Addison Cameron-Huff is an independent technology
lawyer who focusses on the bitcoin and Internet startup space. His clients
include prominent blockchain businesspeople and developers.
In this opinion piece, Cameron-Huff builds
on thoughts voiced in a recent panel discussion at CIGI's
blockchain workshop held in Toronto.
Despite the levels of
hype, "blockchain" is, at its core, a software concept like
relational databases or BitTorrent.
Proponents argue it is
set to change real estate, accounting, securities and a gamut of other
industries. But, how should this technology be regulated? A better
question might be, 'Should it be?' And if so, 'How?'
Lawmakers generally try to create rules that are technology
neutral. Indeed, one of the most pressing criticisms of New York's
BitLicense regulation was that it deviated from this approach.
Why this has been
successful is because regulators know that software developers move faster than
they do.
When rules are created for specific technologies, there’s a danger that
rapid innovation will result in hollow laws on the books (eg semiconductor topography
protection). The term "blockchain" has only been in use
for a few years and no one can confidently whether this specific iteration of
the technology will win out (although some people are working on
blockchain prediction
markets to help with that).
Still, many believe blockchain technology holds enormous promise, even if
there are very few applications in the field right now. There’s no evidence of
any problems and lots of evidence of innovation. There’s a growing consensus in
the developed world that before government rules are created, there should be a
critical analysis of the benefits and costs.
This type of analysis is essential to avoid smothering desirable changes in the name of avoiding
potential (or actual) costs to society. Blockchain technology may have costs
(in specific implementations) but there are enormous potential gains.
Exercise in futility
Even if a convincing
case were made to regulate blockchain, how would this be done? By regulating
what sort of code people can create?
Attempts in the US to regulate cryptography in the 1990s show the futility and costs of this approach. Focusing on the ends rather
than the means would be a more promising regulatory avenue. But, the “ends” of
blockchain are so varied that this won't be a useful exercise.
Time spent creating
regulations for blockchain technologies means time not spent honing or creating
regulations for larger societal issues.
Bitcoin and Ethereum, the ecosystem's two largest public blockchains, have
a combined global market cap of under $10bn. By comparison, $10tn worth of gold is traded each quarter.
Regulators have far
bigger fish to fry – time spent dealing with blockchain is time not spent
dealing with more impactful issues.
Time will come
Still, that's not to
say regulation won't ever be necessary.
Blockchain technologies may in the future cause major changes for highly regulated
industries like securities trading or real estate. One way that this
technological change could trigger a need for regulatory change is if the new
technologies reduce the number of middlemen (layers) in the industry.
If blockchain businesses and applications can merge the layers of a system then there may be
a need to consolidate or rethink the regulatory scheme to fit the new reality.
For example, if one
system can handle land title registration, viewing and transfer, then perhaps
the regulations can be consolidated to regulate the new actor that takes on the
roles of several old ones.
Blockchain
technologies will be built into products and services that decentralize our
world.
There will be some
changes to existing services, jobs and industries but so far there’s no
evidence that these changes are clear enough, urgent enough or large enough to
justify any kind of blanket regulation of blockchain technology.
Man with toaster image via
Shutterstock
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