How can the U.S. avoid repeating the mistakes of cryptocurrency in the field of AI?

Author: Calanthia Mei Source: coindesk Translation: Shan Ouba, Golden Finance

From the Industrial Revolution to the digital age, the United States has always been known for its entrepreneurial, innovative and creative spirit. American entrepreneurial spirit has always been a magnet for talent, attracting global talents, including me, to start businesses and innovate in the United States. 65% of the top artificial intelligence companies in the United States were founded or co-founded by immigrants.

For decades, American technological advances have been the main driver of global innovation and leadership, and other countries in the world have also adopted these breakthrough technologies. But now, the United States faces a potential threat to its dominance-as the once undisputed leader in technological innovation, the United States' reputation and status are now being challenged.

While the United States is still the leader in artificial intelligence venture capital, in May 2024, PitchBook released a report showing that pre-seed and seed financing for generative artificial intelligence companies in the United States has fallen sharply, but companies in Asia and Europe have been growing steadily. Yes, we’ve seen this before, in the cryptocurrency space.

Crypto, once the technology that would propel us into the Web3 era, was once held in high hopes, but has faltered in the U.S. due to hostile U.S. regulatory policies. The country’s actions — or inactions — force us to wonder: How can the U.S. maintain global technological leadership if it continues to lose out in the new technological innovation boom? For the sake of AI innovation, we must not let the U.S. fall as it has in cryptocurrency.

The Fall of Cryptocurrency in the U.S.

The rise and fall of the U.S. in cryptocurrency is a cautionary tale that sets the stage for the future of AI. In the early days of cryptocurrency, the U.S. was the land of promise, with a flood of startups and investment dollars pouring into the space, creating space for innovation, growth, and mass adoption. In recent years, that progress has slowed due to a lack of regulation and policy. The SEC began filing lawsuits and developing regulatory policies based on laws that predate cryptocurrency — essentially trying to fit a round peg into a square hole. They go after Consensys, Coinbase, Ripple, and other companies with great reputations in Web3, just to prove… what’s the point? The lack of clear policy and regulation hinders progress, forcing these companies to spend resources on legal battles while pushing companies and talent elsewhere to continue to realize the decentralized dream.

Not long ago, OpenSea received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), the regulatory agency that considers NFTs to be a security. While we must watch the development of this and many other events to determine what regulatory measures the SEC will take against these companies, it is a sad but perfect example of how the United States is stifling the development and innovation of cryptocurrencies through its policies. Meanwhile, governments in jurisdictions such as Switzerland, Singapore, and Hong Kong have embraced cryptocurrencies and are using their forward-thinking crypto policies to compete for coveted spots on the global tech leaderboard.

Let’s look at the contrast. Singapore has established a strong regulatory framework that is conducive to local and international players settling in the country. Singapore moved quickly to implement the Singapore Payment Services Act in January 2024, providing clarity to the industry and legalizing cryptocurrencies nationwide. Today, Singapore is a global cryptocurrency leader, with Singapore-based companies ranking second in the number of cryptocurrency transactions in the first quarter of 2024, behind only the United States, and the cryptocurrency market is expected to generate $238.5 million in revenue in 2024.

Other leaders in the cryptocurrency industry have demonstrated similar policy implementation. Switzerland, which regulates cryptocurrencies through the Swiss Financial Market Supervisory Authority, introduced the "Blockchain Act," which attracted more than 1,000 new companies to the country. Meanwhile, Hong Kong is an interesting example as they do not have official cryptocurrency laws, but do have cryptocurrency regulations and began approving ETFs before the United States, opening up regulated capital channels for the cryptocurrency industry.

US Stance on AI Policy

So the US stance on crypto regulation has been evolving, but specifically over the last year, AI has become a focus in the tech sector. Let’s take a deeper look at where the US stands on AI regulation so far.

AI policy appears to be following in the footsteps of crypto policy, with similar challenges emerging between the two industries. As of now, the US remains home to most of the major AI companies and research institutions. The risk is that the US’s current and proposed regulatory frameworks could well limit the growth of the AI ​​industry.

Let’s take Singapore again as an example. Singapore has been eyeing leadership and gaining attention for AI. Its recipe for success seems to be working again as the country has developed a balanced strategy by setting guidelines for building responsible AI while also driving continued innovation.

Compared to other major technology trends, the pace of innovation in AI is unparalleled. Developers are launching new products, features, and applications every day. As developers, we don’t even know where the upper limits of AI are, so how can the government know that? Setting limits on high-potential technologies is unwise and will drive talent out of the US (just like regulation has done with cryptocurrencies).

In fact, small AI will bear most of the regulatory burden of AI. Unlike big AI, which has lobbyists to work with regulators. Small AI simply does not have the capacity to bear the regulatory burden and costs. The job of small AI now is to build and explore the frontiers of AI innovation.

This is especially true for AI: unlike past technology trends, it now takes less manpower and resources to develop AI. Many individual developers are launching cutting-edge AI products. Many open source communities are exploring the frontiers of AI. We simply do not have the capacity to cope with the regulatory burden, especially as the future of AI is full of unknowns.

Lessons from Cryptocurrency

A deep look at Singapore’s regulatory frameworks in the fields of cryptocurrency and AI can provide guidance to the United States, which is why Singapore has become a hub for both industries. Singapore does not stifle innovation through regulation, they are mutually beneficial. The United States must learn from other countries to stay ahead in AI. AI regulation needs to be flexible and fair, and cannot be formulated to stifle innovation. Current and proposed regulatory frameworks in the U.S. focus on addressing the problems and solutions of big AI (OpenAI, Claude, Midjourneys). For example, the just-passed California bill SB 1047, which is awaiting Governor Newsom’s signature, is one of the most important regulatory frameworks for AI safety, but these efforts feel somewhat hasty and out of proportion to the unprecedented growth that the industry will continue to see. These one-size-fits-all regulations harm smaller AI (or small AI) companies, which in turn creates a system that is unfair to both institutions and consumers.

Going forward, policymakers need to think about AI holistically, focusing on flexible policies that don’t hinder innovation. Politicians should champion the development and innovation of AI because its benefits far outweigh its disadvantages if we do it right. As Dr. Fei-Fei Li pointed out, overly strict regulation could harm the U.S. ecosystem. Conversely, fostering an environment where innovation can flourish will help maintain America’s technological leadership.

Conclusion

Overall, AI is different: innovation is faster, and we don’t know what we don’t know. AI requires fewer people involved, which has inspired a wave of independent developers and independent source code communities around the world. The United States has undeniable leadership when it comes to its influence in the technology sector, but if its recent record continues, this may be the beginning of its dethronement. The lessons of the cryptocurrency boom need to serve as a warning: the only answer is to formulate policies responsibly that do not hinder innovation or progress. I'm not saying it's easy, but it can't be ignored. With the November election approaching, both AI and cryptocurrency platforms are under close scrutiny. AI will continue to develop. So can the United States keep up?