I recently took part in the World Economic Forum Global Blockchain Council meeting in San Francisco. It is part of the six newly formed councils that form the Centre for the Fourth Industrial Revolution’s Network for Global Technology Governance. The center aims to shape the development and application of emerging technologies for the benefit of humanity. It provides a platform for multistakeholder dialogue and the collaborative development and piloting of policies aimed at mitigating the risks and maximizing the societal benefits of emerging technologies.
The Global Blockchain Council itself is made up of government, business, academia and civil society leaders working to help shape international governance and cooperation on blockchain technology. This was our inaugural meeting. The meeting was set to shape the strategic thrust and initial priority focus areas under the blockchain ecosystem as well as provide an opportunity for discussion of leadership issues that cut across individual technology governance domains. We were exposed to innovative policy and governance models being tested across the world and had the opportunity to showcase our organizations’ efforts in the space.
After knowledge-sharing, collaboration and brainstorming on ways to shape the global narrative on important issues surrounding the blockchain ecosystem, I arrived at these conclusions:
- Cross-border governance framework is needed. Blockchain technology and cryptocurrencies for the first time introduce the issues of supranational jurisdiction. This is particularly true when you talk about a transaction that originates in one jurisdiction, touches upon another and ultimately ends up in another. There are different rules, entities, practices and data crossing paths. How do we best regulate these supranational entities? Do regional or bi-national sandboxes provide optimal grounds to springboard these solutions?
- The need to strike a balance between protection and not stifling innovation. It’s important that both sides, businesses and regulators, understand where each other is coming from and cooperate to shape a standard regulatory framework. If the cost of regulation and compliance is too high, we risk driving the industry further towards the fringe, closer towards illicit and risky activities — impeding innovation. We already see this today when a crypto project is unable to open a bank account with an established bank, they are pushed to use lower tier banking partners. Businesses must work with government to develop an optimal governance framework as neither side can tackle issues alone.
- Weighing the risks and rewards of forging ahead of regulations. In absence of regulatory oversight, we already see a few places like Japan where the Japan Virtual Currency Exchange Association (JVCEA) was accredited as a self-regulatory organization (SRO) by the Japanese Financial Services Agency (JFSA) under the Payment Services Act. This gives the JVCEA mandate to self-regulate virtual currency exchanges. In other countries like the United States, we see the SEC cracking down on cryptocurrencies with implications expanding beyond U.S. jurisdictions. It is clear that regulatory arbitrage, which is usually a cat and mouse game, is not a long-term sustainable solution. How do businesses and regulators weigh the risks and rewards as they move ahead? Self-regulation sounds promising on paper, but what are the actual implementation considerations?
- Manage further exclusion. Centralized crypto exchanges and platforms are regulatory weak points. This is where we will see liability burden and added compliance costs get attached. Upcoming recommendations and directives around cryptocurrencies like FATF and AMLD5 will effectively lead to “bank” level compliance requirements for these centralized platforms. How do we make sure regulations do not risk further exclusion of billions of people who may not have proper qualifications or documentation requirements?
- Turning blockchain into an empirical science. Blockchain needs a quantifiable impact measurement framework. Why blockchain? How does blockchain help make transaction X times cheaper, more secure and more efficient than the traditional service? As an industry, we need to better demonstrate and communicate what best practices are or what a good deployment of a blockchain solution looks like, and develop standard empirical metrics to measure and monitor them. Projects like Messari, with the various empirical and quantifiable metrics that they employ to judge blockchain projects, are doing some very exciting pioneer work to lead the way . The current common measurement used, like how decentralized your network is or what your transactions per second (TPS) is, to me, really doesn’t capture the true value of the system.
My experience with the WEF Blockchain Council allowed me to broaden my understanding of the regulatory problems and processes that go on internationally across industries. This couldn’t have come at a more timely manner, as this June we received an AMA question regarding regulation which Kasima answered on video. I agree with his sentiment. Regulation isn’t necessarily a hurdle, it’s just that currently, regulatory bodies are still playing catch up with the emergence of new technology. A core concern is the potential for new technology to disrupt established industries and consumers alike and thus leads to a range of regulatory responses — as we are witnessing in real time. Regulation is a balancing act — creating a framework that can protect the common good between states and individuals while mitigating the stifling of innovation through technology. Given the balancing act required, it should be expected that some regulators and societies will take different approaches to managing technological innovation. As new technologies and their implications become better understood across jurisdictions, I see more and more regulators opening up and embracing more technology in the future. The important thing to do is to have people in the decentralized blockchain ecosystem working with international regulatory bodies to ensure that policies can help technology grow in a responsible, ethical, and sustainable way.
I’m proud to say that OmiseGO is actively participating in the conversation of regulation — locally here in Thailand, in Asian markets such as Japan and Singapore, and in the west like the United Kingdom and with EU member states. Our WEF participation is our way of proactively engaging with supranational policies and regulations. With OmiseGO’s seat on the Blockchain Council, I believe we can help ensure regulations promote growth in the ecosystem.