The Curious Case Of Web3 Politics.

Nobody wants to wake up to their phone line being disconnected overnight. I did. After spending over $350 on airtime and internet bills since January, my service provider abruptly shut me out.

Their reason? I didn’t register my government-issued identification number on their database. Sue me.

On a truly decentralized network, this could never happen. Autonomy and privacy are foundational principles of blockchain technology. In the absence of a centralized authority, there is no room for targeted censorship of users.

This is one of the major unique value propositions of Web3 for the average person. But what if I told you that we have never achieved a fully decentralized ecosystem? To begin with, let’s establish a few simple facts.

• There are several types of decentralization.

• “Infrastructural decentralization” is the most popular type discussed in Web3.

• It is impossible to achieve an ideal Web3 state of the internet (read, write, own) with decentralized infrastructure alone.

Gavin Woods’ definition of Web3 has become the industry standard. But it’s been almost a decade since the term was coined. Given the seminal changes that have occurred since 2014, I believe that definition is worth revisiting.

In 2023, individual control of data has become insufficient. There needs to be a clear separation (delineation of boundaries or ample distribution) between the real-world systems that host blockchains.

Now you’re probably thinking, “Woah, Bandit, slow down. Web3 works just fine!”

March 2023 has been a rollercoaster for the global financial system. The headlines alone could be the script for a crypto-doomsday movie. You can’t make this stuff up.

• One of the world’s largest banks, headquartered in New York, crashed and was purchased for a whopping sum of £1.

• The USDC’s value briefly de-pegged from its fiat cousin, the U.S. dollar.

• The U.S. Federal Reserve hiked interest rates by another 25 points.

• The SEC hit Coinbase with a Well’s Notice, signaling regulatory storm clouds on the horizon.

Notice anything weird about these Black Swan events? All of them are directly related to the American economy. Why is it that the fate of our “decentralized” industry is so closely tied to the fortunes of one country?

The answer is simple: political centralization.

Let’s examine each of these headlines for further context.

American Banks Crashing

Signature Bank and Silvergate Bank were the two major banks servicing crypto companies all around the world. Silicon Valley Bank, on the other hand, held over $5 billion for hundreds of crypto venture capital funds.

Essentially, a large chunk of the funds propping up the entire crypto industry had to flow between these three American banks. If all three U.S. banks crashed in quick succession, it would be a disaster.

Nobody thought it would happen until it did. What did the effects look like?

USDC value de-pegged from fiat USD

This was a direct consequence of the U.S. banking inferno. Circle, the issuer of the USDC, revealed the news that $3.3 billion of its fiat reserves were stuck in Silicon Valley Bank, which had just gone bust.

It triggered an on-chain “bank run,” similar to what happened with FTX last year. Users began to rapidly liquidate their USDC holdings. The imbalance between supply and demand drove the price lower. At the height of this frenzy, the USDC traded at 87 cents on the dollar.

The USDC quickly recovered, but not before the volatility claimed its casualties. This unlucky soul, for instance, managed to swap $2 million USDC for $0.05 USDT, thanks to panic and desperation.

Fed hikes interest rates by another 25 basis points

Amidst the banking crisis, the U.S. Federal Reserve is still increasing interest rates. Since March 2022, the Fed has made it more expensive to obtain credit facilities. Nine rate hikes later, and inflation is still running wilder than Cocaine Bear.

Interest rate hikes affect the U.S. stock market, which ripples across the globe. It reduces the market’s appetite for risk, and this was reflected in the onset of a crypto bear market last year. Combined with the collapse of FTX and Terra Luna, the bear was in full swing.

Ironically, the collapse of U.S. banks catalyzed the recent reversal of the downward trend. As people lost faith in the traditional system, downloads of top crypto apps surged by 15%. The price of Bitcoin has also jumped over 20% since then.

SEC intensifies anti-crypto campaign

In September 2022, Gary Gensler made a bold suggestion. The SEC chief claimed that the agency should assume jurisdiction over the entire Ethereum network. The reasoning was that Ethereum validator nodes are most densely clustered in the U.S.

Ridiculous.

Gary seems to think it’s a brilliant idea, though. He’s publicly teased it since June, 2022, and resurfaced with a new version of it earlier this month. As if poking around for infrastructural loopholes wasn’t enough, the SEC has set its sights on Coinbase.

Last week, Coinbase received a “Well’s notice,” which signals the start of regulatory inquests by the SEC. The details allude to some of the crypto giant’s products, including its staking service. If Coinbase falls under the SEC’s sword, it would be yet another unprecedented bloodbath for crypto retail users.

Since last year, I have been writing about the inevitable wave of crypto regulation and the dangers of improperly executing it. Observing closely the pattern of events that have significantly rocked the industry in the past year, there is an obvious conclusion.

An unhealthy size of the crypto industry is vested in the United States of America. Their government recognizes this state of affairs and has begun to shift pieces across the board. I wouldn’t go so far as to call this “market manipulation.” But I will say, this is very dangerous.

Let’s take a quick look at the storyline again:

The Fed’s serial rate hikes soured market sentiment and partly triggered a crypto bear market. This also played a part in the collapse of the major crypto-friendly American banks.

The collapse of major banks led to a (likely short-term) Bitcoin price rally. Meanwhile, the SEC continues to aggressively attempt to hijack the crypto industry. If they ultimately succeed, it could wipe out up to five years of positive market sentiment and price action.

What’s the way forward?

Blockchain technology has a truly global impact. It deserves better than to be the political plaything of a few greedy suits. Indeed, Satoshi Nakamoto’s dream has come to symbolize a world where centralized authorities hold less sway.

In order to keep this dream from being derailed, crypto investors, retail traders, and entrepreneurs must look far abroad. There are seven continents on Planet Earth, and there is no shortage of human resources to build successful crypto ecosystems.

Any new crypto entrepreneur who domiciles their business primarily in the U.S. is gearing up for untold hardship. This applies to small and medium enterprises, and institutional-level corporations alike. Go start your business elsewhere.

In 2021, Africa accounted for $17 million in annual peer-to-peer (P2P) crypto exchange. By the first half of 2022, that figure had grown to ~$400 million in Nigeria alone. Nowhere else in the world presents this level of upside for crypto-focused commercial ventures.

Europe is one of the most progressive regions in the world in terms of crypto regulation. Next month, the E.U. is set to vote on a body of rules that would establish harmonized rules for cryptoassets. This careful, yet systematic approach is a far cry from the farce put on by U.S. regulators.

European and Asian countries also rank among the best places to build a career in blockchain technology. Already, the writing on the wall is becoming clear to some of the largest crypto corporations: find a new home outside America. It’s a call they will only be too eager to heed.

Investors and entrepreneurs should learn from the failure of the American banking system and seek alternative solutions elsewhere. Imagine if the ill-fated trifecta didn’t hold so much of the liquidity powering the crypto industry. The fallout would have been less dire.

When the ecosystem becomes more politically decentralized, it becomes harder for authorities like the U.S. government to “bully” the industry. They would eventually come to realize that nobody will bat an eye no matter how hard they flex their muscles.