Innovators and regulators work together, blockchain will flourish

There is often tension between regulation and innovation. The universal narrative shows that these two important aspects of our society are contradictory. In fact, only when the two become partners can we change and improve our world.

In the blockchain industry, nothing is more real.

In the past few months, we have seen that reactionary regulators all over the world try to formulate new rules and guidelines in silos without the key stakeholders who know the technology best (the innovators themselves). Fully invest.

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We saw this on the US Financial Crime Enforcement Network (FinCEN) at the end of 2020 Introduce rule proposal This will greatly affect the pattern of digital currencies. Initially, they only allowed two weeks of comments during the year-end holidays. finally, After a lot of feedback From FinCEN stakeholders expanded That period. From everyone’s perspective, it is now in a meaningful dialogue with the industry before making any further rules.However, since then, the draft guidance of the Financial Action Working Group has taken the place of FinCEN, with a view to carried out The “old way” that does not seek input from the private sector.

We saw this again at the Central Bank of Nigeria (CBN) in February Issue circular This makes them confused about how they view digital currencies. It suspends the operations of many promising financial technology companies that are uncertain about how to use blockchain. However, after stakeholders inside and outside the industry (including other regulators in Nigeria) have expressed concerns, CBN is now ready to cooperate with the blockchain industry. They will conduct research to find ways to formulate regulations to balance the issues that they and others may worry about, while still allowing the value of blockchain to benefit the region.

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Recently, Turkey Announcing stricter cryptocurrency rules In April, after a strong reaction from the industry and the country’s growing user base, it only quickly clarified a looser approach.

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Innovation empowers regulators

At first glance, innovators and regulators seem like weird guys. While protecting (rather than suppressing) economic opportunities and financial inclusion, regulators have a huge responsibility to protect consumers and stop financial crimes. Perhaps contrary to popular belief, these are values ​​shared by blockchain innovators and regulators.

The origin of this technology in many countries and many entrepreneurs and innovators is to provide consumers with a higher level of access and protection. Blockchain can further achieve these goals by providing low-cost, efficient payment functions and providing more consumer protection tools for regulators.

First, the immutable public ledger has become a new transparent and responsible tool to deter and catch financial criminals. For example, forensic analysis companies such as Elliptic have established tools that can identify patterns that indicate illegal activity based on public ledger information. Unlike traditional banking systems, public ledgers allow investigators to view the flow of funds and identify suspicious activity before identifying criminal activity (or as a method of identifying criminal activity).

Second, the blockchain network can have built-in compliance functions at the protocol level. For example, on the Stellar network (an open source public blockchain), digital asset issuers can control who owns their assets. Recognizing that the ability to recover value from past transactions (similar to “rebates” in traditional finance) is required when fraud, theft, or regulatory actions occur, the developers of the Stellar network are studying the functionality to enable this feature. This work emphasizes that decentralized functions can be utilized, while compelling functions can be provided from a centralized network to promote compliance.

Finally, the entire corporate ecosystem is creating compliance tools to better assess and analyze risks. Therefore, not only do companies have the tools they need to comply with existing regulations, but innovators are always ready to adjust these tools as needed. Today, blockchain technology can and has been used in a compliant manner. It uses the traditional know-your-customer and anti-money laundering practices used by regulated financial institutions and the enhanced transaction tracking capabilities provided by public ledgers. These technological developments have opened the door to more effective risk assessments and lowered barriers to financial inclusion. This proves how the combination of regulation and innovation can make the world a better place.

Dialogue is the answer

Recent events in the regulatory field have reinforced the importance of open, collaborative dialogue between stakeholders (public and private) to determine the best way to regulate blockchain and digital currencies. Attempting to create a regulatory framework without disclosing it, or responding bluntly to perceived risks without considering potential benefits, is not an effective way to innovate.

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In order to do this, we need to work together. Blockchain innovators need to sit down to help regulators understand what this technology is (and not). We hope to work with regulators to develop guidelines on this technology to address their concerns while allowing innovation to expand the key exploration of financial markets and economic opportunities. If completed in partnership, creating the correct policy and regulatory framework for blockchain technology can ultimately eliminate misunderstandings about the contradiction between regulation and innovation. We look forward to the role we can play in demonstrating the value of this partnership.

The views, thoughts and opinions expressed in this article are only the personal views of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.