Regulation kills innovation, they say. For most makers, the thinking is that when governments bring regulations, nothing of value happens, because entrepreneurs cannot break things fast, on the way to financial glory. So, in most startup communities, regulation is seen as a burden.
Few days ago, someone commented on a piece I wrote on the need for blockchain regulation as follows thus: “We must leave government out of blockchain because government will stop progress and slow things down. Even Bitcoin does not need regulation. The technology world will drive this without any government help”. This is typical because the narrative is that government uses regulations to put stumbling blocks on innovation.
Unfortunately, the perspectives from most startup communities are not right when it comes to regulation. When people think that regulation is bad, they miss the deal. While poor regulation is bad and does inhibit innovation, smart regulation unlocks value and accelerates innovation. The biggest limiting factor in the development of Bitcoin and by extension blockchain is lack of regulation in U.S., the world’s most important market. Without a clear regulation, there is a ceiling on the sector growth, because there is an uncertainty with legal ramifications.
Only a stupid person will invest another person’s money on these digital currencies without clear disclosures. The risk is huge. Clients may not bother during the happy days, but should things turn south, the trial lawyers will emerge from their hiding caves. With no law to fall back that you traded, for clients, on legally available products in the land, you will be on your own.
China has regulated initial coin offering – “an unregulated means by which funds are raised for a new cryptocurrency venture” – out. South Korea has done the same. For U.S., there is no regulation which means the regulation is weak. When you do not have a regulation on things people expect to be regulated, the community takes the default as confusion. When you have confusion, it is bad for innovation.
I commend the Nigerian government on its drone regulation. It was a brilliant moment in the nation. Without wasting time, they made it so clear that they were against civilian drone development. The registration requirements and the costs were evident government does not want drones to be flying around Nigerian cities. People moved on and that was it. Personally, they made a mistake on the draconian regulation. But yet, I was thrilled they moved fast making it. If anyone wants to change that, you have the courts or the Parliament. Simply, we have a clear regulation and can work to upgrade it. You cannot raise money for drone business now without a clear certainty on what the regulation says. That is far better than raising money with no clue of the possibilities in the future.
Traffic light is so important in our transportation ecosystems. We see it as a very critical technology which makes our traffic challenges manageable. But there is one thing that makes traffic light very useful. That is the law behind it. Without the law that says that you cannot run a red light, the technology has no value. So, the value of the traffic light comes from the law that drives the transportation sector.
In Nigeria, people run red lights as they know the law is weak to punish them. The same traffic light which is highly feared in some parts of the world has lower respect, in some parts of Africa, where they are installed. You may be unable to drive for years in U.S. for running a red light. In Nigeria, it may be some fees. That is the difference.
The person that made traffic light produced a good technology. But without the law, it would be ignored. So, the strength of Bitcoin/blockchain may not necessarily be the engineering behind the duo but the law that will govern them. If it is smart, the society wins. If poor, the society loses knowing that society can win if a bad technology is banned. Making that call is left to experts because what seems exciting today can bring havoc in future, especially in finance.
So as we think about regulation, the focus should be making sure they are smart and timely. Working towards smart regulation is strategic. From cryptocurrency to medtech (medical technology), when governments put regulations, markets have certainties on the future. Regulation ratifies sectors and opens the flow of capital. Nigeria needs smart ones, and fast. Smart regulation does not necessarily mean approving all new technologies since some may be unhelpful to the society. But making that call on time, removing uncertainly, makes it possible for people to realign priorities and move on to other areas.