One of the interesting things about watching an emerging market is how slow it can appear — especially compared to how fast something like an Ariana Grande video goes viral.

The Blockchain Revolution is happening — it is just slow.

However, despite what Grande fans might think, it is likely that blockchain will shape our lives in bigger ways than the " Thank U, Next " video — as long as the government stays out of the way.

Despite the 75 percent loss of value this year hitting Bitcoin and other cryptocoins, the adoption of blockchain technology (the innovative public ledger development whose best known application is cryptocurrencies) continues to increase. One of the companies that I have been closely following because of its large investments into blockchain startups, Overstock.com, recently announced that it will be selling its retail business and focusing entirely on blockchain . Was the market scared off from this radical move? No. There was a surge in their stock of 26 percent.

Others would be joining them , but the government is basically experimenting with regulating blockchain and cryptoassets, and it is really slowing down the growth.

The way that regulations and enforcements adjust behavior is pretty easy to understand: If there is a rule stating that people need to walk on a line and every time you move off of that line you got a shock, then everyone is likely to follow the line. The downside is that nobody gets to explore the areas away from the line and innovate new ways to get from point “A” to point “B.” However, if sometimes even the people on the line can get a shock, and sometimes people that step off the line don’t, the stimulus can’t constructively guide behavior. It will just upset everyone who isn’t in charge of the shocker. This constant fear of “shock” (aka SEC enforcement actions) is the current world of blockchain.

The problem is that there are still a lot of unanswered questions. Are cryptoassets currencies? Are they commodities? Are these assets in a class by themselves? Basically, the questions center on how much the government will regulate this emerging technology: Will they regulate it as a security and stop the growth, how are they going to tax it, and what direction are innovators going to take it. Given the volatility over the last year, I understand why politicians (and investors) might want action. Even without the volatility, it makes sense why the bureaucrats want action — it just means more power for them.

But not everything in the blockchain world is created equally and fits neatly into even these unanswered questions, and that is really causing some havoc in the business world and confusion at the bureaucratic level. As Ike Brannon pointed out about utility tokens vs. mined-coins in Forbes last week:



"This haphazard regulatory approach is particularly troublesome for utility tokens. Whereas 'mined' cryptocurrencies like Bitcoin are created purely to generate value — and as a result can be very volatile — utility coins are developed to facilitate transactions rather than being investments. Entirely new businesses have been constructed upon the specific applications of utility tokens, and they represent a new way to exploit blockchain technology. However, classifying utility tokens as securities threatens to stifle this innovation."



It is pretty obvious that at least XRP, one of the most well-known tokens, is not a security. Or, as Brannon pointed out, at least this was the opinion of the U.S. Financial Crimes Enforcement Network (FinCEN) a few years ago, when the blockchain revolution was just taking off in 2015.

But it doesn’t seem like the SEC has gotten the word. In fact, Ripple, XRP’s top user, is currently dealing with several lawsuits at the SEC over claims that the token is a security.

This type of government doublespeak (shocking people who walk the line or not) means that fewer entrepreneurs and investors are going to join a blockchain-facing company like Overstock.com. We are going to get fewer innovations than we should — that isn’t a good thing.

I have written about blockchain innovation before , and I have also written about how some things that look like innovations now might not be in the blockchain space. But, one thing is for sure: Whether you are a blockchain disciple, hater, investor, or just mildly interested onlooker, when the government gets in the way of innovation, it's harmful.

I am not a fan of regulation large or small, but as the government considers what they should do, they need to pay attention to allowing innovation to thrive. We still aren’t sure what kind of economic growth blockchain is going to unleash.

Let’s just remember that when Ariana Grande was a toddler, smart people were scoffing that the Internet was a passing fad that would never become economically relevant. By some miracle, the government stayed out of the Internet’s way when it counted. It ended up radically transforming the world for Grande’s generation, connecting her instantly to the world on a daily basis and making millions of others around the world very rich. Let that be a lesson.

Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner's Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.