James Cooper is a professor of law at California Western School of Law in San Diego. For more than two decades, he has advised governments, international institutions, not for profit organizations, and corporations on the regulation of disruptive technologies and legal sector innovations.
On March 23, 2020, a new political action committee for the cryptocurrency world was launched in the United States. Designed to provide clarity as well as legitimacy for fintech, HODLpac is an important step towards the maturation of the industry. It is about time that crypto entrepreneurs, investors, and promoters put on their big boy pants, play in the regulatory sharktank of Washington D.C., rid themselves of the challenges that come with cryptocurrency’s history of fraud, and truly lead the advent of internet 3.0.
The fintech industry has been saddled with the reputation of being a haven for scamsters to steal from Mom and Pop investors and a mechanism by which Eastern European mobsters, Latin American narco traffickers, Asian gangsters, and other no goodniks launder their money. The crazy heights of cryptocurrency prices in late-2017 and early-2018 saw a rash of ICOs with unthought through and straight-out copied and pasted white papers take over fintech as stupid money piled on. By May 2018, the Wall Street Journal published a front-page article that studied 1450 ICO projects, 271 of which were deemed fraudulent. The real shocker was that the number was not even higher.
It has been a long climb back towards probity and decency. The HODLpac should help light the way back. This is a fundamental move for crypto promoters from a libertarian, cypherpunk, anarchistic ethos towards legitimacy, even convention. It is being done in a disruptive way: When individuals donate to HODLpac, they receive an equivalent number of “votes.” HODLpac plans to use quadratic voting, a system by which a group of people can choose a collective good for themselves. In essence, people can buy votes for or against a specific proposal by paying into a fund the square of the number of votes that they buy. In the context of a political action committee, a donor chooses multiple recipients but each subsequent recipient receives a smaller share of that donor’s vote. This process allows donors to express the degree of their preference and not just simply to direct where their respective funds go. Quadratic voting can ensure that individuals who donate larger amounts do not have an exaggerated influence on the destination of the donated funds.
Notwithstanding this approach, there is a plethora of ironies that comes with a political action committee for the cryptocurrency industry. It is super odd that HODLpac is taking advantage of centralization to argue for decentralization. Lobbying is a very centralized system; Congress is a centralized system of governance. To register as a political action committee is a centralized process as there is one depository and a set of regulatory hoops the PAC must jump through.
This burgeoning political action committee recognizes that the U.S. government is not acting proactively on the cryptocurrency front, nor do our governing authorities fully understand the power of distributed ledger technology or digital assets. The PAC wants to leverage grassroots participation and be decentralized in its operations. It will create a scorecard that ranks members of Congress in their respective support for digital assets – a lot like the National Rifle Association does for gun-related legislation.
The PAC will also direct funds to different congressional candidates, just like other political action committees. There needs to be more proactive and thoughtful policy making in the fintech space. HODLpac is also important because there is much education to be done. There is a public education aspect to it which is critical because few members of Congress understand this burgeoning industry. It is unlikely that any U.S. legislator can explain a “smart contract,” never mind a “decentralized cryptographic ledger”.
A few members of Congress get it already and have made some early attempts at legislation. Rep. Warren Davidson (R-Ohio), introduced the Token Taxonomy Act in 2018, updating it in April 2019. The Crypto-Currency Act 2020 was introduced on March 9 by Representative Matt Gosar, Republican of Arizona. Early versions of the massive bailout legislation to deal with the COVID-19 pandemic included some forms of a digital dollar to quicken the government aid to the non-banked. Although such a novel approach did not make it into the final act, it speaks to the eventuality of a dollar-backed digital currency.
HODLpac might not be the first group out there to fashion legislation for the cryptocurrency industry, but it could become a very important player as we emerge from the current crypto winter. If the United States is to become the true global leader in the fintech industry, HODLpac and other blockchain friendly lobbyists will be necessary. It will only be a matter of months until the Chinese Digital Currency/Electronic Payment initiative, a RMB-backed digital currency, and the Blockchain-based Service Network, a network that will serve many more Chinese cities, are deployed. We should not be playing catch up.
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