The dilemma of encryption entrepreneurs: you may not care about regulation, but regulation definitely cares about you

Author: Mario Laul

Compilation: Deep Tide TechFlow

The foundation of public blockchain is established by Cypherpunks. Although the encryption industry was destined to embrace diverse ideas and practices from the beginning, the core principles of decentralization, open source software, cryptographic security, privacy protection, and self-sovereignty have always been the cornerstone of its most disruptive achievements.

However, this field also faces a core problem: in the absence of a regulatory framework that supports innovation and recognizes blockchain as an administrative infrastructure with unique functionality, crypto entrepreneurs have to face a difficult choice—whether to adhere to the purity of the concept, making the structure and operation of the project more complex, or to compromise on the original ideals in exchange for regulatory recognition and a more traditional path to mainstream success.

I refer to this dilemma as the “Cryptopreneur’s Dilemma”.

Since the birth of blockchain, it has carried a grand vision: to achieve the separation of currency and state, establish a censorship-resistant global payment and coordination network, develop software services without single points of failure, and create new forms of digital organization and governance. Such a revolutionary transformation requires a special historical background.

For the cryptocurrency industry, this backdrop is shaped by the aftermath of the global financial crisis and the evolution of data and business models of Big Tech. At the same time, the global popularity of digital technology and the built-in Token incentive mechanism have provided almost ideal conditions for the rapid development of the early ecosystem of the cryptocurrency industry. Since then, with the accumulation of individual blockchain networks and social capital and financial capital within the entire industry, the cryptocurrency industry has gradually become an undeniable force, which was particularly prominent in the 2024 US presidential election.

However, driving revolutionary change not only requires courage, but also requires a certain degree of “sociological naivety.” The probability of failure in any attempt to subvert social structures, especially those based on law, is often much higher than the probability of success.

The cryptocurrency industry, by challenging existing institutions, has indeed captured the public’s dissatisfaction with the traditional system, but this confrontational stance is difficult to reconcile with the goal of building a digital platform that serves global users. Similarly, blockchain transactions attempt to bypass regulatory requirements in their jurisdiction (whether it is the operator of the underlying infrastructure or the transacting parties), this narrative always faces the risk of intervention by local law enforcement agencies.

If the cryptocurrency industry wants to achieve real growth and influence, it must accept the formalization of its regulatory status and the consequences that come with it. As the saying goes, ‘You may not be interested in the state, but the state is definitely interested in you.’

Although many aspects are still undergoing constant changes, this is exactly what we are seeing in practice. From taxing crypto-related activities, classifying tokenized assets, enforcing anti-money laundering and counter-terrorism financing (AML/CTF) rules, to clarifying legal responsibilities in DAO governance, the crypto industry is gradually integrating into the existing regulatory framework centered on national jurisdiction.

However, what is more noteworthy is that this process has also given rise to new case law and customized regulatory frameworks - these frameworks have become key battlegrounds for defending the original values of the cryptocurrency industry, preventing them from being overlooked or destroyed in ideological and political games (whether intentional or unintentional). The existence of this dilemma for cryptocurrency entrepreneurs is because, like any innovative activity with far-reaching impact, the process of legalization is slow and controversial. This process is particularly difficult for the cryptocurrency industry because the actions of some malicious opportunists have led to misunderstandings and unnecessary collateral damage to the industry’s image.

Another notable trend is the increasing integration of blockchain with the traditional business and financial system. For those who see the crypto industry as a parallel system designed to replace traditional institutions, this convergence blurs the lines between the two and can lead to cognitive contradictions and internal conflicts. For others, this convergence is a sign of success and the only sustainable path for blockchain to become a systemically important infrastructure. As the industry matures and reduces risk, its base of practitioners, operators, and users will continue to expand and diversify. While this trend has attracted the attention of traditional businesses, it may also further exacerbate the ambiguity of the crypto industry’s narrative, especially as traditional institutions seek to control those ostensibly neutral infrastructures. The risk of this “institutional capture” will increase proportionally with the popularity of the crypto industry.

So, when public blockchain enters the next stage of its adoption curve, how should the dilemma of encryption entrepreneurs be repositioned?

On the one hand, the mainstream success of the encryption industry seems to rely more on deep integration with existing systems rather than being obsessed with an idealized, fully decentralized vision. Accepting the fact that most ‘crypto projects’ may end up no different from traditional enterprises or open source software initiatives, or that most blockchain users are unlikely to fully embrace the ideals of cypherpunks or even consider them as the primary basis for consumer decision-making, is not unacceptable. As long as these systems can maintain openness and verifiability and are more resilient than existing alternatives, the ‘decentralized performance’ is almost meaningless, and it is also understandable for centralized enterprises to utilize and operate public blockchains. Therefore, once the regulatory status of the encryption industry is clarified, this dilemma may no longer be important for most entrepreneurs.

However, it is incorrect to think that this marks the end of the original vision of the cryptocurrency industry. Technologies such as autonomous robots and Artificial Intelligence (AI) are injecting new and profound transformative power into the digital revolution, and the demand for powerful computing and information management services is more urgent than ever before.

As an innovative platform, blockchain can provide alternative solutions for traditional systems that are prone to corruption, mass surveillance, and single points of failure. Blockchain can only continue to exist when enough entrepreneurs and supporters persist in the difficult path of building truly decentralized, privacy-preserving, and anti-control systems. While the commercial success of the cryptocurrency industry may no longer depend on these ideals, its long-term social impact undoubtedly still depends on them.