Everyone in the audience knew what Hester Peirce was doing when she said she was selling out her boss. The SEC commissioner said from the Washington conference stage that they have been taking an enforcement-first approach. I believe we have got the balance wrong.

Peirce spoke to an audience at the D.C.Blockchain Summit. Lobbyists and investors mingled in a converted warehouse outside the auditorium. The banner was hung from a balcony where the company was sponsoring a lot of snacks. The attendees were done up in D.C. drag, which was more suited to the business world.

It was clear that the message was true. The summit was hosted by the Chamber of Digital Commerce and had more than 800 people attend. The conference used to be co-sponsored by Georgetown University and had panels devoted to explaining or making the case for a technology that was not well known. The attendance and square footage had more than doubled this year. From the stage, the founder and president of the Digital Chamber said, "This is definitely a thing."

The industry has spent the past year making a major play for D.C.'s attention and affection--a sea change for the utopian technology. The rapid growth of an industry valued at $3 trillion at its peak was an arrangement that seemed to satisfy both sides.

D.C. has moved into the area with demands for compliance. Multiple trade associations, think tanks, and political action committees have been hired by the company. The industry has gone from 0 to 100 in a single year. Small companies have a presence now. The firms are stacked with regulators.

There is a clash of vastly different cultures under way. The stodgy pencil-pushers of the Washington bureaucracy are not a good thing. Washington's rule-makers don't like the idea of wild utopian promises. The potential of an ephemeral new technology has run up against the power of the state and neither knows how the other works.

The future of the economy and technology in America and the world will be affected by how the situation plays out. There is a legal gray area in the federal code regarding the existence of cryptocurrencies. Financial regulators have to apply definitions from ordinary markets to a new technology. There is a dispute over whether cryptocurrencies and related products should be classified as securities.

Peirce's agency, the SEC, or its smaller sister agency, the Commodities futures Trading Commission, are at stake in the definition. Neither agency has issued official guidance about where they think the lines should be drawn. SEC Chairman Gary Gensler has stiff-armed companies that try to ascertain their status, only to turn around and file a lawsuit against them for not complying with securities laws. The approach Peirce described has drawn loud complaints from the industry. Gensler, appointed by President Biden, isn't technically the boss of Peirce, appointed by President Trump, since Commissioners are independently appointed and confirmed, but he is her superior.

Gary Gensler, chairman of the Securities and Exchange Commission, has drawn the ire of the cryptocurrency industry for his tough stance (Melissa Lyttle—Bloomberg/Getty Images)

The inter-agency pissing match is the subject of endless speculation and argument, but it's important less in its particulars than what it means. The industry advocates warn that the confusion will hurt consumers and damage a sector that they say holds the keys to a technological revolution like the invention of the Web.

The industry says that U.S. companies want to comply with the law but have been bankrupted or driven offshore by regulators. The Digital Chamber wants a definition of which digital assets are securities or not. If you guess wrong, the SEC will come after you. If a company wants to be regulated by the SEC, they need to know how to register, but if they don't, they'll be left out. A lot of projects are in limbo today, and it has forced a lot of business activity outside of the U.S., because they are not willing to operate in a gray area with potential enforcement hanging over their heads.

D.C. is starting to pay attention. The first hearing on the Digital Commodities Consumer Protection Act was held in September. The bill is one of many that have been introduced on Capitol Hill in the last few months. The White House released its first-ever framework for regulation of cryptocurrencies, a follow-up to a first-of-its-kind March executive order. There were four senators and three members of Congress in the program.

Policymakers and the industry both want to protect consumers and foster innovation. It seems like those goals are compatible. Common ground can come with its own costs in D.C. When politicians say they hope to get this done by the end of the year, I hear that they are going to milk this for at least three congresses. Money stops flowing as soon as the law is enacted. In the California gold rush, the people who supplied the picks and shovels and donkeys made more money than the miners.

If you aren't at the table, you're on the menu. This principle was discovered last year by the industry of thecryptocurrencies.

Infrastructure legislation to fund roads, bridges, and broadband was being negotiated by a bipartisan group of senators. The senators looked at a menu of revenue options prepared by staff. There was a tax on cryptocurrencies that raised $5 billion. Sources familiar with the process confirm that Rob Portman picked it off the list.

Firms that would be affected by the provision were caught off guard. The bill was held up as exhausted senators worked around the clock to finish it. Lawmakers sympathetic to the industry proposed a compromise, but just when one seemed imminent, Republican Senator RichardShelby of Alabama nixed it to protest the blocking of an unrelated bill The tax was paid Industry leaders are still hopeful that the provision can be repealed.

The show was a demonstration of the vulnerability of the government. It was a last-minute addition. The president of the Foundation for Research on Equal Opportunity said they were asleep at the switch. The time to stop Congress from doing things like this is when the pharmaceutical lobby is active. Despite making a lot of noise, it wasn't enough to change the trajectory of their politics.

This is the industry's "aha" moment, according to representatives of numerous majorBlockchain companies. A lobbyist says that when people woke up they realized they needed to get involved. The industry went on a spending spree, hiring platoons of lobbyists and advocates, and mounting a full-court press on D.C., in order to prevent it from happening again. Over the past year, all have grown rapidly, with member companies desperate to have a say in the policy process.

Perianne Boring, founder and CEO of the Chamber of Digital Commerce, testifies before a congressional committee (Sarah Silbiger—Bloomberg/Getty Images)

The man behind the digital currency is worried about the future of the industry.

The baseline expectation was $500,000 to $1 million for major contributions to a handful of new political-action committees. The most prominent, backed by a Trump Administration official, has raised more than $10 million. Few think these vehicles will play a major role in electoral politics, even though there is some evidence that they do. It is more about showing how the game is played. A D.C. tech policy leader says that all the leaders in the industry have been trying to show that they have skin in the game Left to their own devices, they don't want anything to do with Washington, but they're coming around to the idea that it's necessary and coalescing around a small handful of superPACs and donation platforms. They would like to send a message that the industry has matured.

The goal is to do more than play defense now that the tax issue has been solved. Many countries have a single centralized regulatory body that oversees financial products. The industry's Public Enemy Number 1 is Gensler.

During the Obama years, Gensler was the head of the Commodity Futures Trading Commission. When Biden named him to lead the SEC, many people thought he would bring needed expertise. They charge that he has mounted wide-ranging and arbitrary raids while rejecting calls for clear rules. Through a spokeswoman, Gensler refused to comment on the story. There is no reason for the market to be treated differently from the rest of the capital markets. He said that some in the industry have called for more guidance with respect to the coins. The Commission has spoken with a clear voice over the last five years. Not liking the message isn't the same as not getting it.

This position is hard to understand by the people who work in the crypt. Gary Gensler has said many times that we do have clarity, but we don't. I represent over 200 businesses that have to navigate these laws, and I haven't had anyone tell me that we do. The SEC is blocking economic progress because they refuse to put forward a framework for digital assets and bring clarity to the situation. It is holding back economic innovation.

Without rules, companies are forced to read Gensler's statements for clues. The benefit of knowing what the government considers a scam, versus a legitimate enterprise, can be seen by even coin skeptics. Everyone needs to register with the SEC if Gary is to have jurisdiction over all of this. People have tried, but the staff is not helpful.

The exchange was sued for alleged insider trading and was blocked from issuing a product. Two other companies went bankrupt despite being threatened with lawsuits, and BlockFi was fined $100 million for issuing a yield product that wasn't registered. The SEC seems to target companies that are trying to go legit instead of obvious fly-by-night scam artists. He wants to be in charge of writing the rules but not writing them. I don't think that can be done.

Congress has been tasked with creating the rules of the road. Many are pressing lawmakers to give the CFTC primary authority, sparking criticism that they are venue shopping for a less formidable regulator that would take a less aggressive approach. At a recent congressional hearing, theCFTC Chairman said that they are one of the toughest cops in the world. The Ooki DAO was the subject of a first-of-its-kind lawsuit by the Commodity Futures Trading Commission in September. The current situation would be better if any rules were in place. She wants to know a definition of a digital asset security. Most of the issues that we have would be solved by that. It's very easy.

Alan Konevsky, the CEO of tZERO, says that many of the founders of tZERO are committed to a techno-libertarian ethos. They are coming around to the need for regulations. Positive regulation is supported by most responsible participants, whether they are pioneers who survived and made big or traditional finance entities looking to enter the space. It's not about whether, but how you regulate.

When the internet was new and barely regulated, it crashed in the early 2000s, leaving major sports teams with stadiums named for dead companies. The tech giants of today emerged from the wreck. Lawmakers are struggling to rein them in, and public sentiment has turned against them. The internet gave everyone an advantage for a long time. The new technology is going to bring people together. It has changed the world but it has brought a lot of new problems.

Hester Peirce, commissioner of the U.S. Securities and Exchange Commission, speaks at the DC Blockchain Summit (Valerie Plesch—Bloomberg/Getty Images)

In July of last year, then- President Donald Trump talked about cryptocurrencies. His take was not good.

The president wrote that he was not a fan of Cryptocurrencies, which are not money and are volatile. He was concerned that they could facilitate unlawful behavior and pointed out Facebook's plans to create a virtual currency called "libra". The US has only one real currency and it is stronger than ever. The dollar is known as the United States Dollar.

Even though the U.S. President condemning your whole sector might seem discouraging, Perianne Boring was happy. She hung them in her office and referred to them as the crown jewels. It was the first time a sitting president talked about something on the internet. At least we are relevant, she said.

The former President was not a fan of the Trump administration. On Capitol Hill, Senator Elizabeth Warren was the most vocal critic of the industry. The congressionalBlockchain caucus was started in the year 2016 About two-thirds of the members of Mick Mulvaney andJared Polis are Republicans. Republicans tend to focus on the economic opportunity while Democrats focus on protecting consumers. The industry has succeeded in being seen as nonpartisan. Insiders say that the political divide overcryptocurrencies tends to be more generations old. "We have people out there investing in this and don't have a clue what they're doing, including me."

The risks and rewards of the merge are discussed by a top developer.

More favorable noises have been made by the Biden administration. The president ordered agencies to research the risks and benefits of the digital currency. The White House said that the United States must maintain technological leadership in this rapidly growing space, support innovation, and mitigate the risks for consumers, businesses, the broader financial system, and the Climate. This was a major milestone for the industry, not just recognition, but an acknowledgement that the industry has a lot of upside.

Michael Sonnenshein, CEO of Grayscale, a publicly traded bitcoin investment, says that when there began to be chatter in D.C. around the White House putting something out, many people were concerned it might be quite punishing, but it ended up being something that most view as According to a joint White House statement by Brian Deese, director of the National, the Administration has followed up by issuing its proposed regulatory framework. The framework doesn't take a stance on the question of jurisdiction, but directs both the SEC and CFTC to aggressively pursue misconduct.

Capitol Hill is also moving at a slow pace. In June, a bipartisan pair of senators, Cynthia Lummis and Kirsten Gillibrand, released a wide-ranging bill, which would define and expand the CFTC's authority while leaving some digital securities under the SEC's purview. Lummis is the Senate's "crypto queen." Gillibrand pointed to her state's importance to the financial industry in joining the push. The Digital Commodities Exchange Act was introduced in April and the Digital Commodities Consumer Protection Act was introduced in August. The top three pieces of legislation are considered by aides in the process.

The major bills are expected to take time to work through the process. Gillibrand and Lummis said their measure might have to go through four different committees and that they expect it to be broken up into component pieces. Legislation on stable coins could be attached to must-pass bills in Congress. The top Democrat and Republican on the House banking committee have been working for months to draft a bipartisan stable coin bill, but it hasn't seen the light of day.

There was a lot of enthusiasm at the D.C. summit. The geniuses should be brought back on our soil. The business brains that have been lost to offshore havens were rued by Kevin O'Leary of ABC's "Shark Tank" The crash of two stable coins wiped out a trillion dollars in value, but everyone seemed to take it in stride. The regulatory state seemed to be close to a brave new future of legal digital currency. The man got up to speak.

The acting comptroller of the currency started to read a speech after opening a folder on the lectern. With a neat suit and tie, Hsu looked every inch the official. He was there to give a perspective to the bank regulators. The Federal Reserve issues currency, despite the fact that the Office of the Comptroller of the Currency does not. It doesn't charter banks. He didn't know that he had not gotten the memo.

He was concerned about what he had seen from the world of cryptocurrencies. It was too dependent on hype and Ponzi schemes and posed a risk to the financial sector. Recent events should be a wake-up call for the industry.

It is possible that the time has arrived. Washington is still in control.

The reporting was done by Anisha Kohli.

You can write to Molly Ball at time.com.