Nothing was said of the Island’s $70 billion of outstanding debt nor the fact that 41% of its population is living below the poverty line. The participants of this conference were optimistic and forward-thinking to a fault, occasionally blurring the line between naïve and visionary. Instead, they referred to the troubled island paradise as the only place in the world where U.S. citizens can pay zero taxes on their worldwide capital gains, and discussed its 4 percent corporate tax for software and services companies, an attractive deal which under Puerto Rico’s Acts 20 and 22 is guaranteed to last at least until 2032.
Indeed, for these ambitious coders and entrepreneurs—who travelled from such countries as Israel, UAE, China, Japan, Bulgaria, and Barbados—a lot is at stake. After all, they intend to do no less than change the world. Whether it be through a blockchain designed to connect human beings and disrupt traditional dating platforms, one that can be used to predict future events like presidential elections and environmental catastrophes, or one that supplants traditional land registries, the general contention is that their decentralised ledger could completely reshape society, if incubated under the right conditions.
But getting those conditions right is crucial. The development of most, if not all, of the projects presented at the conference’s startup competition could be prematurely cut short by new regulations and uncompetitive fiscal policy, especially since many of these teams intend to fund their activities through Initial Coin Offerings (ICOs). An ICO is the practice of selling cryptographic tokens at an early stage of development, not unlike crowdfunding campaigns on platforms such as Kickstarter.
There have not been any clear legal rulings on ICOs in the United States, and crypto-entrepreneurs still eagerly await guidelines from the Securities and Exchange Commission (SEC) on whether crypto tokens will be classified as securities, and therefore require the costly and onerous process of SEC registration. So far, it has been suggested that the SEC will consider some, but not all, tokens as securities, and that developers must self-regulate until a decision is made.
For this reason, several developers of new blockchains have made the decision to block U.S. IP addresses from their ICOs, while others remain more optimistic about the ways in which the new administration might steer regulations on cryptocurrency. One such person at the Puerto Rico conference was keynote speaker Brock Pierce, the current chairman of the Bitcoin Foundation.
Pierce was a business partner with White House chief strategist Steve Bannon in 2008, when he was running a company called Internet Gaming Entertainment, which sold an early form of digital currency, the World of Warcraft in-game currency referred to simply as “gold.” According to Pierce, he and Bannon are still in regular contact, and Pierce shared his judgement that the Trump administration understands technology better than any other, and will exhibit an unprecedented focus on deregulation.
Still, not everyone at the conference was fully convinced that the U.S. is a safe jurisdiction for their activities, despite Pierce’s assurances and attempts by Puerto Rico’s government-owned Industrial Development Company to lure them to the territory. Attendees were pleased to hear about other promising alternatives such as Barbados and the Principality of Liechtenstein, two countries that are also hoping to attract players in the emerging blockchain industry.
The disruptive potential of blockchain technology can only be realized with the help of equally disruptive jurisdictions willing to share the risk taken by these entrepreneurs. Innovators need a safe haven from the stubborn, inefficient, and unresponsive regulatory agencies that protect industry incumbents from the creative destruction of the market—the same force that has brought us the high living standards that so many of us enjoy today. These pioneers in regulatory experimentation can shape the future, and in the process, reap the profits that are the reward for early adopters of the best new ideas.