Guest Editorial Week Of 12/12/2022

Sarah Montalbano | Young Voices

Can decentralization rein in Big Tech, without government?

Many Americans think Big Tech has too much power and looking at a recent report from The Intercept showing the extent of the Department of Homeland Security’s efforts to target disinformation on social media platforms, it’s easy to see why. Those efforts include a special portal on Facebook by which government employees can report misinformation directly to the social media giant. The social media giant is colluding with the government to limit free speech online.
Yet, somehow, Americans still think more government regulation is the solution – as if DHS and Facebook weren’t close enough already.
In September, the White House renewed its calls for “fundamental reform” to Section 230, which provides limited legal immunity to tech platforms that host third-party content. It is only the latest in a series of governmental efforts to rein in Big Tech, including a barrage of antitrust lawsuits from the Federal Trade Commission to stop or slow big tech mergers.
Increasing government control of technology is the wrong approach. The problems with Big Tech – online censorship, data privacy, and surveillance, to name a few – are startlingly real. But replacing Big Tech with Big Brother won’t solve them. Good policies would create paths to decentralized technology that address the ills of Big Tech without stifling innovation and without jeopardizing free speech online.
First, lawmakers must resist tech centralization. The government is notoriously bad at innovating. It siphons funds from the private sector and sometimes, after spreading the risk to taxpayers, dumps funds into bad bets like Solyndra, which went bankrupt in 2011 after receiving $535 million in loans from the U.S. Department of Energy just two years prior. The loan program took a $528 million loss.
When the government subsidizes pet technologies, it can distort market signals and encourage mal investments by the private sector. Just look at wind power: although wind receives far more in subsidies than other sources of energy, average wind-power costs were higher in 2009 than they were in 1994. And even still, the artificially cheap cost of wind power drives stable sources of energy, like oil and gas, out of the market.
This isn’t to say that government never funds winning technologies – just that it usually does so at greater expense and less innovatively than the private sector. As economist Larry Summers said in the aftermath of Solyndra’s bankruptcy, “gov. is a crappy” venture capitalist.
Even with the best of intentions, legislators can’t be expected to fully understand policies relevant to Bitcoin regulation, non-fungible tokens, artificial intelligence, and the innovative and unknown technologies being developed every day. Legislators inevitably, and understandably, analogize developing and complex technologies to existing regulatory frameworks and stifle the growth of new industries. Handing control of Big Tech to the government will do nothing but entrench the status quo.
That’s assuming the government maintains good intentions. If Big Brother held unprecedented control over the decisions of technology companies, there’d be little stopping the government from pushing political agendas and silencing dissent.
Instead of pushing for more government control of Big Tech, states should embrace pathways to decentralized technologies and protect entrepreneurs experimenting in this space, like Wyoming and Tennessee have done with decentralized autonomous organizations (DAOs), which use digital assets to represent voting rights in the organization and implement rules that all members follow. Following these rules allow strangers to securely and collectively make decisions for a business without involving a central authority.
That might sound esoteric – after all, who actually wants to be in business with strangers? But the truth is, there’s no way to know the market. Who knows how many citizens would be interested in avoiding traditional bureaucratic hurdles to business while enjoying the transparency of the public blockchain and collective action to make decisions. DAOs are often used for “investment, charity, fundraising, borrowing, or buying NFTs,” and it’s likely they’ll have applications in the future that have not yet been invented. Legal recognition of DAOs and other decentralized platforms provides a secure footing for entrepreneurs to build, invest, and participate in these platforms.
States can also foster innovation by implementing regulatory sandboxes, a legal classification that temporarily waives some regulations so companies have an opportunity to test themselves in the market. Regulatory sandboxes work particularly well for businesses that don’t fit neatly into an existing regulatory framework or for small innovators with less political and financial capital than Big Tech companies. Regulatory sandboxes are also a useful opportunity to generate data in practice that can guide lawmakers to develop a sensible regulatory framework for the new innovation.
Regulatory sandboxes have been implemented in 10 states for industries such as financial technology, insurance, legal services, and more.
Industry-specific sandboxes have been relatively successful in Florida and North Carolina, although some industries are heavily regulated by the federal government, which limits their success. In 2021 and 2022, Utah and Arizona implemented universal sandboxes that give opportunities for innovators in every industry to create new products and services that enrich consumers’ lives. Eleven participants have graduated from Arizona’s sandboxes, and two more are currently enrolled in its universal sandbox – both using blockchain and decentralized finance.
The power of big tech to censor, violate privacy, and surveil citizens will be best curbed through the private sector’s innovations, not by handing the government the reins. States can provide certainty and reduce barriers to entry through legal recognition of decentralized technologies and by creating regulatory sandboxes for entrepreneurs to explore.

Sarah Montalbano is the Northwest Regional Leader for Young Voices.


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