How Should We Regulate Blockchain? It Depends on Which Country You Ask
While blockchain has earned international notoriety for being the mechanism underpinning major cryptocurrencies such as Bitcoin and Ethereum, blockchain technology has immense positive potential: to decentralize and streamline financial transactions on a global scale. Unfortunately, regulatory agencies are still catching up to an ever-changing system, and many are in a state of disagreement about where blockchain fits into the future of the international commercial ecosystem.
Here’s a breakdown of how major global actors are approaching the regulation of blockchain:
The EU has taken a firm stance on data privacy, implementing stringent regulations that have notable implications for blockchain. The General Data Protection Regulation (GDPR), which took effect on May 25, seeks to harmonize data privacy efforts across the union, mandating, in particular, that EU citizens have a “right to be forgotten” online.
For many blockchain companies, this right may contradict the immutability and decentralization that the technology provides its users. The new GDPR standards rest upon the moral foundation that EU citizens should have the fundamental right to control their data. The onus, therefore, will fall on blockchain companies to ensure that the EU threshold for data ownership is met sufficiently.
East Asian countries, by contrast, have until recently taken a “business first, regulation later” approach, in which government agencies have allowed blockchain companies to operate without restrictions. But as cryptocurrencies exploded last year, East Asian nations began to subject blockchain to more significant regulatory scrutiny.
While China was once considered to be an international refuge for cryptocurrencies, this changed abruptly in 2017 when the People’s Bank of China banned initial coin offerings (ICOs) in the country, sending a clear signal that cryptocurrency exchanges in their present form would not be tolerated. South Korea followed suit, stating that while blockchain technology was generally encouraged within its borders, domestic ICOs were banned for the foreseeable future.
South Korea’s blockchain community has flourished in recent years. While the government views blockchain technology favorably, it has yet to define its stance on the legal and regulatory aspects of funding and trading cryptocurrencies—leaving the South Korean market uncertain. In addition, domestic ICOs have been banned for the foreseeable future.
Japan was one of the first countries in the world to recognize Bitcoin as a currency and to issue cryptocurrency exchange licenses to businesses seeking formal classifications under the law. At the same time, Japanese regulatory bodies have restricted their assessment of cryptocurrencies to Bitcoin solely, and are not ready to embrace other blockchain-powered businesses as of now. Only time will tell how this plays out.
U.S. government agencies, on the other hand, have taken a “regulation first, business later” approach, in which overwhelming skepticism has prompted regulators to restrict the potential mainstream applications of blockchain programs utilizing cryptocurrency. U.S. regulatory agencies have had some of the most controversial regulatory discussions about the future of the space, especially with regard to security-related topics. The U.S. Securities and Exchange Commission has mandated that cryptocurrencies will be considered “assets” under governmental purview, deterring many major international crypto-companies from wanting to operate in America.
The current state of regulation in the cryptocurrency and blockchain space has attracted a melting pot of perspectives that have left many perplexed as to which governance structure to follow. With an uncertain road ahead, a unified regulatory framework for blockchain and cryptocurrency will be crucial to utilizing these exciting technologies to their full potential.
This has already begun. In March, members of the G20 convened to discuss the future of cryptocurrencies on the international stage. While no consensus was reached, members acknowledged the unique value proposition of the industry, and pledged to publish a formal proposal by July. This is anticipated to be one of the first globally recognized resolutions to date, and will likely set the standard for government and regulatory scrutiny for years to come.
In the pursuit of advancement in our commercial ecosystem, blockchain is the next frontier. By providing immutability and decentralization to traditional exchanges, we can ensure that security will never again come at the expense of efficiency, and vice-versa.
At present, it may seem as if there is more friction than unity between regulatory bodies and industry experts about how the space should develop. However, in the very near future, this is all expected to change, as blockchain becomes internationally recognized as an essential technology for companies seeking to connect the dots in an increasingly globalized world.
Zhuling Chen is the co-founder of aelf.