#CryptoExplained: Shardeum Founder Nischal Shetty: ‘With Great Tech Power Comes Great Tech Responsibility’

Crypto and AI are groundbreaking technologies that are already reshaping culture and society. Builders in the space are creating systems that the world has never seen before and are already challenging regulatory paradigms, and creating new opportunities for malicious actors. In particular, the decentralization offered by blockchain systems allows many participants around the world to participate in value generation and transfer pseudonymously. This creates new economic opportunities for the traditionally marginalized and disenfranchised, but it also opens up avenues for malicious action. Regulators are struggling to keep the good and punish the bad, but often end up creating absolute regulation that stifles innovations. A middle ground must and should be found so that the benefits of these technologies can accrue to the most vulnerable amongst us, while at the same time preventing the most egregious of malicious activities. 

You’ve touched on how crypto regulators often grapple with the dichotomy of complete decentralization versus absolute regulation. Can you expand more on this fascinating concept?

Nischal: Yes, indeed. When we broach the topic of crypto, we invariably find ourselves neatly categorized into one of three distinct domains. The first encompasses organizations like Facebook that delve into offering stable coins. These companies operate under the umbrella of full regulation, conforming to every rule and stipulation in the book.

How does the second category distinguish itself from this?

Nischal: Well, the second category is slightly more nebulous, teetering on the delicate line between centralized and decentralized. Here you have an array of protocols that are constructed on blockchains. The creators of these protocols are typically well-known entities, so while their intention is to retain a level of decentralization, the reality is that the regulators’ watchful eyes aren’t far behind. This gray area is where I find myself, too, straddling both worlds – on one hand, I am engrossed in developing a blockchain, but on the other, I carry with me the insights and experiences of working in a completely centralized system.

And the third category? How does it fit into this crypto-regulatory landscape?

Nischal: The third category is certainly the most intriguing. This is where Bitcoin and a handful of others reside. There’s no identifiable founder, no discernible entity. For regulators, this unchartered territory presents a complex labyrinth that’s yet to be navigated. However, even amidst the murkiness, it’s interesting to note that the SEC does not consider Bitcoin a security. The crux of the regulation battle surfaces when there are tangible organizations, including nonprofits, at the helm of these protocols.

In this tug-of-war between absolute regulation and complete decentralization, will there ever be a middle ground?

Nischal: I firmly believe there will be. Over time, I anticipate that we will see the formation of regulations that apply even to entities that are entirely decentralized. As developers, we carry a profound responsibility to ensure that our creations aren’t exploited for malicious purposes. Though we might not be able to enforce KYC norms on a user in the decentralized world, we can and should aim to avoid building platforms that could potentially enable negative use cases. 

So you foresee both parties converging to some extent?

Nischal: Yes, precisely. Today, we are observing a clear trend towards compliance, with numerous projects striving to conform wherever possible. At the same time, regulators must come to grips with the reality that not all rules can be replicated in this novel, fast-evolving domain. The world of crypto regulations will undoubtedly witness both parties softening their hardline stances to find a middle path that embraces the best of both worlds.

If we peer into the future, what does the world look like five years from now in the realm of AI and crypto?

Nischal: The convergence of AI and crypto promises to shape a future that’s incredibly exciting. For AI to make a quantum leap forward, it requires unfettered access to finance. Crypto can provide exactly that – it creates a pathway to financial services without needing to be human. In an unprecedented twist, crypto actually arrived on the scene before AI fully matured. Now, we’re starting to see a new breed of autonomous organizations potentially driven by AI.

That sounds like a radical shift. What role do you envision for AI in this brave new world?

Nischal: AI could potentially don many hats in this emerging landscape. Perhaps someday, we’ll see an AI emerge as a top trader or a pseudonymous founder, operating entirely on its own, without any human intervention. While that may sound dystopian to some, I truly believe that we can harness AI to revolutionize web three for the better. For instance, we can leverage AI to significantly bolster security, with AI bots tirelessly scanning codes for vulnerabilities. In a world where tens of thousands of new smart contracts are minted every day, the role of AI becomes crucial to flag potential risks, ensuring that users are well-informed before they start interacting with any new contract.