Regulation and the Tech Industry

Azeem Azhar has a great post up about the brewing conversation about regulation and the tech industry.

There are two main points that stand out to me:

1) In digital systems, ML/AI and data network effects create feedback loops that enable the biggest companies to keep getting better, faster:

and, 2) Regulation favors large incumbents over smaller challengers:

“Regulation is complicated. Dealing with it means dealing with lawyers, hiring compliance people, changing your product roadmap, building new code. Regulation raises barriers to entry. The most regulated industries, finance and health, have seen the deep consolidation and weak flow of new entrants for decades. Regulation favours the large.”

This has created a conundrum. The instinct is to apply thorough and tough regulations to solve for #1. But the chances are, doing so will only reinforce the lead that the big companies have, as per #2.

A good example is the GDPR privacy regime in Europe. As reported in the WSJ (paywall), the advent of GDPR has increased the market power of the big ad players (Google and FB), because they have the best ability to capture user consents and to implement complex compliance procedures:

“GDPR has tended to hand power to the big platforms because they have the ability to collect and process the data,” says Mark Read, CEO of advertising giant WPP PLC. It has “entrenched the interests of the incumbent, and made it harder for smaller ad-tech companies, who ironically tend to be European.”

The solution, we have long argued at USV, is to give simply increase data portability and interoperability. In other words, don’t add burdensome regulation that startups can’t comply with. And don’t break up the tech companies, break up the data. And the simplest way to break up the data is to give users a right to access it in a programmable way. This is what the proposed ACCESS Act would do. I talked about this previously in the Adversarial Interoperability post, where I also showed this diagram:

What this shows, is that throughout the history of computing, what has broken the monopoly power of each era’s dominant firm is the emergence of an “open” technology on top. Open source systems like Linux and open standards like HTTP.

Today, the set of open standards that need to be cultivated are cryptonetworks, cryptocurrencies and blockchains. These are the standards that make it possible to re-architect the data economy, including giving more control to individuals and removing it from companies. By design, crypto protocols replace certain things that companies do with things that any group of computers can do, like this:

So, the ultimate point we have been making is that if you’re worried about the problems with the tech economy, one of the solution paths is through crypto.

That brings us back to regulation, and the current state of play around the regulation of cryptoassets globally. The situation we are in right now is such that within the US, there is a lot of regulatory uncertainty, and as a result, a slowing of the crypto economy. Whereas outside of the US (particularly in Asia), the crypto economy is booming — not just tokens, but exchanges, wallets, and other infrastructure.

Because of all this, I worry that not only do we have the potential to miss one of the most important solution vectors to some of the issues facing the tech industry, but at the same time we (meaning the United States) may also be missing the opportunity to play a leading role in what has the potential to become one of the next major economic and technical platforms.

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Nick Grossman

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