Darren Kleine

In a 1911 speech, Nicholas Murray Butler said “the limited liability corporation is the greatest single discovery of modern times.”



“Even steam and electricity are far less important than the limited liability corporation,” he exclaimed, “and they would be reduced to comparative impotence without it.”



There was a time not long before Butler’s famous <a href="https://conversableeconomist.blogspot.com/2017/07/the-limited-liability-corporation-is.html#:~:text=%22I%20weigh%20my%20words%2C%20when,%E2%80%94by%20its%20political%2C%20effects." target="_blank" rel="noreferrer noopener">speech</a> that the notion of limited liability — a cornerstone of modern capitalism — was considered highly immoral. 



It was thought to be “the end of economics” that would “undo the Renaissance” and destroy “the spirit of capitalism,” Josh Rosenthal, PhD says.



The historian, co-founder and partner at The 6ixth Event spoke to Blockworks on the Empire podcast (<a href="https://open.spotify.com/episode/0J9iogAxg7eSpF0atu2ocT?si=de2580a3ee5843c2" target="_blank" rel="noreferrer noopener">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/a-historians-take-on-the-bear-market-josh-rosenthal/id1554930038?i=1000619249575" target="_blank" rel="noreferrer noopener">Apple</a>) about the centuries-old cycle of economic innovation and inevitable backlash, <a href="https://blockworks.co/news/coinbase-sec-competing-remarks" target="_blank" rel="noreferrer noopener">now taking place</a> in the crypto industry.



The ideas of limited liability companies and fractional equity were once perceived as social evils, Rosenthal explains.&nbsp;



Prior to their inception, the average person was “locked out of opportunities.” Governing powers of the era enforced bans on what was an early form of <a href="https://blockworks.co/tag/decentralized-finance" target="_blank" rel="noreferrer noopener">decentralized finance</a>, Rosenthal says. 



“That eventually went on to become our stock market: the Dow, the Nasdaq, 401k’s — the modern financial system,” he says.



The initial reaction from government institutions, he says, “was to try to ban the limited liability company [and] fractionalized equity.”



<h2 class="wp-block-heading">‘Protecting the consumer’</h2>



The argument against financial innovations remains a dismissive chorus today: “<a href="https://blockworks.co/news/gensler-dollar-is-digital-currency" target="_blank" rel="noreferrer noopener">Who needs it?</a>”



“When that didn&#8217;t work,” he says, federal powers used another familiar ploy: “they tried to decide who could buy what, under the guise of protecting the consumer.”



A great example in more recent times, Rosenthal says, was <a href="https://blockworks.co/tag/apple" target="_blank" rel="noreferrer noopener">Apple</a>’s IPO. The government of Massachusetts decided to “<a href="https://www.marketwatch.com/story/when-apple-went-public-on-this-date-in-1980-massachusetts-warned-investors-to-stay-away-2017-12-11" target="_blank" rel="noreferrer noopener">protect consumers</a>” from purchasing the stock, deemed “too risky” for “high-fliers that don’t have solid earnings foundations.” 



A thousand dollars in Apple at the time would be worth anywhere between a million and a million and a half dollars today, Rosenthal says.



Looking back, it was “obviously the wrong thing to do,” he says, “but that’s what we do.”



“We ban the class and then we ban assets therein.”



<h2 class="wp-block-heading">Different playbooks</h2>



Beginning in the 90’s, regulatory policies in the UK diverged from America’s approach to the financial realm, Rosenthal says. “The UK&#8217;s rise as a global financial system is largely a function of us being unwilling to deregulate in the way that they did.”



“This is trillions of dollars, which we opted not to participate in.”



The lesson to be learned is “if you don&#8217;t participate in this,” Rosenthal warns, “<a href="https://blockworks.co/news/a16z-uk-office-london" target="_blank" rel="noreferrer noopener">someone else globally will</a>.”



The “crypto playbook” that the UK is following now is based on what worked for them in the nineties, he says.



The innovation of encryption, Rosenthal says, is a more recent example of the phenomenon. “Despite creating the internet, we tried to ban a major use of it.”



“We tried to ban the tech that became the basis for privacy for your iPhone, for credit card payment, for online payments. We tried to ban what would become e-commerce — $5.2 trillion in the US alone each year.”



Ultimately, the strategy failed, Rosenthal says. “If the US was going to ban online payment and encryption,” he says, “other companies were doing it.”



The regulation was “walked back through Congress,” Rosenthal explains, because other countries were using the technology effectively, resulting in generative economic creation. “It created more than they otherwise thought was possible.”



“We didn&#8217;t want to lose out on that.”



Eventually, “we got it right,” Rosenthal says, but it was “a fight.”



<h2 class="wp-block-heading">This is just how we do it</h2>



In the current regulatory conflicts in crypto, Rosenthal sees echoes of past regulatory behavior, from the Holy Roman Empire to British Imperialism and on through to twentieth century America. “It’s very similar to what [we’ve been doing] over these past 80 years.”



“This is just <a href="https://blockworks.co/news/crypto-us-europe-regulation" target="_blank" rel="noreferrer noopener">how we do it</a>.”



“If you think about the Renaissance,” Empire podcast host Yanowitz says, “they were right to think that governance from the bottom would be chaos.”



“Oftentimes, it was,” he says. “But at the end of the day, it was this massive transformation of society that was a net benefit.”



The SEC’s familiar “tagline” is “<a href="https://blockworks.co/news/sec-protects-system-not-you" target="_blank" rel="noreferrer noopener">protecting consumers</a>,” he says.



“It&#8217;s a combination of fear of chaos and just something that they can&#8217;t control” followed by “an inability to understand the magnitude and the size that this can get.”



“Our model isn&#8217;t perfect,” Rosenthal says. “It always falters initially. This is what we do. It&#8217;s expected.”



“The bet is that we get it right.”



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Empire

Crypto crackdown got you down? Historian Rosenthal says we’ll ‘get it right’ — eventually

Garrett Harper

In this episode of Empire, Jason is joined by Josh Rosenthal, a former historian and current serial entrepreneur and crypto venture capitalist. Josh&#8217;s encyclopedic knowledge of history — from the Middle Ages to the Renaissance and beyond — and his ability to draw a throughline between historical events, Web3 and our world today is truly fascinating.



Josh contends that we are living through the greatest renaissance in history. How will historians look back on today? Tune in to find out.



We discuss:



<ul class="wp-block-list"><li>medieval life</li><li>what defines a renaissance</li><li>the advent of a dynamic identity</li><li>signs of a reformation</li><li>what drives history</li><li>layering ownership into communication</li><li>the pendulum between aggregation and decentralization</li><li>how Web3 brings the missing element to the internet</li><li>how society will be impacted</li></ul>



Check out what they had to say in the video below.👇



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<iframe loading="lazy" title="The Crypto Renaissance Has Begun | Josh Rosenthal" width="1024" height="576" src="https://www.youtube.com/embed/CvQnz7B3D_s?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



<h3 class="wp-block-heading">About the show</h3>



&#8220;Empire&#8221; is a twice-a-week show where we share the real crypto stories that aren’t heard elsewhere. On Mondays, Jason Yanowitz and Santiago Santos interview crypto industry movers and shakers to talk about their struggles, bold moves and tough decisions. Finish off the week with Friday&#8217;s weekly roundup episode that covers the top news and narratives of the week.



For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; as a &#8220;How I Built This&#8221; for Web3.



Subscribe to &#8220;Empire&#8221; today on&nbsp;<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://open.spotify.com/show/4UTePv1CR3APdKOiosR3Iq" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/channel/UCEOv-8wHvYC6mzsY2Gm5WcQ" target="_blank" rel="noreferrer noopener">YouTube</a>.



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<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Josh Rosenthal

Newsletter

Blockworks Research