Regulating a decentralised model: legal developments in Blockchain
Speculation of the value of blockchain in business is rife. Beyond the excitement of highly volatile crypto-currencies, the distributed ledger technology has remained at the forefront of conversations on the future of industries for its potential to enhance security, speed and efficiency to sensitive transactions.
A glance at the figures show promise, with market intelligence firm IDC predicting worldwide spending on blockchain solutions to be nearly $2.9 billion in 2019, an increase of 88.7% from the $1.5 billion spent in 2018. However, according to a survey conducted by Cowen of 23 executives and experts in the field, blockchain technology will take 5.9 years to gain widespread adoption. Additionally, a recent survey conducted by Big Four auditing firm KPMG revealed that most tax and finance executives do not consider adopting blockchain technology.
If it already feels like implementation of blockchain in the business world has been slow, it’s because it has. The mass hysteria that saw the rise and fall of crypto-currencies grip the headlines with each passing day has not yet materialised due to the challenge of regulating such a technology. When a central authority attempts to shape decentralised technology, a problem is created that governments have understandably struggled to grapple with thus far.
Writing the rules to promote mass-adoption
Now, lawmakers in the US are working to tackle the issue once and for all through the introduction of the “Blockchain Promotion Act,” a bill that calls for the Department of Commerce to come up with a standard definition of “blockchain,” which can be described as a tamper-proof ledger run across a network of multiple computers. Introduced for the second time in February 2019, the bill has bipartisan sponsorship in both the Senate and the House of Representatives.
According to Representative Doris Matsui, who is working hard to have the Bill introduced in the senate, the need for a common understanding of the blockchain is essential in the adoption of this technology. As businesses explore the potential of blockchain and hype around the decentralised ledger continues to grow, a widespread lack of understanding has, so far, held organisations back from harnessing blockchain to transform their operations.
But the Blockchain Promotion Act is not the only blockchain-related bill to be introduced in the U.S. Earlier this month, the Token Taxonomy Act was reintroduced to exclude cryptocurrency from being classified as a security.
The Act aims to amend the securities Act of 1933 in order to establish regulatory certainty for businesses in the US blockchain sector and adjust taxation for virtual currencies held in retirement accounts similar to the treatment of “bullion.” And an exchange of one cryptocurrency for another would no longer be considered a taxable event.
According to the Token Taxonomy Act, crypto to cash transactions would further become exempt from tax as long as they do not exceed a value of $600, allowing crypto-currencies to be used for everyday purchases without triggering a taxable event.
Meanwhile in France, a new regulatory framework has been drafted by Autorité des Marchés Financiers (AMF), the country’s financial markets overseer, to allow blockchain-related projects the right to a bank account, provided they opt in to being regulated.
The new legislation drafted by the AMF aims to create a foundation for French life insurance and private equity funds to gain more exposure to crypto-assets. This approach is a far cry from that of the US government, where banks have been actively discouraged to provide deposit accounts to crypto-currency businesses.
A conflict of interest
Nevertheless, the Blockchain Promotion Act in the US serves as evidence that the distributed ledger is finally moving to the mainstream. Naturally, however, the idea of a federal government attempting to control a technology intended to operate without a central authority still doesn’t sit comfortably with many.
What’s more, the role that major corporations will play as they promote their own versions of blockchain could create a conflict of interest. IBM, for instance, are investing in an open source version called ‘Hyperledger’ – yet, the multinational IT company have downplayed their involvement in the legislative process:
“Given our deep expertise in blockchain, IBM regularly engages with members of Congress to explore policy that would harness the technology to drive economic development and competitiveness,” said a spokesperson for IBM.
“We do this independently as well as through industry and trade associations, and we have not yet endorsed any specific bill.”
Legislating new technology
Of course, the blockchain bill is not the first time Congress have come up against such a challenge. In fact, the question of how to boost mass adoption of new technology through legislation is one that global governments have faced every time a transformative new technology has entered the mainstream.
The arrival, development and widespread adoption of the internet in the early 90s, for example, brought a bought of legislation aimed at enabling its spread such as laws to prohibit states taxing internet service. According to Harold Feld, a lawyer at the non-profit policy group Public Knowledge, early efforts to establish a legal framework to allow the technology to flourish just as in the case of the World Wide Web should be coupled with a willingness to allow the private sector to step in once it has gained traction.
However, that isn’t to say that there aren’t a number of challenges and unexpected consequences that can come from governments’ attempt to influence the direction of a new technology. Furthermore, there’s also a question that remains unanswered as to which government agencies should be involved in encouraging its adoption.
At present, many blockchain enthusiasts say blockchain technology will work best not as a new system within private enterprise, but in its pure form — an open-source, publicly accessible platform powered by a global network of users.
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