While the Bitcoin network will continue to exist in one form or another, history will remember its lasting contribution as being the sociological experiment that demonstrated how a decentralized global financial game can incentivize desired behavior. Using this new architecture, forward-thinking countries and entrepreneurs are exploring new crypto-economic systems that will spur tremendous wealth creation by facilitating an increased number of turns throughout an economy and efficiency gains in the form of reduced need for third-party trust intermediaries such as banks, auditors and regulators.

In this model, crypto-economic systems can offer built-in solutions to the aforementioned money laundering concerns. While many cryptocurrencies in existence today are anonymous or pseudonymous in nature, that is a byproduct of the developer’s intent rather than an inherent characteristic of blockchain technology. It’s equally plausible that a team or government could create a fully-transparent crypto-economic game that offers enough financial reward so as to make illicit activity less economical than playing by the rules.

Blockchains also provide transparent transaction tracking to such a degree that cryptocurrencies will be the tender that makes money laundering virtually impossible. An example of this came in 2015, when federal prosecutors used the Bitcoin blockchain to uncover a rogue fbi agent’s involvement in the illicit Silk Road online marketplace. Alternatively, if technologists continue to flee the United States in search of friendlier regulatory climates, U.S. authorities will find themselves at the mercy of foreign jurisdictions with far less-stringent AML rules—a challenge that fincen expressed concern about at a June 2018 congressional hearing.

Further, the nations that embrace blockchain and cryptoeconomics are priming themselves for significant economic breakthroughs. Price-stable cryptocurrencies that function as cash equivalents will significantly lower the cost of cross-border transactions and settlement, while providing businesses, consumers and governments a low-cost means of monetizing traditionally illiquid assets. These systems are creating new means by which businesses and governments can raise capital without issuing traditional debt or equity—such as through the sale of blockchain-based tokens that allow purchasers to buy down the cost of future goods and services.

Further, blockchain protocols will provide unprecedented levels of financial visibility into publicly-traded companies and supply chain networks, greatly minimizing counterparty risk for all stakeholders and potentially preventing the next Enron. From a trade policy perspective, antiquated instruments like tariffs and quotas could be replaced by crypto-economic import-export schemes that provide financial incentives for customers to undertake a desired behavior (i.e. purchasing American-made steel over illegally-subsidized Chinese steel).

The concept of programmable money will have numerous economy-wide applications. Government outlays could be earmarked, automated and deployed in ways that significantly reduce opportunities for corruption, thus opening the door to economy-wide efficiency gains. Small taxes, even basis points in value, could be shaved off of transactions and automatically routed toward tackling the pension and sovereign debt time bombs that confront both industrialized and developing nations.

Yet another underappreciated application lies in the concept of an atomic transaction—an all-or-nothing series of operations in which a set of states cannot be out of sync with one another. Currently, in any commercial transaction the financial status, legal status and accounting status of the asset being exchanged and the identities of the involved parties must be reconciled with one another. These four must then be reconciled with the real-world state of the asset, creating an (N2-N)/2 problem—where n is the number of states that must agree—in which a minimum of eight relationships must be validated by at least two parties, resulting in a minimum of sixteen separate validations. The reason most auditing and financial regulatory functions exist is to ensure that these states are in harmony, as most fraud, manipulation and error in commerce occur across these areas. However, the process of performing these reconciliations is both highly expensive and time-consuming.

Protocols built on blockchain can make it possible for these states to move in atomic fashion, rendering it impossible for them to be in disagreement and reducing the total number of reconciliations needed from sixteen, at minimum, to a maximum of two: the blockchain transaction record and reality. This innovation will severely reduce the need for the third-party trust intermediaries that are relied upon today to ensure the veracity of all types of transactions, and holds the potential to unleash trillions of dollars’ worth of efficiency gains globally.

MANY COUNTRIES have grasped these implications and are racing to gain the all-important first mover advantage by attracting blockchain talent, investing in the technology and facilitating cryptocurrency-based capital formation.

China sits atop nearly every list in this regard, even though it has been much maligned in the cryptocurrency space for its heavy-handed clampdowns on ICOs and Bitcoin exchanges within its borders. Behind the scenes, however, China has been aggressively investing in the technology, including but not limited to blockchain-specific investment funds, government-funded think tanks, a digital currency backed by the People’s Bank of China and even quantum computing that can potentially reverse-engineer the public key cryptography that secures blockchains.

Russia is aggressively pursuing blockchain to re-establish its technological superiority. At a 2017 meeting of the International Standards Organization the head of Russia’s delegation told the group, “The internet belongs to the Americans –– but blockchain will belong to us,” as reported by the New York Times.

Rogue and potentially hostile nations are experimenting with cryptocurrencies for purposes of avoiding U.S.-imposed sanctions, most notably the Venezuelan Petro that launched in early 2018. While the Petro is almost universally regarded as farcical in nature, it is a harbinger of what could happen if a critical mass of determined rogue states were to band together—especially given the reports that have emerged about Russia aiding the Petro’s development.

Japan became the first major country in 2017 to offer legal legitimacy to Bitcoin and cryptocurrency exchanges as a means of kickstarting financial innovation. Other industrial powers like the United Kingdom and the Netherlands are quietly ramping up their interest in blockchain as a bedrock for their respective economic futures. Canada also established a regulatory sandbox last year that has launched ICOs.

Jurisdictions reliant on financial services and commerce such as Singapore, Hong Kong, UAE, Switzerland, Malta, Mauritius and Gibraltar have proactively lured blockchain talent with innovation-friendly climates and regulatory sandboxes. Former Soviet bloc nations like Estonia, Lithuania, Belarus and Georgia are also using blockchain to digitize government services and have offered incentives to attract talent and investment.

WHILE THE aforementioned nations have rolled out the red carpet for blockchain and cryptocurrency entrepreneurs to set up shop, America’s approach has not been as welcoming. A great deal of early blockchain development originated in the United States—a testament to the deep talent pool and innovative climate held over from the Internet days—but businesses in the space have been confronted by formidable legal and compliance hurdles that have prevented them from deploying their business models in the domestic market.

Serious cryptocurrency companies in the United States must either wait patiently in a state of regulatory purgatory, issue tokens through ill-fitting means that restrict the customer base and resale ability, or bypass the U.S. market altogether. The result is that only the well-capitalized projects that can stomach substantial legal expenses currently have staying power in the United States. A March 2018 report by the Government Accountability Office (GAO) outlined how the convoluted framework for financial technology, or fintech, regulation in the United States is weighing heavily on the sector’s development. Ten federal agencies have claimed some form of jurisdiction over fintech, of which blockchain and cryptocurrencies can be considered a large subset. While many of these agencies—such as the Commodity Futures Trading Commission (CFTC)—have taken laudably forward-thinking approaches to cryptocurrencies and understanding the technology, the complexity of the maze has made it challenging for startups to even know which regulator to call when they have a question.

Depending on the specifics, cryptocurrency startups must grapple simultaneously with multiple federal agencies that employ overly broad definitions of the term. For instance, the CFTC views cryptocurrencies as commodities, the Internal Revenue Service (IRS) treats them as forms of property that are subject to capital gains taxes, fincen says they are a form of currency, and the Securities and Exchange Commission (SEC) announced in 2017 that many crypto-tokens are illegally-issued securities, and has been issuing subpoenas and enforcement actions.

This creates confusion about which regulator oversees a given activity, and it raises the risk that the United States will end up regulating the technology itself rather the activities it can be used for. By contrast, Hong Kong has four agencies involved in financial regulation, the UK has three and Singapore just one.

Additionally, many fintech companies are subject to state money transmission laws. While money transmitters must apply and maintain forty-seven separate state licenses, cryptocurrency innovators don’t yet know whether they need a license in every jurisdiction. Some states say yes, others say no. Most haven’t answered the question. To date, no cryptocurrency company has obtained all of the licenses required to operate across the entire United States, according to the Chamber of Digital Commerce, an industry trade group.

Not surprisingly, the GAO report found that businesses trying to navigate this labyrinth are spending extraordinary amounts of money on legal fees. Several surveyed businesses reported spending half of their initial capital raise on compliance alone, and many have decided to simply leave the United States altogether.