Regulatory Issues and the Blockchain
Governments around the globe have been sluggish to create common ground as to where blockchain fits in the regulatory space.
As with any new technology, it usually isn't until the influence is clear as to the impact it will have, will legislators make a decision on its rules in society.
Here is a list of a few governments and the path being taken regarding blockchain in their jurisdiction.
The United Arab Emirates (UAE)
The UAE aims to become the world's first blockchain-powered government.
April 2018 the UAE Government launched the Emirates Blockchain Strategy 2021.
This strategy seeks to capitalize on blockchain technology to transform 50 per cent of government transactions into the Blockchain platform by 2021.
The Dubai International Financial Center (DIFC) Court is teaming up with the government-backed Smart Dubai initiative to form a task force that will focus on developing a blockchain-based legal platform.
The Smart Dubai Office’s director general, Dr Aisha Bint Butti Bin Bishr, explained that Dubai’s blockchain strategy “seeks to run 100 percent of applicable government transactions on blockchain by 2020.” He added: “An invention of this calibre and potential requires an equally disruptive set of rules and an empowered institution to uphold them. This is where our partnership with DIFC Courts comes in, allowing us to work together and create the world’s first disruptive court, helping to truly unlock the power of blockchain technology.”
Switzerland has sought to accommodate the blockchain sector within its existing financial laws.
The Federal Council emphasized that it wants to create the best possible framework conditions so that Switzerland can establish itself and evolve as a leading, innovative and sustainable location for FinTech and DLT companies. Moreover, it wants to consistently combat abuses and ensure the integrity and good reputation of Switzerland as a financial center and business location.
India's regulatory approach to blockchain has been primarily focused on cyrptocurrencies.
The Indian government has been rumored to consider a ban on cryptocurrency, and has Indian blockchain firms worried.
Studies are ongoing, but an Indian delegation recently studied public blockchain activity in the Swiss city of Zug, and is considering adopting a similar framework.
Japan's focus has been outspoken about cryptocurrencies as well.
Use of cryptocurrencies can be & has been a form of tax evasion and illigal activity.
The Financial Services Agency (FSA), a government Agency in Tokyo Japan made the statement:
“We think the balance between customer protection and innovation is important. We continue to prioritize customer protection and other regulations where appropriate, while making sure that they will not be too much for the industry to grow further.“
Some have suggested that Japan has become one of the largest cryptocurrency markets in the world.
With that, bears some responsibility to find the right standard.
Countries like Lithuania, Estonia, Ukraine, and Belarus have been swift to embrace Blockchain technology and their association with cryptocurrencies and ICOs.
Belarus for example has been given attention, as a push to promtote ICOs and blockchain businesses as a way to attract investment & to boost their economy.
Belarusian Hi-Tech Park released new regulations on blockchain and crypto operations compiled in cooperation with the National Bank, state agencies and international experts.
Martin Hess, Partner, Wenger & Vieli, said “Belarus has drafted a stand-alone, comprehensive regulation for digital assets. Cryptocurrency regulation is the future, because only regulation provides legal certainty. The distributed consensus provided by algorithms is not sufficient. The Belarus approach has the benefit of speed and simplicity, because it does not require an understanding of the whole Belarusian legislation, court and legal practice in order to start a business. The Belarus approach is different compared to other countries. It remains to be seen how the stand alone Belarus regulations will be interpreted and applied. The Belarus regulations will also be assessed in comparison to the relevant legislation for digital assets in other countries. Today, it’s important to ensure that the Regulations, their application and interpretation as well as their amendments and developments are equivalent to the legislation of other important jurisdictions such as US, China, European Union, Japan, Korea, Singapore and Switzerland.”
United States of America
The USA has been lagging in blockchain & cryptocurrency regulation.
There seems to be conflicting communication when it comes to cryptocurrency regulation, for example.
Cryptocurrencies are regulated as both currency and as a security under U.S. law.
The U.S. Internal Revenue Service (IRS) demands that cryptocurrencies traders must disclose their identity and cryptocurrency transactions should be taxed like property transactions.
The U.S. Commodity Futures Trading Commission considers cryptocurrencies to be commodities and under their jurisdiction. They noted that “the lack of industry standards to date is a result of the fact that blockchain technology is still emerging and their implementation will be incremental”
Rep. Patrick McHenry, who represents North Carolina’s 10th Congressional District made this statement:
“The world that Satoshi Nakamoto — author of the Bitcoin white paper — envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation, and governments cannot stop this innovation, and those who have tried have already failed. So the question then becomes, what are American policymakers going to do to meet the challenges and the opportunities of this new world of innovation?”
On July 9, 2019 the U.S. Senate Commerce, Science and Transportation Committee approves the “Blockchain Promotion Act”.
Democratic Sen. Ed Markey of Massachusetts who co-sponsored the Blockchain Promotion Act stated:
“At its core, blockchain is a tool for exchanging data in a secure and accountable fashion, and it has already been deployed to expand access to renewable energy, enhance health care delivery systems, and improve supply chain efficiency. This legislation will help further understand applications for this technology and explore opportunities for its use within the federal government. This is a commonsense step that will help position the United States and for success.”
Republican Sen. Todd Young of Indiana who also co-sponsored the Blockchain Promotion Act stated:
“If America leads in its development, we can ensure that it’s benefits will be shared far and wide. Blockchain has the potential to not only provide financial and economic benefits at home, but humanitarian and social support in developing countries will benefit from American leadership.”
The bill has mandated a formation of a group called the "Blockchain Working Group".
The working group is required to submit a report to Congress within one year of the Blockchain Promotion Act’s enactment.
Congresswoman Doris Matsui (D-CA) stated:
“Opportunities to deploy blockchain technology range from greatly increased transparency, efficiencies and security in supply chains to more-opportunistically managing next-generation broadband networks,” said Congresswoman Matsui. “This bipartisan, bicameral bill will bring a broad group of stakeholders together to develop a common definition of blockchain, and, perhaps even more importantly, recommend opportunities to leverage the technology to promote new innovations. I am pleased to work with Congressman Brett Guthrie and Senator Ed Markey and Senator Todd Young on this effort and look forward to ensuring our efforts maintain the pace of rapidly advancing technologies.”
Subsequent hearings on blockchain bills are not expected until the fall. But I expect whatever the United States establishes as a baseline in regards to blockchain, most of the world will adopt as well.