Why You Shouldn’t Fear the Blockchain Regulators
Kevin Werbach is the author of "Blockchain and New Architecture of Trust," a professor of law and business ethics at the Wharton School of the University of Pennsylvania and adopted this article.
In 2015, New York became one of the jurisdictions that adopted the world's first regulatory regime for cryptocurrencies. The Department of Financial Services required a virtual currency business to obtain a "BitLicense" to operate a customer or provide services within the state.
"We want to promote and support companies that use new and exciting technologies to build better financial institutions," said New York Superintendent of Banking Services Ben Lawsky at the time of the announcement of the rules. He continued:
"Regulators can not always balance exactly … But we have to start somewhere."
Perhaps. But Lawsky picked something wrong somewhere. And he began fasting in 2015 to formulate rules that could become a small, flexible cryptocurrency community.
Bitcoin entrepreneurs and engineers argued that the risk of excessive budgetary constraints and compliance costs would calm startup activity. More than 4,000 comments were received in the draft, most of which were critical.
And when the regulations came into effect, a significant number of Bitcoin-related ventures left New York, including Exchange, such as Kraken, Shapeshift, Bitfinex and Poloniex. "The Great Bitcoin Exodus has completely changed the Bitcoin ecosystem in New York," declared the New York Business Journal.
Three years after the Great Bitcoin Exodus came out, the password-originated central office could not rejoin the New York start scene. But there are other companies.
R3, the finance industry, is a General Manager Consortium with over $ 100 million in headquarters in New York. As expected, there are many startups with financial-focused block chains such as Digital Asset Holdings, Symbiont and Axoni. Pillars of Wall Street, such as the parent company of Goldman Sachs, JPMorgan, and the New York Stock Exchange (NYM stock exchange) are moving into action.
And activities are not limited to financial services. Consensys, a venture development studio based on Ethereum technology, has more than 100 to 400 employees at its headquarters in Brooklyn in 2017 and has dozens of innovative projects around the world. The blockstack is a celebrity who hopes to build a "new Internet for distributed applications" based on blockchain in New York. New York bitcoin and ethereum meetup groups are over 5,000 each.
BitLicense has not stopped decryption activities in New York for all defects. Nor did it create the regulatory innovation model that the producer intended. Subsequent jurisdictions that developed the cryptocurrency regulatory framework have clearly distinguished the overly restrictive elements and policies of BitLicense.
The coordinator's dilemma
Regulators inevitably face a dilemma in a fast-moving region.
If they move too fast and apply new technology to existing rules without good reason, there is a risk of eliminating innovation or pushing them into other jurisdictions. If they wait too long, the public will be harmed, and the cost of imposing demands on significant industries now will be greater.
Measures should be taken if the regulatory authorities see clear evidence of the hazards that have been put in place to prevent them. Unclear requirements such as BitLicense cause uncertainty, but there is no definitive regulatory statement. Smart regulators can encourage innovation even if protected from human rights violations.
In 1994, the Federal Communications Commission issued a petition to ban "the provision of telecommunications services via the Internet" by non-tariffed and unauthorized entities, Faced with a similar challenge facing Bitcoin in New York, VOIP (VoIP) start-ups did not apply to pricing, universal service contribution, consumer protection, emergency services and other requirements faced by existing telephone companies.
The FCC abandoned its cold innovations and mission and drove the process of getting VOIP services to mature. Most Americans who use landline phones in their homes today use VOIP technology without their knowledge. At the same time, real-time voice and video messaging for services such as Skype, Facetime and WhatsApp were innovative and adoptive, and looked very different from traditional phone services.
If the regulator can follow the FCC model, it will help realize all the potential of the Crypto currency.
Destructive start-ups are not necessarily in terms of deregulation. For example, when Microsoft used monopoly power in the late 1990s to threaten Web-based services, the US government suppressed it through antitrust enforcement.
The Internet can be very different if you do not have an independent marketplace for web browsers, or if you implement a plan to impose a low cost on all e-commerce transactions by Microsoft and leverage hammer lock control for desktops.
In addition, the fact that the government is informing the police about malicious practices has helped to increase confidence in new and unfamiliar words in virtual transactions such as PayPal migration, Amazon sales or Netflix signups. Internet advocates began calling for government intervention to enforce network neutrality rules, preventing broadband access providers from discriminating against non-affiliated services and privacy.
Sign of maturity
Certainly, there are important questions about where to draw line with regard to surveillance and acceptable use of technology.
Criminals and terrorists try to exploit the block chain as much as possible using different technologies whenever possible. The government will overreact and will propose rules with incidental damage to legitimate operations.
The point is that this is not a new challenge. Regulatory requests do not represent the end of decryption innovation. They signal the ongoing maturity of the block body.
Unlike his / her or anyone else they might think, Satoshi Nakamoto did not invent a technology without trust. Cryptocurrencies and other block-chain-based systems eliminate costly trust relationships but make the transaction itself more reliable. Billions of dollars in total cryptocurrency market capitalization, not just the collective beliefs of independent network participants, can be the greatest confidence in self-development in history.
The law and its sibling regulations and controls are often viewed as a coercive enforcement mechanism. However, the purpose of the enforcement is not punishment. It is to open the freedom of action by setting the rules of the game.
The referee provides a red card to the handball in the soccer game to protect the integrity of the game without interrupting the innovative gameplay. Fraud, theft, criminal behavior, unjustified regulatory financing, governance failure, corruption and tampering are major obstacles to the growing block-chain and decryption market.
If you want to change the world and make it sustainable, laws and regulations are your friends.
Image of the cage via Shutterstock
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