security Impact of Offshoring Cryptocurrency. Just from that title you can gather the argument: Cryptocurrency is here for good. The question is whether the center of gravity in cryptocurrency should be in the United States or somewhere else. We would be worse off economically and in terms of security if cryptocurrency were largely a foreign phenomenon. You can imagine crypto’s staunch opponents digging in their heels at this point, while pragmatic neutrals shift to positions a bit more favorable to crypto.

Which is not to say that that argument has yet won the day. In fact, at our recent event, Chris Dixon of leading venture capital firm Andreesen Horowitz said he believes the United States is the “most negative regulatory environment for the space”—even more negative than Europe, which is no land of tech dynamism. Many of their portfolio companies block the United States and don’t offer their products in this country. A16z (as the firm is known) recently opened an office in London, breaking a former policy of being only in the United States.

He made another, similar point that I hadn’t heard, and that hadn’t occurred to me before. Venture capitalists invest in people as much as ideas, and Dixon argued that the uncertain regulatory picture for crypto made it a less attractive environment for high-quality people. The best people are eschewing working in cryptocurrency because there are better opportunities in other fields. It makes perfect sense. On the margin, the best and brightest will go to some other tech sector if the path to success in a cryptocurrency venture is less clear. The uncertain regulatory environment lowers the quality of people working in crypto.

There’s no direct line from this dynamic to the calamitous crash of crypto firm FTX, whose leader, Sam Bankman-Fried, was recently sentenced to 25 years in prison. But one can imagine an alternative recent history in which the highest quality entrepreneurs crowded FTX out entirely or discovered the FTX fraud before it grew so huge.

That root in inevitability could alienate crypto’s policy opponents even further but I do think it is a valid argument: quality people are attracted to clear opportunities. The US should support and not suppress a domestic crypto industry because that will cause it to be better run than an environment of draconian yet uncertain regulations designed for chasing scammers.

There is, of course, a possibility that crypto is not inevitable, but that likelihood has been getting smaller and smaller for more than a decade as institutional acceptance grows along with the “market cap” of the crypto industry, which is now equivalent to about 2 trillion dollars.

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