Placeholder: Why is regulatory compliance considered the final step in the decentralization of blockchain?

Original Title: Progressive Compliance

Original Author: Mario Laul, Placeholder

Compiled by: Qianwen, ChainCatcher

One of the main obstacles to the widespread adoption of blockchain and smart contract applications has been the lack of clarity regarding their legal and regulatory status, along with the ongoing controversies surrounding them. To achieve true innovation, blockchain systems must possess certain unique attributes that distinguish them from existing systems, thereby demonstrating the necessity for specialized regulatory treatment. The cornerstone of this innovation is " sufficient decentralization "------ this characteristic is meant to ensure reliability and resilience, allowing them to sustain even in hostile environments or other challenges . Without this characteristic, the networks or applications in question are more easily described as traditional software projects, and thus more easily categorized under existing regulatory frameworks. Therefore, although the financing, early development, and launch of many blockchain projects are coordinated by a small group of people, they have "progressive decentralization" as one of their core long-term goals.

In theory, the final stop on the road to progressive decentralization is regulatory compliance, which means achieving the legitimization of the blockchain industry without sacrificing the founding principles of the project. Over the nearly 15 years of development in the blockchain industry, the practical requirements of compliance have been a decisive point of contention. The reason why regulators and industry participants have been unable to reach a clear consensus on this issue is that, on one hand, the existing regulatory frameworks are clearly outdated concerning blockchain technology and the types of organizations it supports; on the other hand, true innovation is often intertwined with more traditional structures and practices, which undeniably fall under established regulatory requirements. For projects that provide robust guarantees for transaction settlements while minimizing central control points and failures, navigating both worlds seems like an impossible task.

This regulatory vacuum cannot last indefinitely. The dynamic between innovation, structural inertia, amending existing regulations, or creating new ones will eventually come to an end. In most cases, the activities of traditional organizations participating in the blockchain industry are governed by the existing laws of the jurisdictions in which they operate. The ambiguities mainly involve newer organizational forms, such as public blockchains, smart contract applications and their distributed token holders and governance communities (i.e., decentralized autonomous organizations, DAOs), related crypto assets, and the emerging on-chain economy that increasingly integrates with traditional systems. The situation varies across different jurisdictions, so resolving this regulatory challenge may still take years, but it must and will ultimately be resolved, paving the way for the further institutionalization of blockchain, making it a "global administrative infrastructure".

Meanwhile, blockchain-based projects and their supporters will continue to explore the frontiers of technological and governance innovation. Some projects may leverage their unique goals and environments to justify ignoring or distancing themselves from regulatory discussions; others will actively seek and promote regulatory discussions. Some may conclude that decentralization is not the right path and revert to more mature traditional organizational forms. But regardless, for blockchain and smart contract applications to form scale complements and competition with existing institutions, it is essential to formally clarify the legal and regulatory requirements needed to build, operate, and interact with these systems, which is a necessary path.

The paths of progressive decentralization and progressive compliance run parallel and will ultimately intersect. The challenge is that, while "decentralization" in cryptocurrencies has a broad global definition, regulation is currently, and may continue to be, a national level issue or at least a regional level problem. Therefore, there is no universal compliance manual, except for the following self-evident truths for anyone:

• Seek legal advice applicable to specific circumstances;
• Make every effort to comply with all applicable laws;
• In areas of dispute or ambiguity, strive to facilitate balanced regulatory outcomes;
• Once clear legal/regulatory frameworks are achieved, make every effort to comply with all applicable laws.

However, the most important task at present is to ensure that the above goals are not achieved at the expense of the freedom to create and maintain open-source technology, nor at the expense of the fundamental elements of the blockchain value proposition: the public verifiability of information, lower reliance on human subjective managers (e.g., automation of blockchain technology), and achieving a balance of power between institutions and individuals, leaning towards the latter (self-sovereignty). As long as this is achieved, regardless of how the law ultimately regulates, the unique core of innovation in the industry will remain unchanged.