“Two men saw a beautiful rose: one noticed the beautiful petals, and the other the thorns.“
The Thorns of Isolation
In 1371, the Chinese Hongwu Emperor was alarmed by a foreign ship approaching the shore much larger than any Chinese ship he had seen before. He feared that foreign invaders would invade or aid the remnants of the previous Yuan dynasty and threaten China’s security and sovereignty. So he enacted the “Haijin Policy”, which prohibited private maritime trading and coastal settlement and restricted official trade to designated ports and tribute missions. Other emperors, over the years kept China isolated to prevent the spread of Christianity and to protect the Chinese merchants from foreign competition [1].
The policy negatively affected China’s economy, society, and culture, isolating China from the rest of the world and hindering its maritime development and exploration. It also contributed to the rise of piracy and smuggling along the coast, as many Chinese dispossessed by the policy turned to illegal activities to survive. The after-effects of the “Haijin policy” also made China vulnerable to foreign aggression and exploitation in the 19th century, as it lacked a strong navy and modern technology to defend itself against Western powers during the Opium Wars. China, in short, could not keep up with the fast-paced developments in the industrial world and got dominated by the invading Western powers [2].
Petals Blossoming to the World
In contrast, in 1853, when the Japanese Emperor Meiji saw an American ship sailing into Tokyo Bay, he was inspired to change Japan and open it up to foreign countries. This was known as the Meiji Restoration. Before this, Japan was ruled by a feudal military government that enforced a policy of isolationism, known as Sakoku. Sakoku means “locked country” and restricted foreign trade and contact to a few designated ports and countries. Most foreigners were banned from entering Japan, and most Japanese were prohibited from leaving the country or learning foreign languages.
The policy was intended to protect Japan from foreign influence and threats, especially from Christian missionaries and European powers. The policy also preserved the social order and stability of the shogunate system. However, the policy also negatively affected Japan’s economy, culture, and technology, preventing Japan from participating in the global exchange of goods, ideas, and innovations. The policy also made Japan vulnerable to foreign pressure and intervention in the 19th century, when Western countries sought to open Japan for trade and diplomacy.
The Meiji Restoration initiated a period of rapid modernization and Westernization of Japan, as the new government sought to transform Japan into a solid and industrialised nation-state that could compete with Western powers. It also brought about social, political, and cultural changes that ended feudalism and created a constitutional monarchy in Japan [3] [4] [5].
The Japanese Emperor saw the same object as the Chinese Emperor – the ships. Still, he decided to open Japan to the world and embrace innovation that took the country from a backwater to a modern industrialised nation.
The Rose – Web 3
This historical example illustrates how some governments may react to Web 3.0, a new technology that promises to decentralize and provide sovereignty to the users and more freedom than previous Web 2.0 users had. Web 3.0 is like a foreign ship that challenges the existing order and status quo, and some governments may fear its potential impact on their authority and security. They may try to ban or restrict Web 3.0 activities and services, such as cryptocurrency trading, decentralized applications, or peer-to-peer networks. However, this could negatively affect their economy, society, and culture, as they would miss out on the opportunities and innovations that Web 3.0 offers. They would also risk losing their competitive edge and influence in the global arena, as other countries embrace Web 3.0 and reap its benefits.
The advent of Web 3.0 has brought exciting opportunities for businesses and individuals. With the rise of blockchain technology, decentralised applications, and the Internet of Things (IoT), the Internet is rapidly evolving. Web3 has created a low entry barrier, enabling people to launch a mix of good and bad projects.
From creating new jobs – around 600,000 jobs were created worldwide, boosting economic growth as many start-ups were created during this phase, also financial inclusion that provided people with access to financial services that they may not otherwise have had, web3 has impacted industries in banking, media, entertainment, gaming, art, supply chain, logistics and e-commerce.[6][7][8]
The Price of Innovation
The total market capitalization of all cryptocurrencies reached $3 trillion in November 2021, up from just $14 billion in January 2017. This represents a staggering growth of over 200,000% in just five years. While it bought opportunities, this growth also brought in lots of regulation headaches.
There are four main sectors that the government care about on any organisation providing financial services [9] [10] [11]:-
A, Anti-Money Laundering (AML) regulations: AML regulations are designed to prevent the use of financial institutions to facilitate money laundering.
B, Know-Your-Customer (KYC) regulations: KYC regulations require businesses to collect and verify the identity of their customers.
C, Data protection regulations: Data protection regulations are designed to protect personal data privacy.
D, Consumer protection regulations: Consumer protection regulations are designed to protect consumers from fraud, deception, and unfair practices.
The blockchain enabled people to directly support projects that were usually reserved for elite investors without the need for intermediaries. But this also exposed them to huge risks. In three years, investors suffered $67 billion in losses from the downfall of Terra, 3 Arrows Capital, FTX and Celsius, and another $6.6 billion from Defi hacks. These events triggered a regulatory crackdown in North America, where many Web 3 companies could not comply with the existing laws and either had to move out of the country or shut down [12] [13] [14].
Here is a timeline of how some of the prominent crypto platforms were affected by the regulation:
In Jan 23, Gemini and Genesis were charged by the SEC with securities violations for offering unregistered securities through the Gemini Earn lending product [15]
In Feb 23, Kraken ended its crypto staking program in the US and paid $30 million in penalties as part of a settlement with the Securities and Exchange Commission. [16]
In March 2023, Bittrex announced that it was beginning the process of winding down its US operations and filed for Chapter 11 bankruptcy due to the unfavourable regulatory and economic environment. The exchange was founded in 2014 by three cybersecurity engineers who worked at Amazon and ceased to exist after 9 years. [17]
Coinbase went public on April 14, 2021, through a direct listing on Nasdaq, in June 2023 SEC charged Coinbase for Operating as an Unregistered Securities Exchange [18]
The world’s largest crypto, Binance’s founder, is Canadian but has no presence in Canada. In June 2021, Binance announced that it would cease operations in Ontario after the Canadian Securities Administrators (CSA) issued a notice warning crypto trading platforms to comply with securities laws or face potential enforcement action [11] & ultimately moved out of Canada in 2023 [19].
In June 2023, SEC sued Binance and CEO Changpeng Zhao for U.S. securities violations [20]
These cases illustrate how Web 3 regulation in North America is pushing away some of the key players in the industry by creating obstacles and uncertainties for their businesses. While these regulations may have been intended to protect investors, prevent money laundering, and ensure financial stability, they may have also stifled the innovation and adoption of Web 3 technology in these regions.
Innovative East
On the other hand, some countries such as UAE, Switzerland, Singapore, the UK, Portugal and Hong Kong have welcomed Web 3 with open arms by providing supportive and flexible frameworks that encourage its development and growth. These countries have recognized the potential benefits of Web 3 for their economies and societies by attracting talent, capital, and innovation. These countries have also positioned themselves as global leaders in the Web 3 space by fostering a vibrant ecosystem of startups, investors, regulators, and users. [21][22][23]
Here are recent tweets from prominent Web 3 company executives moving away or expanding to North America
a16z setting up an office in London
Coinbase visits UAE to plan to set up office there. He mentioned “A welcome message: “We regulate through engagement, not enforcement”.
As Web 3.0 develops, it is essential to ensure that businesses and individuals know the potential pros and cons of related regulations. On one side, regulations can provide a framework for innovation, uphold ethical standards, and protect consumers from potential risks. At the same time, making it expensive and hard to incorporate and vague it can potentially also inhibit innovation, increase compliance costs, and stifle entrepreneurship.
Sakaku or Meiji?
So will governments enact Sakaku and harm the Web 3 industry or focus on the bright side and embrace innovation as the Meiji emperor did?
Throwing the baby out with the bathwater, i.e. losing valuable start-ups in an attempt to get rid of the bad apples, is not the answer. Web 3 regulation in North America is changing fast, and both investors and governments need to stay informed about the latest changes and updates. There is always a lag between emerging new technology and enacting laws and regulations. New digital laws have to be enacted that protect investors and make it easy for entrepreneurs to set up their businesses.
Governments must carefully assess the risks and benefits of Web 3 and avoid overregulating and “Haijin Policy” on Web 3, triggering brain drain, jobs and loss of potential tax revenues, throwing the region behind in innovation. They have to strike a balance between innovation and investor protection and notice the positive side of the industry while being aware of the bad actors in this space.
Web 3.0 is like a rose with petals and thorns; different governments may notice different aspects of it. Some may focus on the thorns and try to avoid or remove them, while others may appreciate the petals and try to cultivate them. The choice that each government makes will have significant implications for their future and the future of Web 3.0.
Advocate for Web 3
If you are in North America or anywhere where local governments are making it hard for Web 3 companies to do business and you would love to make a difference in helping Web 3 companies stay in your region, then you could do one of the following :-
i, Join local advocacy groups. Support or participate in existing advocacy groups or associations that represent the interests of the Web 3 industry and community. For example:
a, On May 12th ATXDAO helped draft, push, and pass Bill 3768 legislation through an official government chamber and helped Web3 community by enabling good crypto legislation.
b, Toronto has launched Daotown DAO to educate the public and policymakers about Web3 and ensure blockchain innovation stays in the country.
ii, Join an organization applying Web 3 technology for good of society, For example:-
a, Goldfinch offers crypto lenders access to successful emerging market debt deals which have been historically inaccessible outside of exclusive networks.
b, Toronto DAO (Disclaimer: I am part of) fosters local economy by developing an innovative governance & economic model to make a more democratic Toronto.
iii, Supporting or contributing to open-source projects and initiatives that are developing the tools and standards for Web 3. For example, you can donate, code, test, or provide feedback to projects that are funded by Web 3 Foundation, a non-profit organization that supports Web 3 research and development
In conclusion, Web 3 is not just a technological revolution, but also a social and economic one. Web 3 is not just a buzzword, but a vision of a better internet that respects your privacy, sovereignty, and creativity.By advocating for Web 3 in your region, you can help shape the future of the internet and empower yourself and others to own and control your digital assets and identity.
I hope this article has inspired you to take action and advocate for Web 3 in your region. By joining forces with other Web 3 enthusiasts and organizations, you can help bring this vision to life and benefit from the opportunities and innovations that Web 3 offers.
References
[1] – Haijin – Wikipedia,
[2]- Martin, Sean (2001), Black Death, Harpenden, p. 14
[3] – “The Meiji Restoration and Modernization”. Asia for Educators, Columbia University. Columbia University.
[4] -The Cambridge History of Japan, volume 5: The Nineteenth Century. Edited by Marius B. Jansen. Cambridge University Press, 1989.
[5] – Meiji Japan: An Intimate History. By Conrad Totman. University of California Press, 1993.
[6]- CoinMarketCap: https://coinmarketcap.com/
[7]- McKinsey: https://www.mckinsey.com/industries/financial-services/our-insights/web3-beyond-the-hype
[8] – The World Economic Forum: https://www.weforum.org/agenda/2022/05/what-is-web3-why-care-future/
[9] – https://www.cpacanada.ca/en/news/pivot-magazine/2021-11-09-aml-updates-canada
[10] – https://corporatefinanceinstitute.com/resources/risk-management/anti-money-laundering/
[11] – https://www.gov.uk/guidance/money-laundering-regulations-your-responsibilities
[12] – https://markets.businessinsider.com/news/currencies/ftx-bankruptcy-collapse-crypto-crash-3ac-celsius-terra-luna-chainalysis-2022-12
[13] – https://www.theverge.com/2022/11/10/23450169/crypto-winter-ftx-binance-celsius-bitcoin
[14] – https://tokenhell.com/terra-celsius-and-3ac-crashes-are-more-catastrophic-than-ftxs-report/
[15] -https://www.theverge.com/2023/2/9/23593183/kraken-staking-sec-settlement-penalties-crypto-interest
[16] – https://tradecrypto.com/news/crypto-industry-news/sec-gemini-genesis/
[17]- https://www.wsj.com/articles/crypto-platform-bittrex-files-for-bankruptcy-f4548b9c
[18] – https://www.sec.gov/news/press-release/2023-102
[19] – https://www.coindesk.com/business/2023/05/12/binance-announces-exit-from-canada-citing-regulatory-tensions/
[20] – https://www.cnbc.com/2023/06/05/sec-sues-binance-and-ceo-changpeng-zhao-for-us-securities-violations.html
[21] – https://cointelegraph.com/news/abu-dhabi-based-venom-foundation-launches-1b-fund-for-web3-and-blockchain
[22] – https://techcrunch.com/2023/04/29/hong-kong-china-crypto-east-rises/
[23] – https://www.theasset.com/article/48683/abu-dhabi-launches-us-2-billion-fund-for-web3-start-ups