A well-designed blockchain validates data and eliminates the need for a central authority, such as a bank, clearinghouse or government, to approve and process transactions. Cutting out that central authority may reduce costs and delays, but it also removes the institutions important in ensuring market stability, combating fraud and more.
There are indications that regulators will eventually step in when it comes to blockchain, but that shouldn’t be a reason to slow progress.
The risks of blockchain, and how to trust it, are part of a growing public discussion of responsible innovation and trust in technology. Engage with regulators and industry groups to help shape emerging policies and best practices.
Besides directly regulating the technology itself, laws around data use and protection can fundamentally change how your blockchain operates. It is vital to engage with regulators to help shape how the environment evolves.
Current regulations still apply — but they may apply in different ways. By and large, we expect existing regulation to extend to new business models and applications. If you remain agile, you’ll be able to adapt and remain compliant.
Mapping compliance concerns
Thus far, regulators’ main focus has been on how different aspects of the technology cut across traditional commerce models. For example, regulators have had a mixed reaction to tokens and ICOs. Some territories, such as Singapore, Switzerland and Malta, have been moving toward regulations of tokens to speed blockchain growth. But other governments, like the US, have been more agnostic, which leaves individual states attempting to legislate treatment of tokens and smart contracts in the absence of broad federal regulation. In the EU, individual countries may be willing to use blockchain technology for public initiatives, but it is unclear how any blockchain project can meet the EU-wide GDPR privacy standards. In China, the government has been quick to separate its interest in the technology from its ban of cryptocurrency and ICOs, noting the need for further regulation to help blockchain grow.
Among our survey respondents, 27% in total believe that regulatory concerns are the number one barrier to blockchain adoption. These concerns are fairly consistent among many of the territories represented, and the number of respondents who put this barrier at the top of the list range from 17% in China to 38% in Germany.
Given the current environment, companies should anticipate how regulators might respond to commercial activities migrating to a blockchain. You’ll want to keep abreast of regulatory developments and engage with lawmakers at all jurisdictional levels. Likewise, build in checkpoints that enable you to take stock of the environment and to change course if needed.
The current regulatory uncertainty doesn’t have to be a blockchain roadblock, however. Some companies have set up their pilots in more friendly geographies where they can test and adapt with fewer restrictions. Similarly, there may be an opportunity for companies in industries with little or no emerging regulation related to blockchain to make greater strides. For example, use cases in financial services may face more regulatory obstacles than those in such sectors as industrial products, retail and energy.
Finally, bear in mind that blockchain’s potential for transparency, as well as the tamperproof record it creates, could make it a powerful tool for regulators. Because just as blockchain can offer a company unparalleled oversight of its activities, it can also offer that granular view to regulators. It could also make enterprises’ compliance responsibilities easier. Blockchain could track regulatory changes, of every kind, all over the world. Its distributed nature would enable, for example, a company to keep track of regulatory requirements for its suppliers in such a way that regulators can easily follow the movements in real time.
Blockchain’s potential for transparency, as well as the tamperproof record it creates, could make it a powerful tool for regulators.