As a fifth and last post on this blog series regarding blockchain, Stein IP introduces “Regulating Blockchain: A New Challenge for Society”
As known and explained on our previous posts, Blockchain is a growing technology that promises to streamline processes, clarify transactions and avoid third parties interventions and costs. Moreover, it’s better known as the platform where Bitcoin and other cryptocurrencies are processed, which triggered governments and regulatory agencies to realize that a lot of the money involved in financial transactions worldwide was carried out using these kinds of digital currencies.
Along with this, in some cases this money was used to fund certain illegal activities. Due to this, countries all around the globe have started issuing regulations to control Blockchain technology.
Below there are some examples of regulations in different countries on Blockchain technology:
On May 25, the General Data Protection Regulation (GDPR) issued a regulation that allows users to delete personal information on a Blockchain network. This is obviously against Blockchain principles where transparency is one of its main advantages. In addition, some countries like France warn citizens about making investments using cryptocurrencies. On the other hand, Switzerland seems to be a pioneer about projects being developed on Blockchain technology. As an example, Zug (a city located in the previously mentioned country) provides tax benefits and flexible legislation to startups that build its business on Blockchain bases.
Eastern Asian is the most advanced region using Blockchain and cryptocurrencies. When this technology appeared, nations in this region established a “business first, regulations later” mindset and companies were given the freedom to operate without restriction. But as cryptocurrencies exploded last year, East Asian nations began to subject blockchain to more significant regulatory measures.
With regards to China, Chinese ministries restricted the use of Bitcoin on December 2013 and in January 2017, the People’s Bank of China banned initial coin offerings (ICOs) in the country. Japan and South Korea took similar measures but not as severe as in China. In India the use of Bitcoin is contentious.
Other countriesOn March 20, 2018, G20 countries gathered in Buenos Aires to discuss the possible regulation of cryptocurrency. Argentina, Australia, Turkey, South Africa, and the United Kingdom proclaimed that they decided not to regulate cryptocurrencies. On the other hand, Russia is drafting a bill that will allow the registration of cryptocurrency exchanges only on official government websites.
United States of America
In the US, the “regulations first, business later” approach was adopted by government agencies. The overwhelming skepticism has prompted regulators to restrict the potential mainstream applications of blockchain programs utilizing cryptocurrency. U.S. regulatory agencies have had some of the most controversial regulatory discussions about the future of this technology, especially with regard to security-related topics. The U.S. Securities and Exchange Commission has mandated that cryptocurrencies will be considered “assets” under governmental purview, deterring many major international crypto-companies from wanting to operate in America.
However, states across the US have shown interests in leveraging blockchain technology to stimulate local economies and improve various aspects of public service. For example, the state of Delaware announced in 2016 the Delaware Blockchain Initiative, a comprehensive program intended to spur adoption and development of Blockchain and smart contract technologies in both private and public sectors in the state. In 2017, the state of Illinois announced the Illinois Blockchain Initiative, which calls for a consortium of state and county agencies to “collaborate to explore innovations presented by Blockchain and distributed ledger technology”. Similar to Delaware, the state of Illinois aims to utilize blockchain and distributed ledger technologies to “transform the delivery of public and private services, redefine the relationship between government and the citizen in terms of data sharing, transparency and trust, and make a leading contribution to the State’s digital transformation.”
The Brookings Institute provides a state classification according to their levels of engagement with the blockchain technology into the following categories:
Unaware: State that have taken no actions – states for which we were not able to find any relevant information through publicly available sources (e.g., Arkansas, South Dakota), although there are substantial activities within private industries and academia in some of these states
Reactionary: States that have taken a negative stand against cryptocurrencies or flagged them as potentially risky (e.g., Indiana, Iowa, Texas).
Appreciative: States that have made initial attempts to pass bills concerning cryptocurrencies without any successes (e.g., North Dakota).
Organized: States that have succeeded in passing some legislation in this regard (e.g., Washington, New Hampshire).
Active Engagement: Seven states have gone beyond cryptocurrencies and examined the governmental use of blockchain, either as isolated applications in specific government functions, or as integration across different government functions. Vermont, for example, recognizes data stored on a blockchain as admissible in the court system.
Recognizing Innovation Potential: States that envision a broader role for blockchain in their economies. In addition to Delaware and Illinois, Arizona has introduced or passed regulations ranging from making signatures, transactions, and contracts on a blockchain legally valid to allowing residents to pay their income tax in cryptocurrencies.
It is expected to see less developed states evolving on regulations related to this technology.
The following map reflects how governments around the world regulate cryptocurrencies and blockchain technology.
Although some regulations exist, Blockchain technology seems to keep growing at a fast pace rate. It is very important that this regulations veil for people’s rights and security but allowing this new breed of business to leverage its benefits at the same time. This is certainly a challenge that starts today and remains for the upcoming generations. An interdisciplinary team of lawyers, engineers, economists, software experts and more will be necessary to achieve this objective, so it is crucial to educate people in such area.
By Pablo N. Garcia Rodriguez
- “Bitlegal | Tracking Blockchain Technology And Regulation Around The World”. Bitlegal.Io, 2018, http://bitlegal.io/.
- “Blockchain Regulations » Know The Law | Lisk Academy”. Lisk, 2018, https://lisk.io/academy/blockchain-business/the-blockchain-business/blockchain-regulations.
- “How Should Countries Regulate Blockchain? – Hacker Noon”. Hacker Noon, 2018, https://hackernoon.com/how-should-countries-regulate-blockchain-3ce0c6fe85ce.
- “Http://Fortune.Com”. Fortune, 2018, http://fortune.com/2018/06/25/blockchain-cryptocurrency-technology-regulation-bitcoin-ethereum/.
- Kevin C. Desouza, and Kiran Kabtta Somvanshi. “Blockchain And U.S. State Governments: An Initial Assessment”. https://www.brookings.edu/blog/techtank/2018/04/17/blockchain-and-u-s-state-governments-an-initial-assessment/.
ICOs are an issuance of virtual tokens for the primary investment.