The Financial Conduct Authority (FCA), US Securities and Exchange Commission (SEC) and others are working to provide regulatory guidance frameworks and structures in the ever-changing landscape of cryptocurrencies and blockchain technology.
The views on these activities run the gamut from the Establishment (‘The sooner we get regulation, the sooner things will really take off’) to the blockchain purists (‘Those silly little bureaucrats. Don’t they understand that you can’t control crypto?’).
Government regulation of banking products and services built on top of an Oracle database is understood. Governments do not regulate the Oracle database technology. Similarly, regulation of bitcoin or other services built on top of a blockchain make sense, but regulating blockchain technology is neither necessary nor appropriate.
If we look at the parallels in how regulation of the internet has evolved, there are lessons to be learned.
Regulations for the internet are specific to the endpoints – the on-ramps and the off-ramps where data joins and leaves the internet. There is very little regulation governing the myriad of independent connections that make up a global internet. And the reason is indeed that the internet is global. Many public blockchains are also global and as such their points of regulation are their on-ramps and off-ramps. The most important aspect of these access points from a regulator’s perspective is also an antithesis to most purists – the most important aspect is a known identity.
The discussion around regulation is difficult because there is not a common set of terminology – a lexicon. Many people still confuse bitcoin and blockchain as being the same thing. Even people within the crypto and blockchain community cannot agree on the definition of coins vs tokens vs securities.
The boom days of 2017 where innovators (and scammers) made millions from initial coin offerings (ICOs) have come and gone. The latest SEC guidance on what defines a token such that it is exempt from securities regulation is coherent and complete. And it completely eliminates most of the advantages of using a token to raise capital. Under the SEC guidance tokens can’t be sold or traded on an exchange for more than there were purchased taking away the speculator’s possible gains. They cannot be used to fund the development of a platform, only used for the operation of a platform after it has been built.
All of these machinations and all of this angst in hope and fear about regulation makes others in the crypto community sit back and bray with laughter. Blockchain is more than just decentralised, distributed and immutable – it is unstoppable. Attempts to regulate or control blockchain or cryptocurrencies are a fools’ errand and a hiding to nothing. Attempts to regulate by governments are almost as feeble and pointless as attempts by corporates to patent their own precious unique blockchain technology.
According to the purists, blockchain and cryptocurrency were born in the eye of a storm to provide true peer-to-peer engagement outside the confines of governments, capitalist enterprises and the wealthy few who pull the strings for the rest of the world. Blockchain lives by concepts of openness, transparency, collaboration and trust. In this utopian vision, regulation is not only unnecessary, but it is also irrelevant.
While regulators around the world attempt to get to grips with defining blockchain, cryptocurrencies and services which may run on top of blockchain, the rest of the community marches forward, working together and building the infrastructure, making the partnerships, establishing the networks, defining the governances and educating the world on what new things are possible with blockchain technology, ideology – and yes – even regulation.
By Troy Norcross, co-founder, Blockchain Rookies / @troy_norcross on Twitter and www.blockchainrookies.com