Supply chains lock up trillions in capital. The payment process crawls through multiple banks and networks. Businesses wait for their money. They wait for shipments to arrive. While they wait, they ne
Supply chains lock up trillions in capital. The payment process crawls through multiple banks and networks. Businesses wait for their money. They wait for shipments to arrive. While they wait, they need cash for payroll, rent, other orders. They borrow at high interest rates. The economy loses out.
Sweetbridge thinks blockchain can unlock this capital. Scott Nelson runs the company. He doesn't think Congress will let him try.
Nelson went to Capitol Hill for a meeting on blockchain and financial regulation. The discussion followed Chatham House Rules, meaning attendees could discuss what was covered but not who attended. Representatives Jared Polis and David Schweikert sat in the room as part of the Congressional Blockchain Caucus, which pushes for favorable regulation of blockchain technology.
He left the meeting and found himself at a Washington bar. I caught up with him there. "There is a financial war going on, a war for capital," he told me. "America is losing. They don't even know it is happening."
Nelson wasn't talking about military conflict or the trade war dominating headlines. He meant competition for the wallets of companies and consumers. The United States has advantages in this competition. It remains the world's largest economy. Its consumers have discretionary spending power. Companies line up for access to American markets. That leverage matters if lawmakers use it right.
The European Union requires one financial license to operate across 27 nations. The United States needs 49 different permits to be a Money Transfer Business. Money follows the path of least resistance, Nelson said. And the path now runs away from America.
Sweetbridge identified a specific problem in supply chain financing. At any moment, 3.9 trillion dollars sits locked up in supply chain management. A company making an international deal must wait to receive payment. The goods have to move. The money has to flow through banking corridors. That company juggles other demands: payroll, rent, orders to fulfill. Without capital on hand, it borrows from banks at expensive rates. This drains the broader economy.
Sweetbridge proposes using blockchain and two tokens to fix this bottleneck. A supplier sends goods and enters into a smart contract. The supplier borrows against the shipment at single-digit interest rates. When the goods arrive at their destination, the receiver completes the contract. The supplier gets paid, repays the loan, moves on to the next deal. The whole process works faster and costs less than going through traditional banking channels.
None of this happens without regulatory approval. Nelson acknowledges that fraud exists in the cryptocurrency space. He doesn't call for no regulation. He calls for the right kind.
The regulatory tangle confuses innovators trying to build in this space. Different agencies oversee crypto: the SEC, the FTC, the DOJ. Add that to 49 state-level regimes and you get chaos. Nelson introduced a concept called sponsoring. A company with the necessary permits could vouch for another company. If the vouched-for company abused the permit, the sponsoring company faced consequences. Self-policing would protect customers while innovation moved forward. Getting regulators to adopt such an approach seems unlikely.
Everyone in the space calls for regulatory clarity. The SEC says it. ICO creators say it. App developers say it. Clarity never comes. Congress can't create it. The system moves too slowly. Too many interests have stakes. The people running it are old.
Watch the Congress hearing where Mark Zuckerberg testified. Anyone concerned about cryptocurrency regulation should look at those senators asking questions. These people don't understand the technology. DApps have existed for years. Regulators haven't started thinking about systems they can't shut down. They arrest people on Localbitcoins. They closed Silk Road. They investigated Mark Karpeles. The playbook works when you target a person or service. Find the target and shut it down.
Decentralized applications don't work that way. Congress doesn't seem to grasp this. Nelson said regulators haven't thought about what happens when there's nothing to shut down.
A decentralized drug marketplace will appear. A senator will demand it shut down. The DEA won't be able to close it. Congress will face options it hasn't considered. Ban DApps? Monitor internet traffic for their use? Launch campaigns warning parents about "Dappers"? Dozens of regulatory responses might come. None would work. Most would damage innovation and hurt individuals in the process.
The space is losing faith in reasonable regulation. "The blockchain space is evolving at a pace like we've never seen," Nelson said. "I just don't see how any regulatory structure is going to be able to keep up with that change."
That matters. Technologies that could overhaul the economy need space to grow. If the United States can't provide it, other countries will. The status of world's largest economy doesn't last forever.
3.9 trillion dollars waits to be released. The question is whether America gets to capture it.
