How should blockchain be regulated?
22 October 2018 |
At this year’s Blockchain Live trade show in London, something curious happened. The talk on “Crypto currency: the search for regulatory clarity” was packed to the brim. Even the speaker was surprised. George Morris, Partner at Simmons & Simmons law firm, remarked that there are usually only two or three people at a regulation talk. So why all this intrigue?
Robert Gaskell, President of the Pillar Project Foundation and COO for Pillar, explains that uncertainty is at the root of this curiosity. “People and investors are clamouring for clarification on regulation in this space,” he says.
The cryptocurrency debate
The cryptocurrency world is still riddled with complication and confusion. Robert explains that this is not just because the system is technically complicated. The regulators themselves are struggling to understand it and so find it hard to regulate or create some self-regulation in the space.
There is certainly ferocity and intensity around the cryptocurrency debate. Up until now, regulators and financial institutions have stood in two camps: Those that are nervous about entering the space; and others that are more progressive and “are looking to see how blockchain, the technology that enables cryptocurrency, can improve business or transparency,” Robert explains.
It’s the “immutability” of blockchain which makes it particularly attractive. It’s used in a public capacity and has an ability to store data, without being altered or deleted.
Robert remains in the optimistic camp. “No blockchain up till now has been hacked. Yes there have been exchanges that have been hacked but they are centralized exchanges or centralized wallets. Of course the hackers can get in and steal those assets in there. But they haven't been able to actually hack the network itself”.
And yet banks generally remain dismissive of cryptocurrencies. Recently Goldman Sachs shelved plans to build a cryptocurrency desk, in part because of an uncertain regulatory landscape. Robert has his own theory about the banks’ haughty attitude. “They just don't want to look at our space, they see it as a threat. They don't support companies doing their own blockchain projects,” he states.
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Challenges for the regulators
As we all watch on tenterhooks, what are the challenges for the regulators ahead?
“The problem for regulators is trying to explain safe ways of investing in our space,” Robert responds. He foresees problems if regulation becomes too onerous. “We saw that in New York where they really came down hard and said everything had to be registered. All of the crypto companies just moved out of New York and that's not good for innovation,” he explains.
Because they’re in a weird situation, he adds, the regulators have got to give advice. They should apply some light touch regulation but mustn’t quash innovation.
Robert cites Canada, Singapore and Malta as countries at the vanguard, promoting advancement in this space. The UK is also taking the lead, although senior MPs recently urged the UK government to regulate the Wild West crypto-assets market.
Robert would contest that the FCA has acted in a considered way so far by not bringing in overly burdensome regulation. Indeed, he feels that the UK is at the heart of investment for blockchain, AI and security. “The biggest problem is the banks. We have to somehow get the banks on board and get them to offer services to companies in this space which they're not doing right now,” he adds.
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The blockchain community and self-regulation
What do the regulators need from the blockchain community?
Robert suggests the blockchain community needs to self-regulate first before national regulation and laws are applied. Most new industries and technologies start this way and need time to grow, he says.
The first phase of self-regulation could begin with ensuring Know Your Customer (KYC), Anti-Money Laundering (AML), source of wealth and funds checks, as well as accredited investor and retailer investor checks. This could then move into the second phase whereby regulated national frameworks are applied.
Robert feels we need to approach this on a national basis. He cites Israel as being a perfect example. “They work really well together as a community of companies, collaborating in the same space. There's none of this competitive spirit and ‘not going to allow you to come into the club’ stuff,” he states.
Simpler means mainstream
“I personally feel right now blockchain technology is just too technically difficult and by making crypto simpler would bring it into the mainstream,” Robert asserts. That's what Pillar is trying to do; they’re creating a wallet that's very easy to use and requires no understanding of blockchain or keys. The technicalities are handled in the background, so you just send cryptocurrency to people that have the Pillar Wallet.
For Robert, there really is no other way. “We believe that the economies that show innovation and forethought to invest in these types of technologies will be the successful economies of the future,” he predicts.
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