Regulation of blockchain-based functions has been intensifying as of late.
The UK is progressing with its own regulation around cryptocurrency, whilst the US has been a lot more hesitant as White House proponents and opponents have yet to come to an agreement.
During a London Blockchain Conference panel discussion, questions were asked about how global policymakers view blockchain, what are some of the case-by-case perspectives from across the globe, and can firm regulation coexist with encouraged innovation.
Alun Cairns MP – UK MP for Glamorgan – was keen to differentiate blockchain technology from cryptocurrencies from the outset, admitting the emerging tech has a ‘branding challenge” with members inside Parliament.
Cairns reveals that blockchain’s core objectives and values may not need to be understood in order to realise the benefits, which he states can have a profound impact on a wide array of industries.
“Without politicians, driving policy and trying to communicate how blockchain can bring about a transformational difference
“For us a wider community, we have got a collective challenge of firstly, differentiating cryptocurrencies from blockchain, and we need to highlight what blockchain does in order to improve some policies.”
Education has become a central role for Cairns as part of the British Blockchain Association, focusing on certain aspects of the technology in order for blockchain to realise its potential, one area being land transfer.
Cairns highlighted this specific area as he views it as an “expensive, inaccurate, incumbent process,” and believes that the integration of blockchain can have a positive adverse effect to make transactions more liquid and beneficial to market demand, which will ultimately benefit the UK economy in the long run.
But Cairns is coming from a UK-centric view. Blockchain and digital asset regulation has been accelerating within the UK over the past year now, with stablecoin legislation seemingly looking to be passed within the next year.
Tom Spiller OBE – Legal Director at law firm Rosenblatt – revealed that his firm has coverage across four continents and has found it “fascinating” to some of the different policy approaches being made across a wide range of countries.
“The main differentiating factor on how you view blockchain is through geography,” remarked Spiller.
This is evident in the current proposals being made in the UK, the exploration into the metaverse in South Korea, and perhaps the biggest adopters of blockchain in the world, El Salvador, where they have made Bitcoin one of its predominant forms of currency.
Other countries have also begun to adopt blockchain capabilities as a means to recover from market failures in recent times, such as the high inflation in Argentina or the ongoing war in Ukraine.
Spiller admits that there are a plethora of perspectives being formalised by policymakers across the world, but notes that countries, such as China and India, disapprove of it. He also attributes blockchain disapproval to bad experiences.
The US has notoriously been a country going back-and-forth on its liking and disliking of the emerging tech, whether that be to the Silk Road marketplace closure in 2013, or being the victim of blockchain-based terrorist financing attacks.
Many countries ignored the emergence of blockchain whilst it was still in its early infancy until it became a “problem” upon which they were ordered to act, according to Spiller.
It is clear that he believes perspective is key for global policymakers when it comes to regulating blockchain, but how are regulations being implemented?
Financial Regulatory Consultant based in Brussels, Elizaveta Palaznik, has been helping financial services integrate blockchain policies in several European regions and she believes it comes down to timeline and culture on how markets perceive blockchain.
Palaznik notes that she saw a lot of policymakers were reluctant to engage with blockchain before the notorious FTX collapse in November 2022. But the hangover of this notorious crypto fraud scandal began to wake policymakers up.
“After the FTX situation happened, the dynamic shifted, people wanted regulation because they saw what it was like without it”, said Palaznik.
Traditional financial companies are already more knowledgeable and understanding of blockchain and crypto compliance than they were two years removed from the FTX scandal, Palaznik revealed.
However, she also noted how increasing regulatory and compliance guidelines may become a “burden” to new startups due to the cost of complying which may in turn slow them from scaling.
“As I like to say, in blockchain regulation, you need to have transmission, security and scalability, and you need to find this sweet spot between the three to make it perfect, which is really hard to achieve. So if you are willing to make blockchain scalable, you need to give up and compromise, for instance, Decentralisation.
“In regulation, you have a similar dilemma. First, you need to stop the malicious players, you need to protect consumers, but you also need to not slow down innovation, but one can come at the expense of the other.”
Regulation of blockchain, crypto and the wider digital asset industries has become a fiercely contested debate between figureheads in either sector.
Some see it as going against its core principles and founding ethics of eliminating third-party intermediaries, such as crypto, in order to gain full control of a person’s assets.
Others see regulation as the next step in blockchain and digital assets’ ascent to mainstream acceptance which will enable large-scale players, such as BlackRock and Grayscale with Bitcoin ETFs, to enter the industry and open it up further.
The FTX scandal almost acted as a blessing in disguise for the industry because, despite the billions upon billions of dollars investors lost, regulators around the world began to take immediate steps in order to start safeguarding them.
It remains to be seen to what extent policymakers will go to avoid anything like FTX from happening again, even if innovation falls by the wayside.
