Blockchain is a distributed ledger technology based on an immutable database shared across a network. We talk about its potential every day, and the applications of this technology are limitless: nearly all the activities based on digital transactions can be managed with Blockchain. And that’s why Blockchain regulatory compliance is generating a lot of discussion.
For many industries, Blockchain means lower costs, quicker processes, safer ID checks, but also regulatory challenges, in some jurisdiction more than others, of course, but still something that involves everyone.
We discussed, for example, of the Blockchain regulatory challenges when it comes to GDPR, and although it seems like EU regulatory authorities are not making any effort towards this technology, they totally support it and encourage its development.
However, there are some hindrances that no regulator can ignore. Let’s find them out to have an overview of the relationship between Blockchain and regulations.
What is worrying regulators?
Blockchain is distributed and decentralised, which means its nodes can be located everywhere in the world, basically without a specific jurisdiction, which makes compliance a hot subject to discuss.
Due to its nature, a public blockchain would have no central authority, therefore no one could be designed as the person (or organisation) in charge of the network and the data stored in the database.
The attitude of regulators, unfortunately, is not helping. The main problems of regulating Blockchain, in fact, come from the different approach adopted by the various jurisdictions: Malta and Estonia are very open to this new technology, while China looks at it with suspicion, and Switzerland is taking baby-steps towards a full regulation.
Based on this consideration, we can highlight three trends in terms of Blockchain regulation:
- The most enthusiastic jurisdictions about Blockchain often lack effective regulations;
- Some countries, like the USA, tend to patch the legal vacuums, rather than legislate on the matter;
- Other countries fumble around looking for some precedents they can adapt to their jurisdiction.
Here in Europe, the only country to take a big step towards full regulation is Liechtenstein, with its Blockchain Act, a law that provides a framework to guide the government in the proclamation of specific laws.
New Blockchain regulatory challenges will arise, because the more this technology is used, the more it needs to be perfectioned, refined, and found to be able to revolutionise more sectors.
There is a teetering balance to maintain: if regulators put strict boundaries, they risk to stop development, if they adopt a laisser-faire approach, they create uncertainty, which pushes investors away.
This does not mean that all countries need Blockchain-tailored laws: Blockchain is similar to other technologies that do the same thing, such as online and internal databases, which have little, but effective regulation.
The best approach is probably regulating urgent matters first.
The most urgent thing to do is crafting regulations for crypto and finance, especially because it is in everyone’s interest preventing illicit uses of Blockchain, however, it is important that such regulations take into account the fact that Blockchain can be applied in multiple contexts, and its popularity won’t stop growing, so the all the Blockchain regulatory challenges must be won in a few years.
Will regulators make it? We can only wait.