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How Startups Can Help Shape Regulatory Policy

Innovators must help nurture and shape the direction of future regulation. Thankfully, it's not only possible, but has also been done before.

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Innovation is the leading driver of economic growth, and it’s often small startups leading the charge. When it comes to regulation, the most disruptive and innovative business models — by definition — lack a regulatory regime to govern them, leaving them vulnerable to misguided policies. To succeed, innovators must help nurture and shape the direction of future regulation. For a small startup, however, that can seem nearly impossible. 

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Thankfully, it’s not only possible, but has also been done before. I serve as executive director of the Blockchain Association, which launched in 2018 to represent the U.S. cryptocurrency industry in Washington, D.C. Since crypto technology is barely a decade old, our members are young companies focused chiefly on getting off the ground. Essentially, the Blockchain Association is a startup representing startups.

Last fall, our young industry was tested when the Senate unveiled its sweeping Bipartisan Infrastructure Law, which contained an IRS reporting provision that would be impossible for many crypto stakeholders to comply with. While we support smart, clear regulation, this provision would stifle many small innovators and drive businesses — and jobs — overseas.

Like many startup sectors, the crypto industry doesn’t have the historic connections and relationships with policymakers that older legacy institutions do. To many casual onlookers, it seemed as though we’d be rolled over, and the provision would pass without controversy.

However, that isn’t what happened. Instead of being steamrolled, the crypto industry rose up with a unified voice and pushed back. While the provision ultimately passed, we made significant inroads with policymakers that will better equip us for future fights down the road. 

Related: The Future Role of the Chief Innovation Officer

Here’s what we learned in that debate that could help other startups in similar situations.

There's power in numbers

First, recognize that you aren’t alone. Social media connects us with others in similar situations that can have our backs when we need it. Additionally, there are countless trade associations across the spectrum of industries that startups can connect with for insight into issues and decision makers.

When the infrastructure provision was first announced, we joined with crypto advocates from across the country to create a loud chorus of opposition. People from all 50 states were sharing how damaging this provision was and how it would impact their businesses and communities. Media and lawmakers took note, and where once this provision might have passed without a peep, it was suddenly a major controversy generating significant buzz in Washington.

The difference between antagonism and misunderstanding

Another lesson we learned was to tell the difference between antagonism and misunderstanding. In our conversations during the infrastructure fight, we came to realize that most of the proponents of the IRS provision weren’t hostile to crypto; they just misunderstood it and how it was currently regulated. We approached our conversations from that point of view and focused chiefly on dispelling myths and educating policymakers on our position. With this approach, we built trust with lawmakers and even activated new crypto advocates in government.

This is an important point for those of us working in startups. If it’s true that politics is downstream of culture, then I’d add that politics is even further downstream of innovation. When we’re working with our chosen innovations every day, it all makes sense to us. But we need to recognize that there will be an education gap when we start introducing ourselves to the world, and as such, we need to focus on educating and building trust from a place of mutual respect.

Related: Starting a Business? Here's How Innovation Will Take You Ahead.

Don't give up in the face of a challenge

Finally, we learned how important it is not to give up, even if things don’t work out at first. As I mentioned, the crypto provision was ultimately passed as part of the infrastructure law. However, the outpouring of support and the conversations we had during that fight made our presence known in Washington more than we ever could have hoped. In the months since, we’ve seen policymakers more interested in learning about crypto, and they're more willing to work with us to craft smart policy. For other startups who may battle misinformation, it’s important to note that a defeat today could set the stage for victory tomorrow.

New innovations and technologies will inevitably face misinformation and mistrust when they emerge, especially from inside the Beltway. For startups, navigating this can seem like a daunting, if not impossible, task. However, as the crypto industry showed last fall, if you join your community and speak up and dispel myths with persistence, you can make inroads that will one day lead to success.

Related: The Power of Innovation

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