Calling crypto the third wave of the Web revolution, Andreessen Horowitz outlined Wednesday what it thinks policymakers should do to adapt to the fast growing technology trend.
The Silicon Valley venture firm's policy proposal turns the spotlight on a fresh wave of disruptive technologies, including blockchain, cryptocurrencies and NFTs, which have drawn intense scrutiny from regulators and policy makers.
Those debates are raging amid heightened criticism of Big Tech, triggered by growing concerns over privacy and misinformation on social media platforms, referred to as Web 2.0.
"Few would debate that Web 2.0 — social media and today's large tech platforms — took a wrong turn along the way," the 35-page paper, titled "How to Win the Future: An Agenda for the Third Generation of the Internet," argued.
Web3, as crypto and other blockchain technologies are often referred to, offers a new approach to reshape the web and the tech industry, the a16z paper said. The VC firm has more than $3 billion under management across three funds focused on crypto companies.
"Web3 isn't just a new wave of innovation," the paper said. "It's an opportunity for a reset."
Here are six key takeaways from the a16z crypto proposals:
Policymakers have an important role to play.
Crypto grew rapidly based on decentralized networks. But government must now play a role in defining the way forward. "Policymakers should be leading the conversation and setting a broad vision for the future of U.S. digital infrastructure, not merely reacting to private sector and international developments such as China's digital renminbi," the a16z paper said.
"Leaders in the United States have two options: assume the responsibility of shepherding web3 innovation in a manner that's consistent with the country's values, or cede this role to others with a different, divergent set of priorities."
It's time to rethink the SEC.
The Securities and Exchange Commission, especially under new chair Gary Gensler, has played an increasingly high-profile role in scrutinizing the crypto industry. That's probably not going to work, the paper argues.
"It is time to look beyond the SEC as a catch-all regulator, establish cross-agency groups where appropriate, and consider whether a tailored and comprehensive approach to the regulation of digital infrastructure may be needed."
Disclosure rules need to be changed for the 21st century.
Regulations on disclosures helped create "efficient, safe capital markets" in the 20th century. But many of these rules are "not well designed to address" the way crypto and Web3 platforms work, according to the paper. "A Web3 platform could, for instance, generate financials and operating reports hourly instead of quarterly. New disclosure standards that focus on consumer understanding rather than strict technical adherence to legacy rules could take advantage of such capabilities."
The IRS should work with the crypto industry on new taxation rules.
The proposed infrastructure bill featured a heated debate over how crypto traders and miners should be taxed. And the a16z paper also complained that "the IRS has been slow to give consumers and businesses the basic guidance they need to comply with tax reporting obligations." The a16z paper said "policymakers should push the IRS to collaborate with the sector to implement solutions that leverage the technological leap forward offered by Web3."
Don't get fixated on crypto energy consumption.
Crypto skeptics and critics point to the massive energy consumption involved in bitcoin mining to highlight the industry's impact on the environment. But most Web3 projects use energy-efficient protocols, the a16z said. "Rather than fixating on bitcoin's energy consumption as an excuse to dismiss the potential of the whole industry, policymakers should embrace the value of web3 platforms to support sustainability objectives."
Don't dismiss stablecoins -- embrace them.
Policymakers "should embrace responsibly regulated stablecoins," the paper said. In fact, the U.S. can build on "the existing, thriving ecosystem of private USD-denominated stablecoins" to prevail in what it sees as "the emerging geopolitical arms race in financial innovation." China is a key rival in this competition. The U.S. "should condemn the surveillance authoritarianism embodied in China's digital renminbi project—not attempt to imitate it."