What market rules need to be established as the dark forest-like crypto space moves toward the mainstream?

We need the crypto space to become a general-purpose computer, not a casino. 

Written by: Scott Duke Kominers, a16z

Translated by: AididiaoJP, Foresight News

As the U.S. government begins to recognize blockchain technology, the question now is how to make better use of it. Some may wish to push for unregulated laissez-faire, but that would be a mistake. History and economic theory show that prosperous markets require clear and consistent rules, and the crypto space is no exception. 

In some ways, resistance to centralized authority is an innate feature of the crypto space. Bitcoin’s anonymous creator Satoshi Nakamoto designed the protocol to bypass financial intermediaries, envisioning a currency not controlled by governments or institutions. Many early adopters shared a spirit of radical individualism, reminiscent of the freewheeling “cyber computer clubs,” the open-source software movement, and early cryptography advocates. 

But the potential of the crypto space can only be realized when it is widely accepted and integrated into mainstream business. For entrepreneurs and consumers to embrace crypto, they must have confidence in clear rules that both prevent fraud and ensure fair access. Without this confidence, people will hesitate to enter the market, let alone use crypto technology for everyday transactions. 

Contrary to what some believe, a “free market” is not unregulated laissez-faire; it is a structured system where individuals can voluntarily exchange and reasonably expect fairness and safety. Without basic protections, markets collapse. Without safeguards, uncertainty will scare away large numbers of investors and legitimate businesses, leaving only speculation and bad actors. 

We need the crypto space to become a general-purpose computer, not a casino. 

What kind of rules does the crypto space need? 

Economists from Smith to Hayek, Friedman, and De Soto have long recognized the crucial role governments play in establishing market institutions that allow markets to thrive. 

Smith believed that property rights allow individuals to “secure the fruits of their labor,” and that the government’s role is “tolerable administration of justice” to safeguard those rights. For Hayek, the government’s role was to maintain the rule of law while avoiding arbitrariness. Friedman acknowledged the government’s role in enforcing contracts and protecting citizens from crimes against themselves or their property. De Soto pointed out that a lack of clear rules and property rights leads to “capital deadlock.” 

Paul Atkins, the new chairman of the U.S. Securities and Exchange Commission, echoed these views in a recent speech, stating: “Regulators should provide the minimum effective scope of regulation to protect investors while allowing entrepreneurs and businesses to thrive.” 

The rules governing the crypto space, like those for all markets, should aim to achieve four key objectives: 

First, predictability and stability. A functioning market requires clear and enforceable rules. Entrepreneurs need to know how their businesses will be regulated. Investors need confidence that rules will not change arbitrarily. Consumers need to trust that their transactions are safe. 

Second, protection of property rights. Secure ownership is the foundation of any market. The crypto space excels at encoding ownership through blockchain technology, but legal frameworks must reinforce and supplement these protections. 

Third, transparency and clarity of information. Efficient markets rely on reliable information. Buyers need to understand what they are purchasing, whether it’s digital assets, decentralized finance products, or NFTs. Regulations should promote disclosure, helping consumers and investors make informed decisions while preventing fraudulent schemes. 

Finally, fair competition. Rules should prevent monopolistic behavior, market manipulation, and fraud. Without oversight and tailored guardrails, markets can become playgrounds for bad actors who exploit information asymmetries, deceive investors, or artificially inflate asset prices. Any regulatory framework needs to be consistent with existing rules to avoid inadvertently creating new loopholes in established protections. 

These four characteristics are essential to market function: stability and predictability help people transact; clear property rights are a necessary condition for those transactions to occur. Then, transparency and open competition help ensure that the transactions people choose to participate in drive the market toward more productive and socially valuable outcomes. 

The Road Ahead

The crypto space is not an industry with a well-established regulatory regime, but it is finally moving in that direction. For years, crypto startups have operated in a murky and often hostile regulatory environment. So, although blockchain technology provides strong internal protections for property rights, the surrounding regulatory environment has not supported a healthy market. 

For example, the U.S. Securities and Exchange Commission (SEC) until recently held crypto companies liable for alleged violations without first establishing clear legal standards. Entrepreneurs could only guess which rules applied, only to face lawsuits after the fact. This created uncertainty, stifled innovation, and allowed bad actors to operate in the resulting gray areas. 

Moreover, many crypto regulations were built for the traditional financial system, treating blockchain-based assets as merely new forms of traditional securities or commodities. But the crypto space is not just about finance: it is also a network infrastructure platform. Effective regulation must recognize both dimensions, ensuring that financial oversight does not stifle technological development. 

The crypto space has the potential to fundamentally change the organizational logic of everything from personal identity verification to event management and global payments. But realizing this potential requires legal and regulatory guardrails, such as token classification laws that provide legal definitions for digital goods; standards for evaluating decentralization and disintermediation; consumer protection; tax guidelines; and a framework that allows legitimate blockchain-based businesses to operate without fear of arbitrary prosecution. 

None of this is radical or unprecedented. The principles that make markets work—such as stability, property rights, transparency, and fair competition—have long been understood. But they have not yet been consistently applied to the crypto space. This must change, and the industry must welcome it.