The U.S. Fell Behind in Crypto. It Cannot Afford to Fall Behind in AI

For many years, technological breakthroughs originating from the United States have significantly shaped global innovation and dominance. However, there’s an emerging danger that could disrupt its position as the leading innovator – the reputation and influence of the U.S. in technological advancements is being questioned.

Currently, the U.S. dominates venture capital investments in AI, however, a report by PitchBook in May 2024 revealed a significant drop in pre-seed and seed funding for American generative AI companies. On the other hand, firms in Asia and Europe are experiencing a consistent growth trend. This isn’t unprecedented; we’ve observed a similar shift in the crypto sector before.

Previously, Cryptocurrency was widely recognized as the key driver towards Web3, demonstrating significant potential, but faced challenges in the U.S. due to unfavorable regulatory policies. This raises a concern: Can the U.S. maintain its position as a global tech leader if it persists in overlooking opportunities during technological innovation leaps such as crypto? Given the importance of AI development, we can’t afford for the U.S. to lag behind, as it has with cryptocurrency.

The U.S.’s crypto downfall

The U.S.’s rise and fall with crypto is a cautionary tale that sets the scene for what could be to come in AI. In early crypto days, the U.S. was the promise land with a plethora of startups and investment funding flowing into the space creating room for innovation, growth and mass adoption. In recent years, this has slowed down due to a lack of regulation and policy. The SEC started bringing in lawsuits and regulatory policies based on pre-crypto laws – essentially trying to fit a round peg into a square hole. They went after Consensys, Coinbase, Ripple and other companies that have a reputable standing in Web3, just to make… what point? The lack of clear policies and regulation hinders progress, forcing these companies to spend resources on legal battles, while pushing companies and talent elsewhere to continue building the decentralized dream.

Recently, OpenSea was issued a Wells Notice by the SEC, suggesting that Non-Fungible Tokens (NFTs) may be considered securities. This is just one instance in a series of events that we’re closely watching to understand how regulations might affect these companies. It’s regrettable but illustrative of how U.S. policies have potentially hampered the growth and innovation in crypto. In contrast, countries like Switzerland, Singapore, and Hong Kong have been more welcoming towards crypto, leveraging their progressive crypto policies as a means to compete for top positions on the global tech stage.

Let’s compare and contrast the situations. Singapore has set up a strong regulatory system that attracts both domestic and foreign businesses to operate within its borders. In January 2024, they enacted the Singapore Payment Services Act, which offered the industry transparency and officially recognized cryptocurrencies on a national level. Today, Singapore is a global leader in the crypto sphere, as it ranked second for the highest number of crypto deals involving companies based there in Q1 2024 (following the U.S.), and its projected revenue in the crypto market is anticipated to hit $238.5M in 2024.

Other leaders in the cryptocurrency sphere have adopted comparable regulatory strategies. Switzerland manages cryptocurrencies via the Swiss Financial Market Supervisory Authority, enacted the “Blockchain Act,” and subsequently welcomed more than 1,000 new businesses into the country. On the other hand, Hong Kong presents an intriguing case because they don’t have specific crypto laws but do have regulations concerning cryptocurrencies. Before the U.S., they began to endorse Exchange-Traded Funds (ETFs), thereby providing a regulated pathway for the crypto industry to access capital.

Where the U.S. stand on AI policy

In recent times, the stance of the United States on cryptocurrency regulations has been shifting continually. However, it’s important to focus on the developments regarding AI regulations now. So, let’s delve into where the U.S. currently stands when it comes to AI regulation.

From my perspective as a crypto investor, it appears that the regulations governing AI are starting to mirror those of the cryptocurrency world, bringing about similar hurdles. Notably, the United States continues to house the majority of significant AI companies and research institutions. However, there’s a looming concern that the existing and proposed regulatory frameworks in the U.S. might impede the growth of the AI industry.

As a researcher, I’d like to revisit the case of Singapore – a city-state that’s garnering attention in the realm of Artificial Intelligence (AI). Its strategy appears to be striking a perfect balance: it’s establishing frameworks for ethical AI development while simultaneously fostering innovation. This dual approach seems to be paying off, making Singapore a noteworthy example in the global race towards AI leadership.

As an analyst in the tech field, I find it extraordinary that the pace of advancement in Artificial Intelligence (AI) surpasses other major technological trends. Every day, builders like myself are launching new products, features, and applications. The boundary of AI’s potential seems to be constantly shifting, making it challenging for even us to predict where its limitations lie. Given this rapid evolution, it’s hard to imagine how government entities could accurately set limits for high-potential technologies such as AI.

In essence, it’s the smaller AI entities that will carry a significant part of the regulatory weight in the AI sector. Unlike their larger counterparts who can afford lobbyists for dialogue with regulators, smaller AI entities lack the resources to shoulder this regulatory burden and associated costs. For now, their primary focus remains on creating and pushing the boundaries of AI innovation.

In terms of AI technology, it stands out because fewer people and less resources are needed compared to previous tech developments for its creation. Solo developers are now able to produce advanced AI products, while open-source communities continue to push the boundaries in AI research. However, we find ourselves unprepared for the regulatory challenges, given the uncertainties surrounding the future of AI.

Lessons from crypto

Examining the regulatory approaches emerging from Singapore in areas like cryptocurrency and artificial intelligence serves as valuable insight for the U.S., making it a focal point for these industries due to its non-restrictive yet advantageous regulations. The U.S. could benefit by learning from other nations to maintain its lead in AI, with the focus being on creating flexible and equitable rules that don’t stifle innovation.

In the future, decision-makers should keep AI in mind when formulating policies, with a focus on adaptable laws to avoid stifling progress. It’s crucial for politicians to encourage and support AI advancements as their advantages significantly outweigh their drawbacks – provided we implement them correctly. As Dr. Li Fei-Fei emphasizes, overly restrictive regulations might negatively impact the U.S.’s technological landscape. Instead, creating a nurturing environment that fosters innovation will help preserve America’s dominance in technology.

Conclusion

AI is distinct in its rapid pace of development and the unknown unknowns we encounter. This fast-paced innovation has led to an increase in solo developers and independent coding communities across the globe. While the U.S. has historically been a leading force in technology, if current trends persist, it may find itself losing its crown. The crypto boom serves as a cautionary tale; responsible policy-making is crucial to prevent stifling innovation or progress without entirely abandoning it. This isn’t an easy task, but it’s one that should not be ignored. As the November elections approach, both AI and crypto platforms are under scrutiny. Will the U.S. manage to keep pace with AI’s evolution?

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.