How to bridge the gap between authorities and industry?
Regulation of cryptocurrency remains a challenge for governments and there seems to be no easy way around this issue. Some voices seek to make all decentralized financial products (DeFi) illegal, and conversely, some are against any regulation. Regardless of the most extreme voices on both margins, a bridge between industry innovators and regulators is urgently needed if the industry hopes to increase investor confidence.
Unlike other commodities, the challenge in trying to regulate DeFi products is caused by the fundamental aspect of DeFi, decentralization. In the context of blockchain-based financial assets, decentralization refers to the transfer of control and decision-making from a centralized entity to a distributed network. Decentralized networks aim to limit the amount of trust participants must have in each other and prevent them from interfering with each other in ways that would degrade the network’s performance.
Instead, a distributed ledger containing identical data is available to every network member. Most of the network’s members will reject any member whose ledger has been altered or corrupted. Decentralization is at the heart of the nature of cryptocurrencies and DeFi assets; it offers security, freedom from censorship and privacy. Unlike fiat currencies regulated by central banks or government monetary policy, DeFi assets do not have a central authority, jurisdiction or unified policy.
Nevertheless, governments have found that the absence of a central authority makes it more complicated to implement regulatory requirements. This inherent complexity has led some nations, such as Algeria and Vietnam, to refuse to engage with DeFi products, banning the possession or use of cryptocurrency. A push to implement blanket bans has also resulted from highly publicized fraud, which has undermined investor confidence.
Nations that have refused to entertain even the idea of industry are surely only hogging themselves; there are many innovative uses for blockchain technology in the financial sphere beyond Bitcoin, and even cryptocurrencies alone present opportunities. However, some questions need to be answered in order to gain greater confidence in the market, namely how do crypto companies comply with financial reporting? Who tracks suspicious or fraudulent activities? Where can they report these activities? In most cases, legacy financial institutions have been subject to such requirements for decades.
Naturally, most countries at this point do not have all the answers on how to regulate this dynamic industry. However, one way to create knowledge and bridge the gap between the crypto/blockchain industry and regulation is to create forums for regulators to collaborate with players in the technology industry.
Examples of these forums are the Global Blockchain Forum, the EU Blockchain Observatory, the Forum and the Praegressum Coalition. The Global Blockchain Forum is an international initiative from the Chamber of Digital Commerce. The group collaborates with the world’s leading blockchain policy experts to develop industry best practices and help shape global regulatory interoperability. Their mission is to promote the acceptance and use of digital assets and blockchain-based technologies. Through education, advocacy and close collaboration with policy makers, regulatory agencies and industry, they hope to develop an environment that promotes innovation, jobs and investment.
The EU Blockchain Observatory and Forum monitor blockchain initiatives in Europe, produce a comprehensive source of blockchain knowledge to create an attractive and transparent forum for sharing information and opinions about the technology and provide adequate recommendations on the role the EU can play in promoting and regulating blockchain. This initiative was created as a pilot project in the European Parliament and has recently gained a lot of traction.
Finally, a nascent project is called The Praegressum coalition. They advocate local application of blockchain technology regulation, discussing the possibility of a regulatory framework flexible enough to meet the needs of any locality while still working for American realities.
It is important to note that these forums do not seek to maintain an ongoing lack of regulation, as some ill-informed politicians seem to believe, but seek an adequate regulatory framework. Like any government-directed industry, lack of regulatory clarity from the government ultimately causes more difficulties for serious business.
For example, guaranteeing consumer and investor protection against some of the risks associated with investing in crypto-assets and other blockchain-based financial products, as well as helping customers avoid fraudulent schemes, is something that both industry and government seem to agree on. on, and will represent the basis for a sensible regulatory regime for the wider public. These rules will not harm the crucial aspects of DeFi, but will increase confidence in the industry and increase the adoption of these technologies.
