2017: Regulators officially enter the blockchain field

Baozou Comment : From the emergence of blockchain to now, we have seen not only the emergence and demise of various applications and enterprises, but also the exploration and research of government agencies in various countries. Whether individuals, enterprises or governments, they are gradually growing with the development of blockchain technology, and their understanding of blockchain is becoming clearer and more comprehensive. Therefore, judging from the current research and policies of government agencies in various countries, regulatory agencies in various countries may officially intervene in the blockchain field in 2017; this may not be a bad thing for the development of blockchain.

Translation: Annie Xu

Distributed ledger or blockchain technology research and development projects have only been around for a short time and have mostly not been taken seriously, including by regulators around the world.

2016 is clearly different.

The Securities and Exchange Commission (SEC) organized public seminars on blockchain, and J. Christopher Giancarlo, a member of the Commodity Futures Trading Commission (CFTC), gave several blockchain-themed speeches. The U.S. Department of Health and Human Services (HHS) also collected relevant materials and solicited ideas for blockchain applications in the healthcare field.

Looking at Europe, the Bank of England has launched an Internet finance accelerator to explore how central banks can apply blockchain, and the Financial Stability Board (FSB) has also revealed its work on blockchain technology.

In addition, in May, the UK launched a regulatory sandbox to allow Internet financial companies to promote new businesses to specific customer groups and conduct blockchain application tests under a relaxed regulatory environment.

The Hong Kong Monetary Authority and others have followed suit.

Policymakers and the public and private sectors have all collaborated to varying degrees. The US House of Representatives has also proposed a proposal to establish a sandbox mechanism, but it has not yet been formally passed.

Estonia has developed an e-citizen system based on blockchain technology. Georgia, Ghana and Sweden have implemented blockchain land title registration. Singapore has developed blockchain applications to prevent letter of credit fraud.

Until now, regulators have taken a sideline approach; however, this will change in 2017 due to a number of interrelated factors.

Development trend expectations

Some regulators have quietly signaled that they will be more active in conducting research on distributed ledger technology.

The U.S. Federal Reserve recently released a technology research report, which examined whether laws and regulations should be amended to promote technological development.

In early December, the Office of the Comptroller of the Currency under the U.S. Treasury Department announced that it would issue government licenses to Internet financial companies and solicit public opinions.

South Korea's Financial Services Commission and Switzerland's Federal Department of Finance (FDF) have made it clear that new regulations will be introduced in 2017.

In fact, regulation is not necessarily a bad thing for the blockchain industry. Within the government licensing framework or the so-called regulatory "safe harbor", companies can operate with greater confidence.

Moreover, some regulatory policies are conducive to the development of blockchain. FDF has made it clear that it will lower the threshold for the introduction of Internet financial companies and has made clear its position on digital assets.

This is obviously positive, at least for the Swiss blockchain industry.

Beyond Cryptocurrency

The practical application areas of blockchain have gradually broken through digital currency.

As blockchain slowly transitions from the proof-of-concept stage to actual application development, it will begin to affect more people and industries, which means there are potential risks in their development process.

Regulators have almost zero tolerance for mistakes, especially in some developing areas; whether or not they are regulated, they are considered to be within their jurisdiction.

Many regulators want regulated markets to be open and transparent, so they may choose to intervene if errors occur in non-regulated areas that are considered opaque.

If distributed ledger applications become a mainstream trend in 2017, regulators may begin to develop and implement feasible policies and regulations.

And the technology is becoming more and more understood across industries around the world.

Of course, this does not mean that blockchain will not be able to bear the burden. Instead, as the technology becomes more popular, the security and privacy of blockchain applications will become increasingly important.

And once these concerns seep into the real world, it will be impossible for regulators to sit idly by.

The Trump factor

The potential incentives for regulatory involvement in the United States in 2017 are unique; Trump’s election meant a major shake-up across government departments.

For example, SEC Chairman Mary Jo White announced that she would resign in January 2017. CFTC Chairman Timothy Massad may also leave.

At the same time, important government agencies such as the Federal Reserve and the Office of the Comptroller of the Currency will also replace personnel.

It seems that the new government may be more tolerant of Wall Street, and at least the regulation of the blockchain field will tend to be more "do no harm."

Moreover, officials of the new government also hope to achieve some results, and the blockchain field, which currently has a regulatory vacuum, is a perfect place for them to make a difference.

Market Impact Assessment

Finally, if blockchain is really "disillusioned" in 2017 as Gartner said, it will only be if the startups that made the promise fail.

The failure of start-ups may be due to some factors in some analysis reports at the beginning of the year. For example, regulators who support traditional financial institutions may use this failure as a reason to prevent the application of distributed ledger technology in the banking industry.

To sum up, regulators will definitely intervene in the blockchain field in 2017.

I would like to emphasize that regulatory intervention is not necessarily a bad thing, nor will it necessarily restrict technological development.

After all, regulators have been understanding and exploring the potential, flaws, and applicability of blockchain technology within existing legal and regulatory frameworks.

In many cases, new regulatory policies will bring a stable legal environment, eliminate costs and complexity, and benefit business development.

Regulatory intervention in 2017 is likely to take the form of “guidelines”, statements, speeches, etc., which will explain how specific use cases relate to the existing regulatory framework.

In some industries, such as financial services, distributed ledger technology would not have had a chance to develop and achieve fruition without the involvement of regulators from the beginning.

The certainty brought by regulatory intervention will benefit blockchain companies.