The Semiconductor Lesson: Onshoring to Win Innovation

Sheila Warren is the CEO of the Crypto Council for Innovation - the premier global alliance for advancing the promise of this new technology through research, education and advocacy. She spent significant time as a lawyer and executive in the nonprofit sector helping companies work with emerging technology to solve problems and increase efficiency. In 2023, Sheila was voted one of the most influential women in DC by the Washingtonian. Prior to the Crypto Council, she founded the World Economic Forum’s blockchain and digital assets team and was a member of the Executive Leadership Team. She oversaw tech policy strategy across 14 countries and regularly briefed ministers, CEOs of the Fortune 100, and Heads of State.

In August 2024, global semiconductor sales hit a remarkable $53.1 billion, marking a 20.6% year-over-year increase. Jobs in the industry are projected to grow by 30%, with more than 90 new manufacturing projects worth $450 billion across 28 US states slated to start since CHIPS was introduced by Congress in 2022. The US is doubling down on “one of the most transformative inventions in all of human history” after it pushed it offshore decades earlier.

This explosive growth comes only a few months after the Biden Administration put out a fact sheet on how to keep semiconductors in America. But it is also a stark illustration of the economic opportunities missed by the United States over the last few decades as we let the semiconductor industry move overseas. 

We risk making the same mistake with digital assets. After an early head start in the biggest innovation in financial services of our lifetimes, policymakers’ refusal to implement a regulatory framework that fosters the responsible growth of this technology feels all too reminiscent of past errors. As global markets evolve and competition rises from other jurisdictions that are willing to embrace blockchain and crypto regulation, we must ask ourselves: Are we setting ourselves up to fall behind again? And if so, what will the consequences be for the future of finance and innovation?

A Cautionary Tale from Semiconductors

In the 1960s, the U.S. was a pioneer in the semiconductor industry, but over time, domestic production was outsourced in favor of cheaper overseas alternatives. Since 1990, the US share of global chip manufacturing shrank from 37 to 12%, largely due to US underinvestment and neglect.

The US underinvestment in chip manufacturing was driven by a strategic misstep. In the 1990s, US firms decided to specialize in semiconductor design, figuring that the design of chips was where the value was, and that the manufacturing was something that could just be outsourced to cut costs. Other governments, especially in east Asia, lured semiconductor manufacturing firms with tax breaks, land for factories, cheap labor, and a welcoming regulatory environment.  The Taiwanese government in particular made a policy decision to become the essential country for the chip industry. And it did.

This approach seemed to work for both the US and Taiwan, for a while. But the COVID-19 pandemic and increased geopolitical tensions have shown just how fragile global supply chains can be in a crisis. The lack of domestic production of critical industry components is not just an economic issue, but a national security risk. In a globalized and hyper-competitive world, if you don’t own the infrastructure, you don’t own the market. And if you don’t own the market, you don’t reap the benefits of the innovations that spin out of that market. That might be fine in some industries – for example, most people don’t particularly care if their olive oil comes from Italy, Greece, Spain, or California – but when the industry or technology is essential to the future, it is increasingly clear that onshoring is the only safe strategy. That’s why the Biden administration is aggressively trying to restore semiconductor manufacturing in America. But we are 40 years behind, and catching up isn’t easy.

What a Chip can Teach a Bit(coin)

The semiconductor saga offers a powerful lesson for the U.S. as we grapple with how to treat crypto and blockchain technology. The U.S. pioneered research, entrepreneurship, and investments around blockchain software since Bitcoin was first deployed in 2009. The U.S. also pioneered the regulatory approach for combating illicit finance in crypto. And this, I think, is the key thing to understand. Just as fabs are the key infrastructure for semiconductors, regulations are the key infrastructure for financial services. Why does the US have the best equity markets in the world? The SEC (and most securities lawyers, albeit some begrudgingly) will tell you that it is because we have the best equity market regulations in the world.^[1] So it is no surprise that data shows that the US crypto ecosystem had a lower percentage of illicit finance than others, because FinCEN paid attention to crypto exchanges early on. Regulation matters.

But over the past few years the US has lost the regulatory initiative on crypto, and failed to build on FinCEN’s early leadership to create a regulatory infrastructure to support this technology. And that is actually a best case story of what happened. The worst case – which is certainly what many of the leading lights in crypto and blockchain believe – is that US regulators turned actively hostile to this technology and decided to intentionally drive it offshore by refusing to create a regulatory framework for it. Intentional or not, we’ve seen this film before. As privacy became a bigger issue in our digital economy, U.S. policy makers dithered. Europe didn’t, and enacted the General Data Protection Regulation (GDPR). To be clear, I’m not arguing that GDPR is a perfect- or even a good- regulation. But because it existed first, and no similar U.S. privacy law exists outside of California, it is the law that most large American companies follow. By failing to act, we’ve outsourced privacy regulation to the Europeans, and have thousands of lawyers billing hundreds of millions of dollars a year to help companies follow laws that are not ours. When it comes to crypto and blockchain, we’re dithering again. We’re not decades behind like we are in semiconductors, yet, and we haven’t completely lost the regulatory race to another country, yet, but the clock is ticking. 

The Benefits We Put at Risk if We Fall Behind 

The U.S. is at a point with decentralized technologies as it was when it led semiconductor manufacturing decades ago. If we let crypto regulation slip away, we are letting crypto innovation slip away, and we will find ourselves decades behind other nations that embraced the technology early. Countries like Dubai, Japan, and the UK are already positioning themselves as leaders in crypto regulation and adoption. If the U.S. continues to push crypto offshore, we may never regain the strategic advantage we hold today.

Why do we want that advantage? Blockchain technology, much like semiconductors, are finding their way into every part of the economy. From reducing transaction costs by up to 75%^[2] to providing access to financial services for the unbanked, crypto is more than just an investment—it’s a tool for global financial empowerment.

• City3 in Oakland, California, created an affordable and community-centric Oak Currency to support small businesses by reducing transaction fees, improving transaction speed, and building a local economy.

• Patientory is a platform within which patients securely store their personal health data on a HIPAA-compliant blockchain. It addresses the costs and fragmentation of health data systems, challenges that often disproportionately affect communities with lower socioeconomic standing.

• In East Africa, blockchain-powered initiatives have slashed the cost of sending humanitarian aid by 90% while ensuring that assistance reaches those in need faster than ever before. Given the amount of aid sent by US businesses and citizens totals nearly $560 bn, these kinds of systems can ensure proper tracking and that more of the funds donated are used by those who need them.

One area where crypto has already shown tremendous promise is in global remittances. In 2023, remittance flows to lower- and middle-income countries were estimated to reach $669 billion. The U.S. is the world’s leading source of remittances, with countries like Mexico receiving nearly $56 billion in transfers. But the traditional systems used for these transfers—often involving high fees and slow processing times—are being disrupted by crypto.

Crypto platforms like Bitso processed $8 billion in remittances between the U.S. and Mexico in 2023 alone, demonstrating the efficiency of decentralized technologies. By removing costly middlemen, cryptocurrencies allow more money to reach families, supporting financial inclusion and driving economic growth. Imagine what could be achieved if these technologies were fully embraced instead of hindered by regulatory uncertainty.

By ignoring crypto’s potential, we risk missing out on technologies that can revolutionize finance, aid delivery, and even environmental sustainability. For example, we all know that plastic pollution is a major challenge globally - the UN estimates only 9% of plastic is recycled. Green tech company Plastiks is providing a verifiable, transparent system to support the recovery and recycling of plastic that recovery organizations have removed. Once verified, the recycled plastic is minted as plastic credit NFTs, and are tradeable through the Plastiks marketplace. As of April 2024, Plastiks had recovered 2,321,184 kg of plastic, the equivalent of 74 million 1.5-liter plastic bottles.

It’s crucial to remember that crypto moves at warp speed—a month in this industry can be equivalent to a year in traditional tech ecosystems. If we hesitate now, the U.S. could miss out on the enormous economic and strategic benefits that come from being a global leader in decentralized technologies. Yet, while countries like Germany and Singapore are leading the way in integrating crypto into their financial systems, the U.S. remains stuck in a regulatory quagmire, potentially pushing innovation offshore. 

Germany and Singapore: A Glimpse of What’s Possible 

Germany’s financial institutions have recognized the value of digital assets, integrating crypto services into their offerings. With regulatory clarity from BaFin, banks like Commerzbank and DZ Bank are collaborating with crypto platforms to provide secure, compliant trading and custody services. By ensuring these services are properly regulated, Germany is leading the charge in making crypto a mainstream component of financial portfolios.

Similarly, Singapore has established itself as a global crypto hub through proactive regulations by the Monetary Authority of Singapore (MAS). By 2024, over 1,000 Web3 companies had set up operations in Singapore, benefiting from a regulatory framework that balances innovation with investor protection. Singapore’s largest bank, DBS, offers cutting-edge crypto financial products for institutional investors, demonstrating that crypto can be seamlessly integrated into traditional finance.

These examples show what’s possible when governments embrace (or even just explicitly tolerate) crypto rather than adopt a hostile posture and try to stifle it. By creating clear rules, they’ve fostered environments where innovation can thrive, all while ensuring that consumers are protected and markets remain stable.

Zooming Back to Zoom Ahead

The global semiconductor market is a stark reminder of how quickly industries can shift and how costly it can be to fall behind. The U.S. is now making significant efforts to restore its semiconductor leadership, but we cannot afford to make the same mistake with crypto. Countries like Germany and Singapore are already proving that with the right regulatory frameworks, crypto can be integrated into mainstream finance, fostering innovation and financial inclusion.

Now is the time to keep an open mind. We must not write off crypto before we fully understand its potential. Instead, we must land the regulatory plane. What might that look like? The basic framework of what’s needed hasn‘t changed much in the nearly three years I’ve been the CEO of the Crypto Council, namely: 

• Establish a comprehensive federal regulatory framework for digital assets.

• Facilitate U.S. based stablecoin development by supporting clarifying legislation that protects consumers, while unleashing dollar-based payments innovation.

• Appoint regulators and senior officials who understand blockchain technology, and ensure that regulators have the ability to interact and experiment with blockchain technology and digital assets.

• Ensure crypto companies are able to access banking services like all other legal industries.

• Ensure that customers and investors’ digital assets can be properly custodied by financial institutions.

• Support self-hosted wallets (SHW) as key digital infrastructure that will empower consumers.

If we embrace the opportunity today, we can lead the global financial system of tomorrow. If not, we may find ourselves, once again, playing catch-up.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

^[1] I also think the Delaware Chancery court deserves some of the credit here, but that is another article.

^[2] See: https://www.coinbase.com/blog/reflections-on-bitcoin-transaction-batching

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