From placeholder by Mario Laul

The foundations of public blockchains were laid by cypherpunks. Even though the crypto industry was always destined to harbor a variety of ideas and practices, it’s the principles of decentralization, open source software, cryptographic security, privacy, and self-sovereignty that underpin its most disruptive outputs. But there’s a problem. Absent a regulatory framework that favors innovation and legitimizes blockchains as administrative infrastructure with unique capabilities, crypto entrepreneurs have been facing a difficult choice: stay true to the purist ethos and thereby significantly complicate their project’s structure and operations, or compromise on the original ideals in return for regulatory blessings and a more conventional path to mainstream success. I call this the Cryptopreneur’s Dilemma.

Since inception, blockchains have been associated with rather lofty ambitions: the separation of money and state, censorship-resistant global payment and coordination networks, software services without single points of failure, and entirely new forms of digital organization and governance. Propagating such a revolutionary impulse requires special circumstances which, in the case of crypto, were provided by the aftermath of the Global Financial Crisis and the evolution of data and business models of Big Tech. Combined with the global adoption of digital technology and a built-in incentivization mechanism in the form of tokens, crypto thus had a near-perfect setup for early ecosystem development. Since then, the growth of social and financial capital within individual blockchain networks and the industry as a whole have turned crypto into a force to be reckoned with, as evidenced by its prominent role in the 2024 US presidential election.

Revolutionary ambition also requires audacity and a certain degree of sociological naïveté. Attempts at disrupting any societal structure, and certainly those underpinned by law, are always more likely to fail than succeed. By aiming its pikes at incumbent institutions, crypto has certainly capitalized on popular dissatisfaction, but such a posture will always be difficult to reconcile with the objective of building digital platforms that serve large global userbases. Similarly, the narrative of blockchain-based transactions bypassing the regulatory requirements of the various jurisdictions in which either the operators of the underlying infrastructure or the transacting parties are located, will always be vulnerable to local law enforcement. The ultimate price of crypto’s growth and true relevance is the formalization of its regulatory standing and everything that comes with it. To paraphrase a famous saying: you may not be interested in the state, but the state is interested in you.

While much of it is still in flux, that’s exactly what we’ve been seeing in practice. From taxing crypto-related activities and classifying tokenized assets, to enforcing AML/CTF rules and ascribing legal liability in DAO governance, crypto is being gradually folded into existing regulatory regimes centered around national jurisdictions. More importantly, however, this process also includes novel case law and the development of bespoke regulatory frameworks – the main battle grounds for ensuring that crypto’s original values don’t get crushed, either intentionally or by mistake, in the ideological and political struggles that will determine the balance of power between the various stakeholders involved. The Cryptopreneur’s Dilemma exists because, as is the case with any innovative activity with potentially far-reaching consequences, the process of its legitimization is slow and contested. For crypto, this has been especially challenging due to some maliciously opportunistic fellow travelers whose actions have been responsible for all sorts of mischaracterizations and collateral damage.

Another element to highlight is the growing integration of blockchains with more conventional forms of business and finance. For anyone who imagined crypto as a parallel system meant to compete with or replace traditional institutions, blurring the line between the two is a source of cognitive dissonance and internal conflict. For others, it’s a sign of success and the only sustainable path for blockchains to become systemically important infrastructure. As the industry matures and becomes more de-risked, its builder, operator, and user bases will also grow and diversify. While this makes crypto an attractive market for traditional businesses for reasons beyond the original value proposition, it will further amplify crypto’s narrative ambiguity, especially if combined with various forms of institutional capture of allegedly neutral infrastructure – a perennial threat that will increase proportionally to crypto’s continued adoption.

So, what’s the appropriate way to frame the relevance of the Cryptopreneur’s Dilemma as public blockchains enter the next stage of their adoption curve? On the one hand, crypto’s mainstream success appears more dependent on becoming tightly integrated with existing systems than it is on adhering to some idealized and all-encompassing notion of decentralization. There’s nothing sacrilegious in accepting that most ’crypto projects’ will end up indistinguishable from traditional businesses or open source software initiatives, or that most users of blockchains are unlikely to internalize the cypherpunk ethos to such a degree that it becomes the primary factor guiding their consumer choices. Ultimately, there should be little to gain from decentralization theatre and nothing controversial about centralized businesses using and operating public blockchains, at least not as long as these systems remain openly verifiable and more resilient than the alternatives. Therefore, once crypto’s regulatory status is sufficiently clarified, the Dilemma should become irrelevant for most entrepreneurs.

However, it would be wrong to conclude that this marks the end of the original vision. Technologies such as autonomous robots and Artificial Intelligence are adding new and highly impactful wrinkles to the Digital Revolution, and the need for robust computational and information management services has never been more pressing. As platforms for innovation that can provide an alternative to legacy systems susceptible to corruption, mass surveillance, and single points of failure, blockchains persist only if a critical mass of entrepreneurs and proponents stay on the difficult path of building truly decentralized, privacy-enhancing, and capture-resistant systems. While crypto’s commercial success no longer depends on it, its long-term societal legacy definitely does.