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Validated | Does Blockchain Need Its Own Section 230?

By Validated

Published on 2023-06-14

Explore the implications of Section 230 for blockchain technology and the potential need for new legislation in the rapidly evolving digital landscape.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Origins of Section 230

Section 230 of the Communications Decency Act, passed in 1996, has been a cornerstone of internet regulation in the United States for over two decades. This pivotal piece of legislation emerged from a legal landscape that was grappling with the rapid growth of online platforms and the unprecedented scale of user-generated content.

The impetus for Section 230 can be traced back to a surprising source: the Wolf of Wall Street himself, Jordan Belfort. Chris Greco, general counsel at RAIN and former Department of Justice official, explains:

"My favorite part about Section 230 is that it all comes back to the Wolf of Wall Street and Jordan Belfort. The seminal case that caused Section 230 to come into existence is based off of a lawsuit where Stratton Oakmont, that same company, decided to sue Prodigy for some defamatory content that was posted on their platform."

This case, Stratton Oakmont v. Prodigy, set a precedent that would have made online platforms liable for user-generated content if they engaged in any form of content moderation. This ruling threatened to stifle the growth of the nascent internet industry, as platforms would be incentivized to avoid moderating content altogether to escape liability.

The Birth of the Communications Decency Act

The Communications Decency Act (CDA) was born out of a confluence of concerns about online content and a desire to foster the growth of the internet. Lauren Culbertson Grieco, former head of government affairs at Twitter, provides insight into the political climate that gave rise to the CDA:

"You had a senator by the name of James Exxon and he was hell bent on getting rid of indecent content on the internet, particularly content that children could be exposed to. And so, fun fact, he used to walk around the Capitol with a binder of internet porn that was printed out so he could show people and say, 'Hey, look at this, we've got to protect the children.'"

While Senator Exxon's efforts were focused on restricting content, Representatives Chris Cox and Ron Wyden saw an opportunity to create legislation that would both protect platforms and encourage responsible content moderation. Their proposal became Section 230 of the CDA, which Culbertson Grieco describes as a "genius construct" that provided internet companies with "both a sword to go after content that's problematic or harmful, and the shield for liability for hosting that content."

The Core of Section 230

At its heart, Section 230 is remarkably simple yet profoundly impactful. The key provision states:

"No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."

This concise statement has had far-reaching implications for the development of the internet. It effectively shields platforms from liability for user-generated content, allowing for the growth of social media, user review sites, and countless other interactive online services that we now take for granted.

The Impact on Internet Growth

The protection afforded by Section 230 has been crucial to the explosive growth of the internet over the past two decades. Without this legal shield, many of the platforms we use daily might never have come into existence. As Culbertson Grieco points out:

"Given the rise of the internet and online speech, you have so much speech out there that if these platforms had to have an editorial process for hosting this speech for every single piece of content, then it just wouldn't be scalable or sustainable."

This protection extends beyond just major platforms. Greco notes that "Section 230 also protects kind of your average Joe internet user for when they retweet something or when they're doing some sort of curation of content on their webpage."

The Debate Over Section 230

While Section 230 has been instrumental in shaping the modern internet, it has not been without controversy. Critics argue that it provides too broad a shield for platforms, potentially allowing harmful content to proliferate without consequence. Proponents, on the other hand, argue that it is essential for maintaining free speech online and fostering innovation.

Greco, reflecting on his time at the Department of Justice, acknowledges the complexities of the debate:

"I agree with Lauren, right? Like, it is fundamentally a protection for First Amendment speech. And the fact that Section 230 exists does amplify speech, which I generally think is a good thing. And I do think it's probably been taken a little bit too far."

He points out that while Section 230 was intended to protect "good Samaritan" efforts to moderate content, it has sometimes been used to shield platforms that actively solicit problematic content.

Recent Legal Challenges

The scope and interpretation of Section 230 have been tested in recent years, most notably in two Supreme Court cases: Gonzalez v. Google and Taamneh v. Twitter. These cases raised questions about the extent to which platforms can be held liable for content promoted by their algorithms.

Culbertson Grieco explains the technological complexity of these cases:

"From a practical technological standpoint, I mean, algorithms power everything. Even the reverse chronological feature on a Twitter feed, which from a consumer standpoint, it's giving you the tweets in the reverse chronological order. So like, it's not actually amplifying necessarily, but it's still using an algorithm to provide that content to users."

The Supreme Court ultimately declined to make significant changes to the interpretation of Section 230 in these cases, leaving the status quo largely intact. However, the cases highlighted the ongoing debate about the role and responsibilities of online platforms in the modern digital landscape.

Section 230 and Financial Transactions

As the conversation shifts towards blockchain and cryptocurrency, an interesting question arises: how does Section 230 apply to financial transactions? This is a crucial consideration as we contemplate the regulation of blockchain technologies.

Greco points out an important distinction:

"The Venmo example, like Venmo is actually doing something. They're not just publishing information. Venmo is facilitating the transfer of cash from person A to person B. And so, that's an action."

This distinction between speech and action is critical in understanding how existing regulations might apply to blockchain technologies. While the transfer of information on a blockchain might be analogous to speech, the transfer of value adds an additional layer of complexity.

Blockchain as a Communication Protocol

One of the key arguments for applying Section 230-like protections to blockchain is the view of blockchain as a communication protocol. As Amira Valiani, head of public policy at the Solana Foundation, points out:

"At its core, like blockchains are decentralized communications protocols or at least sort of that's the way I view them. And I think a lot of sort of folks who are proponents of the technology. And so it feels logical that we would think about sort of regulation at the sort of protocol versus application layer the same way that we think about sort of regulation of ISPs versus the applications built on top of them."

This perspective suggests that blockchain networks could be viewed similarly to internet service providers, with a distinction made between the underlying protocol and the applications built on top of it.

The Challenge of Regulating Decentralized Systems

One of the unique challenges in applying existing regulatory frameworks to blockchain is the decentralized nature of many blockchain networks. Greco highlights this point:

"If blockchains are truly decentralized and they are decentralized enough that they are enforcement resistant, if not enforcement proof, layer ones themselves theoretically shouldn't be able to be regulated even if they want it to be, right? And so, you will have to regulate them at the DAP level rather than the layer one level."

This decentralization presents both opportunities and challenges for regulators. While it may make direct regulation of the underlying protocol difficult or impossible, it also raises questions about how to ensure accountability and protect users in a decentralized ecosystem.

The Need for Blockchain-Specific Legislation

Given the unique characteristics of blockchain technology, there's a growing recognition that new, blockchain-specific legislation may be necessary. However, the current political climate presents significant challenges to passing comprehensive legislation.

Culbertson Grieco expresses skepticism about the possibility of passing legislation akin to Section 230 in today's political environment:

"I don't think anything could have gotten passed today. I mean, that's when we talk about crypto, like this idea that we're gonna have some huge overarching crypto bill is I'm extremely skeptical just because, you know, in the eight years since I started working on the Hill for the second time, we barely passed any significant legislation."

This legislative gridlock poses a significant challenge for the blockchain industry, which is seeking regulatory clarity to foster innovation and growth.

The Global Competition for Blockchain Innovation

The lack of clear regulation in the United States could have significant implications for the country's competitiveness in the global blockchain industry. Culbertson Grieco warns:

"I think that you're starting to see because of a lack of US action, countries in other places of the world are noting this and they're starting to make moves. And they realize that having, again, that certainty and that clarity is really good for business. And that brings jobs and innovation to your market. And so I think the US is at a risk of losing out in this space if they don't take action."

This global competition adds urgency to the need for clear and balanced regulation of blockchain technologies in the United States.

The Role of Education in Shaping Blockchain Regulation

One of the significant challenges in developing appropriate regulation for blockchain technologies is the lack of understanding among many policymakers and judges. Greco emphasizes the importance of education:

"The idea that the 80 year old senators are gonna be really crypto savvy and understand what this technology does or how it works I think is pretty naive. And we have to start with that. And the judges thing is even worse, I think. These folks don't have nearly the interaction with people that legislators do either in terms of staff or people just coming in and talk to them about stuff."

This lack of understanding underscores the need for concerted efforts to educate policymakers and the judiciary about blockchain technology and its implications.

The Potential for Strategic Litigation

Given the challenges of passing comprehensive legislation, Greco suggests that strategic litigation may play a crucial role in shaping the regulatory landscape for blockchain:

"Overall I think we need to be looking at strategic litigation in the courts to really champion some of the things and the base layer protections for crypto that we've seen for the tech companies for the last 30 years."

This approach could help establish legal precedents that provide clarity and protection for blockchain technologies, even in the absence of new legislation.

The Intersection of Blockchain and AI Regulation

As the conversation around blockchain regulation evolves, it's increasingly intersecting with discussions about the regulation of artificial intelligence. Culbertson Grieco points out:

"How about generative AI. And I think that's also kind of the next big debate around section 230. In fact, I've had conversations with a lot of folks in Congress about this. And a lot of people agree that it's a very great area that could need some clarifying pretty quickly."

This intersection highlights the need for flexible and forward-looking regulatory approaches that can adapt to rapidly evolving technologies.

The Challenge of Comprehensive Legislation

One of the key challenges in developing new legislation for blockchain and other emerging technologies is the tendency towards overly complex and lengthy bills. Austin, the host, points out:

"Section 230 is one sentence that literally enabled the creation of the modern internet in the United States. In contrast, recent stable coin legislation that's been introduced is around 130 pages. And my understanding is that's pretty short for modern legislation."

This trend towards lengthy, complex legislation makes it more difficult to pass timely and effective laws to govern rapidly evolving technologies.

The Potential for Grassroots Advocacy

Given the challenges of passing federal legislation, Culbertson Grieco suggests that grassroots advocacy at the state and local level could play a crucial role:

"I think equally important, there needs to be some grassroots work done at the state level and local level to kind of bring together, you know, people who are using this technology or interested in this technology to the policy making. So those members, when they go home, they hear from their constituents, 'Hey, we really want you to do something about this.'"

This bottom-up approach could help build momentum for federal action and ensure that policymakers understand the real-world implications of blockchain technologies.

The Impact of International Initiatives

While the United States grapples with how to regulate blockchain technologies, initiatives in other countries could influence the domestic debate. Culbertson Grieco draws a parallel with privacy legislation:

"Across the pond, we might see some things like we've seen with GDPR, kind of sparking the privacy debate. And do you see granted, it's still not going anywhere, but it's still influencing the process. So I think also some of the international initiatives might help at the federal level."

This global perspective underscores the interconnected nature of blockchain regulation and the potential for international initiatives to shape domestic policy.

The Role of the Courts in Shaping Blockchain Regulation

In the absence of comprehensive legislation, the courts are likely to play a significant role in shaping the regulatory landscape for blockchain. Greco points out:

"If we're not gonna have a legislative solution in the future, which I'm skeptical of, and you know, the last two days shows us anything that a lot of this stuff will be decided by the courts ultimately, then we need to make sure that we're educating and convincing the judicial branch on how this technology works."

This emphasis on the courts highlights the importance of not only educating legislators but also ensuring that judges have a thorough understanding of blockchain technology and its implications.

The Potential for Targeted Legislation

While comprehensive blockchain legislation may be challenging to pass, there may be opportunities for more targeted legislative actions. Greco suggests that recent actions by the SEC could spur congressional action:

"I will caveat my skepticism of like a big overarching crypto bill with the statement that that comes before these two recent cases by the SEC against financing Coinbase, which I think actually could. They're so kind of far reaching that I do think that they could spur something in Congress and to action as a response."

This suggests that specific regulatory actions or court cases could create openings for more focused legislative responses.

The Importance of Global Competitiveness

Ultimately, the push for clear blockchain regulation in the United States may be driven by concerns about global competitiveness. Culbertson Grieco concludes:

"The initial impetus for section 230 was global competition in the internet space and technology space. And I think that that still rings true today. And I think that making the argument of why this matters for the US and for the competitive space in crypto, I think that that's also critical and going to be an important catalyst to whether US is successful or not in facilitating again a clear and predictable regulatory framework for crypto."

This emphasis on competitiveness underscores the potential economic stakes of blockchain regulation and could serve as a powerful motivator for action.

The Future of Blockchain Regulation

As we look to the future of blockchain regulation, it's clear that there are no easy answers. The technology's decentralized nature, its potential to disrupt traditional financial systems, and its rapid evolution all present significant challenges for regulators and lawmakers.

However, the history of Section 230 and its impact on the growth of the internet provides valuable lessons. It demonstrates the potential for well-crafted legislation to foster innovation and growth, while also highlighting the challenges of adapting regulations to rapidly evolving technologies.

Whether through comprehensive legislation, targeted laws, strategic litigation, or a combination of approaches, it's clear that finding the right regulatory framework for blockchain technologies will be crucial to realizing their full potential. As the debate continues, it will be essential for all stakeholders - from developers and entrepreneurs to policymakers and regulators - to work together to create a regulatory environment that fosters innovation while protecting users and maintaining the integrity of financial systems.

The path forward may be uncertain, but the stakes are clear. As blockchain technologies continue to evolve and expand, the decisions made today about how to regulate them will play a crucial role in shaping the digital landscape of tomorrow.

Facts + Figures

  • Section 230 of the Communications Decency Act was passed in 1996 and has been crucial for the growth of the modern internet.
  • The Stratton Oakmont v. Prodigy case was a key catalyst for the creation of Section 230.
  • Section 230 provides both a "sword" for platforms to moderate content and a "shield" from liability for user-generated content.
  • The core of Section 230 is just one sentence long, providing broad protection for online platforms.
  • Section 230 protects not just major platforms but also individual internet users when they share or curate content.
  • Recent Supreme Court cases (Gonzalez v. Google and Taamneh v. Twitter) challenged the scope of Section 230 but ultimately left its interpretation largely unchanged.
  • Algorithms power many aspects of online platforms, including features like reverse chronological feeds.
  • The distinction between speech and action is crucial in determining how Section 230 and other regulations apply to different online activities.
  • Blockchain is viewed by some as a decentralized communications protocol, similar to how ISPs are regulated differently from the applications built on top of them.
  • The decentralized nature of many blockchain networks presents unique challenges for regulation.
  • There is skepticism about the possibility of passing comprehensive blockchain legislation in the current political climate.
  • The United States risks losing out on blockchain innovation to other countries if it doesn't provide regulatory clarity.
  • Many policymakers and judges lack a deep understanding of blockchain technology, highlighting the need for education.
  • Strategic litigation may play a crucial role in shaping the regulatory landscape for blockchain in the absence of new legislation.
  • The regulation of blockchain is increasingly intersecting with discussions about AI regulation.
  • Recent stablecoin legislation drafts have been around 130 pages long, in contrast to the one-sentence Section 230.
  • Grassroots advocacy at the state and local level could play a crucial role in shaping blockchain regulation.
  • International initiatives, like GDPR for privacy, could influence the debate around blockchain regulation in the US.
  • Recent SEC actions against companies like Coinbase could potentially spur congressional action on crypto regulation.
  • Global competitiveness in the crypto space could be a key motivator for developing clear regulatory frameworks in the US.

Questions Answered

What is Section 230 and why is it important?

Section 230 is a key provision of the Communications Decency Act that protects online platforms from liability for user-generated content. It's important because it has enabled the growth of social media, user-generated content platforms, and many other interactive online services that we use today. Without Section 230, many of these platforms might not exist due to the legal risks associated with hosting user content.

How did Section 230 come about?

Section 230 emerged from a legal landscape grappling with the rapid growth of online platforms in the 1990s. It was specifically prompted by the Stratton Oakmont v. Prodigy case, where an online platform was held liable for user content because it engaged in content moderation. Representatives Chris Cox and Ron Wyden recognized the potential chilling effect this could have on internet growth and drafted Section 230 as part of the Communications Decency Act to address this issue.

How does Section 230 apply to blockchain technology?

The application of Section 230 to blockchain technology is not straightforward and is a subject of ongoing debate. Some argue that blockchain networks could be viewed similarly to internet service providers, with a distinction made between the underlying protocol and the applications built on top of it. However, the decentralized nature of many blockchain networks and their ability to transfer value add complexity to this comparison. Currently, there's no clear consensus on how or if Section 230 protections would apply to blockchain technologies.

Why is it challenging to regulate blockchain technology?

Regulating blockchain technology is challenging for several reasons. First, the decentralized nature of many blockchain networks makes traditional regulatory approaches difficult to apply. Second, the technology is rapidly evolving, making it hard for legislation to keep pace. Third, blockchain intersects with multiple regulatory domains, including finance, data privacy, and communications technology. Lastly, many policymakers and judges lack a deep understanding of the technology, making it difficult to craft appropriate regulations.

What role might the courts play in shaping blockchain regulation?

In the absence of comprehensive legislation, courts are likely to play a significant role in shaping the regulatory landscape for blockchain. Through strategic litigation, legal precedents could be established that provide clarity and protection for blockchain technologies. This approach could help define how existing laws apply to blockchain and potentially influence future legislation. However, this also underscores the importance of educating the judiciary about blockchain technology to ensure informed decisions.

How might international initiatives influence blockchain regulation in the US?

International initiatives could significantly influence blockchain regulation in the US in several ways. First, they could serve as models or cautionary tales for US regulators. For example, the impact of GDPR on privacy discussions in the US shows how international regulations can influence domestic policy debates. Second, as other countries establish clear regulatory frameworks for blockchain, it could put pressure on the US to act to remain competitive in the global blockchain and crypto markets. Lastly, the global nature of blockchain technology may necessitate some level of international coordination in regulation.

What are the potential consequences if the US fails to provide regulatory clarity for blockchain?

If the US fails to provide regulatory clarity for blockchain, it risks losing out on innovation and economic opportunities in this space. Clear regulations provide certainty for businesses and investors, encouraging growth and innovation. Without this clarity, blockchain companies might choose to operate in other jurisdictions with more favorable regulatory environments. This could lead to a loss of jobs, investment, and technological leadership in a rapidly growing sector of the global economy.

How does the regulation of blockchain intersect with AI regulation?

The regulation of blockchain is increasingly intersecting with discussions about AI regulation, particularly in the context of generative AI. Both technologies raise complex questions about liability, data privacy, and the boundaries between human and machine-generated content or decisions. As these technologies continue to evolve and intersect, regulators are grappling with how to create frameworks that can address the unique challenges posed by both blockchain and AI while fostering innovation and protecting users.

What role could grassroots advocacy play in shaping blockchain regulation?

Grassroots advocacy could play a crucial role in shaping blockchain regulation, particularly at the state and local level. By engaging with local policymakers and demonstrating the real-world applications and benefits of blockchain technology, advocates can help build understanding and support for sensible regulation. This bottom-up approach could help create momentum for federal action and ensure that regulations reflect the needs and concerns of actual users and developers of blockchain technology.

How might concerns about global competitiveness influence blockchain regulation in the US?

Concerns about global competitiveness could be a powerful motivator for developing clear regulatory frameworks for blockchain in the US. As other countries establish blockchain-friendly regulations and attract investment and innovation in this space, it could create pressure on US policymakers to act. The potential economic benefits of being a leader in blockchain technology, including job creation and technological advancement, could serve as a compelling argument for timely and balanced regulation. This mirrors the initial impetus for Section 230, which was partly driven by a desire to maintain US leadership in internet technologies.

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