Blockchain technology has several applications and provides various benefits; however, this sector often suffers from an “excess” of regulation, which tends to be developed by people outside the sector, especially when it comes to cryptocurrencies or banking solutions. Importantly, regulation and innovation must go “together” so that big changes can be made and that the benefits of this technology can reach the entire population globally.
New rules without the participation of the sector
We have recently seen “regulators” in various parts of the world trying to create new rules without sufficient participation from stakeholders (e.g., experts and companies knowledgeable about blockchain technology itself); an example of this happened in the US Financial Crimes Enforcement Network (FinCEN), which made a proposal for a “set of norms or rules” that would affect the landscape of digital currencies. However, this proposal would only allow to make comments or receive feedback for two weeks (in this case, it was during the end of the year holidays), although then FinCEN extended the period for inquiries; This is a simple example of how some regulations that affect the sector require longer periods to be consulted, debated and structured, especially when it is necessary to have the point of view of experts, end-users, and companies in the sector.
Gore law example
As we saw in our previous article, in 1991, the High-Performance Computing and Communications Act (Gore Act) was created. This law established the foundations that supported the development of the Internet as we know it today. However, this law was not implemented immediately or with short periods of consultation or debate. Still, various experts were invited, entrepreneurs, visionaries, and analysts, in addition to establishing long periods of time to receive feedback and debate ideas. It is important to note that this project also had its detractors, who considered it “a danger” for the future society.
Innovation empowers regulation
Initially, it seems that regulators and innovators are entities that compete with each other; however, in what corresponds to blockchain technology, innovation and regulation “go hand in hand” since precisely the objective of blockchain technology is to create or provide transparent and decentralized systems. Regulators have a great responsibility to protect consumers and deter them from financial crime, and at the same time, they must also support economic opportunities and financial inclusion.
The objective of many countries, companies, and entrepreneurs is to provide their clients or end-users with quality products and services, in addition to higher levels of access, transparency, and protection of their assets or resources. These objectives can be achieved through blockchain technology, thus empowering regulators with “greater tools” of consumer protection.
Initiatives that promote innovation in the sector
An example of “promoting innovation” in the sector is the COPA (Cryptocurrency Open Patent Alliance) initiative, of which Mercury Cash is a member.
COPA aims to get its members to agree not to use their cryptographic technology patents against other companies, except for defensive reasons, by making their patents freely available for all to use. COPA members pool all their encryption technology patents to form a shared “patent library.” This “group patent shield” gives members access to each other’s patents to deter and defend against patent aggressors, allowing the industry to develop and innovate without the barriers that patents often present.
How the blockchain drives transparency
The blockchain functions as a public “ledger,” which becomes a transparent accountability tool, which aims to deter and detect financial criminals and allow a decentralized control of resources. Another important point of the blockchain is that it can have an integrated “compliance functionality” at the protocol level, recognizing the need to have the ability to “recover the value” of a past transaction, especially when fraud has been committed: theft or fraudulent action; we must consider a whole ecosystem of companies that create compliance tools, which better analyze and evaluate risks, so that companies have the necessary tools to comply with existing regulations, but they also have end users.
Dialogue is the answer
To develop effective standards, you have to work together. Blockchain users, businesses, and companies need to have space at the “discussion table” to help and educate regulators about what this technology really means; thus, they can give a “better shape” to the rules, address the main concerns of the sector and allow innovation to expand people’s access to this technology, which will impact a better quality of life and economic opportunities.
Another factor to take into account is the level of knowledge of the sector by regulators; for example, in the case of the Gore Act (Internet), it had the advantage of being pushed and promoted by the Atari Democrats that were young congressmen who saw in the computing of that time away to future prosperity.
What do you think about this topic? Do you think that innovation and regulation can go hand in hand with blockchain technology?
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