With the U.S. government finally recognizing the benefits of blockchain technology, now the question becomes how best to harness it. Some may push for a regulatory free-for-all, but that would be a mistake. History — and economic theory — shows that thriving markets require clear, consistent rules. Crypto is no exception.
In some ways, resistance to centralized authority is baked into crypto’s DNA. Satoshi Nakamoto, the pseudonymous creator of Bitcoin, designed the protocol to bypass financial intermediaries, envisioning a currency that’s free from government or institutional control. Many early adopters shared an ethos of radical individualism, reminiscent of the freewheeling Homebrew Computer Club, the open source software movement, and early cryptography advocates.
But crypto’s full potential can only be realized if it becomes broadly accepted and integrated into ordinary commerce. And for entrepreneurs and consumers to embrace crypto, they must be confident in clear rules that protect against fraud while also ensuring robust and fair access. Without that confidence, people will hesitate to enter the market, let alone use crypto for everyday transactions.
Contrary to what some believe, a “free market” isn’t a free-for-all — it’s a structured system where individuals can engage in voluntary exchanges with reasonable expectations of fairness and security. Without basic protections, markets break down. Without safeguards, uncertainty will drive away serious investors and legitimate businesses, leaving behind only speculation and bad actors.
We need crypto to be a computer, not a casino.
What kind of rules does crypto need?
Economists from Smith to Hayek, Friedman, de Soto, and beyond have long recognized that governments play a crucial role in setting up the guardrails that allow markets to flourish.
Smith argued that property rights enable individuals to “secure the fruits of their own labor,” and that the government’s role is a “tolerable administration of justice” to secure those rights. For his part, Hayek believed that the role of government was to maintain the rule of law while avoiding capriciousness. Friedman famously conceded as roles for government both enforcement of contracts and protection of citizens from crimes against themselves or their property. And de Soto pointed out that a lack of clear rules and property rights leads to “dead capital.”
Paul Atkins, the new chair of the U.S. Securities and Exchange Commission, echoed these sentiments in a recent speech, noting, “Regulators should provide the minimum effective dose of regulation necessary to protect investors while allowing entrepreneurs and businesses to flourish.”
The rules governing crypto — like those governing all markets — should aim to achieve four key objectives:
First, predictability and stability. A functional market requires clear, enforceable rules. Entrepreneurs need to know how their businesses will be regulated. Investors need confidence that the rules won’t change arbitrarily. And consumers need to trust that their transactions are secure.
Second, protection of property rights. Secure ownership is the foundation of any market. Crypto excels at encoding ownership through blockchain technology, but legal frameworks must reinforce and complement these protections.
Third, transparency and information clarity. Efficient markets depend on reliable information. Buyers need to understand what they are purchasing, whether it’s a digital asset, a decentralized finance product, or a non-fungible token (NFT). Regulations should promote disclosures that help consumers and investors make informed decisions, while preventing fraudulent schemes.
Finally, fair competition. Rules should prevent monopolistic practices, market manipulation, and fraud. Without oversight and tailored guardrails, markets can become playgrounds for bad actors who exploit information asymmetries, deceive investors, or artificially inflate asset prices. And any regulatory framework needs to be congruent with existing rules so it doesn’t inadvertently create new workarounds to established protections.
These four features are essential for market function: Stability and predictability helps make people willing to engage in transactions; and clear property rights are necessary in order for those transactions to happen. Then transparency and open competition help ensure that the transactions people choose to engage in push markets towards more productive and socially valuable outcomes.
The path ahead
Crypto is not a well-regulated industry today, although it is finally on that path. Crypto startups have spent years navigating a murky and often hostile regulatory landscape. As a result, while blockchain technology provides strong internal protections for property rights, the surrounding regulatory environment has been anything but supportive of a healthy market.
The SEC, for instance, has until recently, pursued crypto companies for alleged violations without first establishing clear legal standards. Entrepreneurs were left guessing which rules applied, only to face lawsuits after the fact. This created uncertainty that stifled innovation, while at the same time allowing bad actors to operate in the resulting grey zone.
Additionally, many crypto regulations were built for legacy financial systems, treating blockchain-based assets as if they were merely new forms of traditional securities or commodities. But crypto is more than just finance: it’s also a web infrastructure platform. Effective regulation must recognize both dimensions, ensuring that financial oversight does not choke off technological development.
Crypto has the potential to revolutionize everything from personal identity verification to event management and global payments. But realizing that potential requires guardrails like a token taxonomy that provides legal definitions of digital commodities; standards for evaluating decentralization and disintermediation; consumer protection; tax guidelines; and a framework for how legitimate blockchain-based businesses can operate without fear of arbitrary prosecution.
None of this is radical or unprecedented. The principles that make markets work — stability, property rights, transparency, and fair competition — have long been understood. But they have yet to be consistently applied to crypto. That must change, and the industry must welcome it.
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A version of this article first appeared in the Financial Times.
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Scott Duke Kominers is the Sarofim-Rock Professor of Business Administration at Harvard Business School, a Faculty Affiliate of the Harvard Department of Economics, and a Research Partner at a16z crypto. He also advises a number of companies on web3 strategy, as well as marketplace and incentive design; for further disclosures, see his website. He’s also the coauthor of The Everything Token: How NFTs and Web3 Will Transform the Way We Buy, Sell, and Create.
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