a16z: Computers and Casinos, the Dual Culture of Blockchain, and Implications for Regulation
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a16z: Computers and Casinos, the Dual Culture of Blockchain, and Implications for Regulation
Imposing old legal structures onto new network architectures, this mismatch is the root cause of many problems in enterprise networks.
Navigating Web3 tides with focused insightsAuthor: Chris Dixon
Translation: DAOSquare
Computers and Casinos
Interest in blockchains stems from two very different cultures. The first views blockchains as a way to build new networks, which I call the computer culture because its essence is that blockchains drive a new computing movement.
The other culture is primarily interested in speculation and making money. People with this inclination see blockchains merely as a means to create new tradable tokens. I refer to this culture as the casino, because at its core it's really just about gambling.
Media coverage amplifies confusion between these two cultures. Stories about making or losing money are always dramatic, easy to understand, and attention-grabbing. In contrast, technological narratives are subtle, unfold slowly, and require historical context to be understood.
Casino culture is problematic. An extreme example is FTX, an offshore exchange now defunct, whose impact was devastating. It took tokens out of context, repackaged them with marketing language, and encouraged people to speculate. Responsible exchanges provide useful services such as custody, staking, and market liquidity, but reckless ones encourage bad behavior and recklessly misuse users' assets. In the worst cases, they are outright Ponzi schemes.
The good news is that regulators and blockchain builders ultimately share the same fundamental goal. Securities laws aim to eliminate asymmetric information associated with publicly traded securities, thereby minimizing the trust market participants must place in management teams. Blockchain builders also seek to eliminate centralized economic and governance power, thus reducing the trust users must place in other network participants.
As of writing, the U.S. Securities and Exchange Commission (SEC), the primary regulator of U.S. securities markets, last provided substantive guidance on this topic in 2019. Since then, the agency has brought multiple enforcement actions regarding token trading, claiming these transactions fall under securities laws, yet without further clarifying the standards behind these decisions.
Applying pre-internet legal precedents to modern networks creates gray areas while giving significant advantages to bad actors and non-U.S. companies that don't follow American rules. The current situation is so complex that regulators themselves cannot agree on where to draw the line. For instance, the U.S. Securities and Exchange Commission (SEC) claims Ethereum’s token is a security, while the U.S. Commodity Futures Trading Commission, the main commodity regulator, says it is a commodity.
Ownership and Markets Are Inseparable
Some policymakers have proposed rules that would effectively ban tokens—and by extension, all their practical uses, even blockchains themselves. Such proposals might be reasonable if tokens were purely speculative. However, speculation is only a secondary effect of what tokens truly enable: tokens are essential tools for allowing communities to own networks.
Because tokens can be traded like any other owned object, it's easy to view them solely as financial assets. Well-designed tokens have specific functions, including serving as native currencies to incentivize network growth and power virtual economies. Tokens are not minor quirks of blockchain networks, nor troublesome elements that can be stripped away—they are necessary and central features. Without a mechanism enabling people to own communities and networks, true ownership of communities and networks is impossible.
Sometimes people ask whether it’s possible to gain the benefits of blockchains while eliminating any suggestion of casinos, through legal or technical means that prevent tokens from being traded. But if you remove the ability to buy or sell something, you effectively remove ownership itself. Even intangible assets like copyrights and intellectual property can be bought and sold at the discretion of their owners. No trading means no ownership—you can’t have one without the other.
An interesting question is whether there exists a hybrid approach that could tame the casino while still allowing computers to be built. One proposal is to prohibit resale of tokens on newly launched blockchain networks, either for a fixed period or until certain milestones are reached. Tokens could still serve as incentives for network development, but holders might have to wait years—or until the network reaches certain thresholds—before trading restrictions are lifted.
Time horizons can be highly effective at aligning individual incentives with broader societal interests. Recall the hype cycles experienced by many earlier technologies: initial excitement followed by collapse, then “productivity plateaus.” In contrast, long-term restrictions force token holders to endure both the hype and its aftermath, realizing value through productive growth.
This industry needs more regulation, but it must be clear that regulation should focus on achieving policy goals—punishing bad actors, protecting consumers, providing stable markets, and encouraging responsible innovation. Much is at stake. As I argue in my book *Read Write Own*, blockchain networks are the only known technology capable of rebuilding an open, democratic internet.
The Limited Liability Company: A Regulatory Success Story
History shows that smart regulation can accelerate innovation. Until the mid-19th century, the dominant corporate structure was the partnership. In partnerships, all shareholders were partners, fully liable for the enterprise’s actions. If the company suffered financial losses or caused non-financial harm, liability pierced the corporate shield and landed directly on every shareholder. Imagine if shareholders of public companies like IBM or General Electric faced personal responsibility not just for their financial investments but also for corporate misdeeds—few would buy shares, making fundraising far more difficult.
Limited liability companies existed as early as the beginning of the 19th century but were rare. Forming one required special legislative action. Thus, nearly all business partnerships were close-knit relationships—like trusted family members or intimate friends.
This changed during the railroad boom of the 1830s and the subsequent industrialization era. Railroads and other heavy industries required massive upfront capital, exceeding the funding capacity of small groups—even those composed of very wealthy individuals. New and broader sources of capital were needed to finance the transformation of the world economy.
As expected, this upheaval sparked controversy. Lawmakers faced pressure to adopt limited liability as the new corporate standard. Meanwhile, skeptics argued that expanding limited liability would encourage reckless behavior, effectively shifting risk from shareholders to customers and society at large.
Ultimately, differing viewpoints found a balanced path forward. Industry leaders and legislators crafted intelligent compromises, established legal frameworks, and made limited liability the new norm. This gave rise to public capital markets for stocks and bonds, and all the wealth and wonders generated by these innovations ever since. Thus, technological innovation drove regulatory change—a triumph of pragmatism.
How Should Blockchains Move Forward?
The history of economic participation is one of gradual convergence driven by mutual advances in technology and law. Partnerships typically had few owners—around ten. The limited liability structure dramatically expanded ownership; today’s public companies can have millions of shareholders. Blockchain networks, through mechanisms like airdrops, grants, and contributor rewards, expand this scale once again. Future networks may have billions of owners.
Just as enterprises in the industrial age had new organizational needs, so too do enterprises in today’s network age. Imposing old legal structures—such as corporations and limited liability companies—onto new network architectures lies at the root of many problems within enterprise networks. For example, they are forced to inevitably shift from attractive models to extractive ones, excluding vast numbers of contributors. The world needs new, digitally native ways for people to coordinate, cooperate, collaborate, and compete.
Blockchains offer a rational organizational structure for networks, and tokens are a natural asset class. Policymakers and industry leaders can work together to establish appropriate guardrails for blockchain networks, just as their predecessors did for limited liability companies. These rules should allow and encourage decentralization, rather than defaulting to centralization as corporate entities do. There is much that can be done to control casino culture while fostering the growth of computer culture. Hopefully, wise regulators will encourage innovation and let founders do what they do best: build the future.
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