What would Satoshi have to say about all this? The hottest area of crypto right now is compliance—a field dedicated to helping companies adhere meticulously to thousands of rules and regulations cooked up by bureaucrats and bank regulators. It’s a safe bet that Bitcoin’s creator—who viewed his invention as a means to escape the power of governments altogether—would not be impressed. But here we are.
This week, Fortune reported on two compliance-focused crypto startups: Violet, which raised $15 million to expand its offerings that are based around its commitment to enforce know-your-customer laws, and Toku, which has combed through laws in over 100 countries to help companies track the tax obligations of staff compensated in crypto. These are just the latest entrants to a booming cottage industry of lawyers, accountants, and consultants who are getting fat by advising crypto firms how not to step on regulatory mines.
I don’t fault the suit-and-tie professionals—many of them are very accomplished—from flocking to the crypto industry. If you could give yourself a big salary bump by joining a buzzy new sector, wouldn’t you jump at the chance? Still, it’s hard not to have mixed feelings about the mad rush for compliance services.
This is partly because it shows how so much of the wild, outlaw energy that defined early crypto is gone for good. That earlier era produced a wealth of colorful (and often shady) characters who helped create crypto’s vibrant meme culture, and a cohort of revolutionaries who believed that using a third-party wallet to hold your assets was an act of selling out. It was a time when the best way to get Bitcoin was to buy it in the street.
But my concern about the rise of the crypto compliance industry is not rooted only in nostalgia. There’s also the fact that top-flight lawyers and accountants are extremely expensive, and that crypto companies must pay for them by diverting large chunks of their budget that once went to building blockchains. The emerging compliance regime means crypto must contend with massive transaction costs like the ones weighing down the cannabis industry. In both cases—crypto and cannabis—the costs are the result of poor government policy, but they must be paid all the same.
On the bright side, the swarms of lawyers and accountants reflect how crypto has grown in wealth and importance, and demonstrate more than ever the industry is here to stay. And for the shrinking number of old-school crypto devotees, it’s still possible—if you really want—to swap blockchain assets on your own, without anyone looking over your shoulder. It’s a safe bet that’s how Satoshi still does it.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
