Blockchain policy expert: Making regulators understand blockchain is the top priority!

Rage Comment : The 2016 Consensus Conference is a major event that can influence the development direction of the blockchain industry. This year's second conference focused on some unresolved issues in the field, including the relationship between government regulation and blockchain development, which everyone is concerned about. Representatives of the Federal Reserve Bank of St. Louis, former members of the White House Communications Team, and major start-ups participated in the discussion. Everyone agreed that the key to the in-depth development of blockchain technology is friendly cooperation with regulators, which is also what companies such as BitFury are working hard on.

Translation: Annie_Xu

If digital currency wants to become a mainstream currency, regulators must remove everyone's doubts. But before that, regulators must first understand the technology.

The second day of the Consensus 2016 conference in New York featured a number of panels, with representatives from the Federal Reserve Bank of St. Louis, former members of the White House communications team, and various startups taking turns to make predictions about the future regulatory environment for digital currencies (such as Bitcoin).

Among many topics, what tied the discussion group together was the problem between regulators and digital currencies, and the solution to this problem lies in whether industry organizations are willing to educate regulators about blockchain.

Making blockchain accessible to regulators

Jamie Smith, former spokesman for President Barack Obama, argued on his panel that the first step toward developing a broader regulatory regime is to educate international regulators about blockchain technology.

Smith, now global chief communications officer at mining company BitFury, is working to expand the company’s blockchain services. True to her word, she is working with industry leaders and officials to develop digital currency standards, as we discussed previously.

Smith said:

“Everyone wants to be special and they want to talk about it. I don’t think we should underestimate the impact of regulators not understanding blockchain technology, and they also like to participate in something interesting.”

By regulating everyone's understanding of this technology, she believes that regulators will also accelerate their understanding of blockchain technology and will not be overly averse to formulating blockchain policies and systems.

Smith mentioned that Blockchain Alliance is a great opportunity to bring together influential people and teach them about blockchain technology.

Edge is the founder of Identity2020, a nonprofit digital identity startup and think tank that aims to help strengthen trust in distributed ledgers with regulators and policy influencers.

Edge described to the audience how White Chapel had previously managed to gather 16 representatives from “central banks,” the U.S. government executive branch, and other regulators to interview Adam Back, the founder of Hash Cash and co-founder of Blockstream.

To help them better understand blockchain, Edge said, government agencies and companies should create a sandbox environment where they can safely experiment and allow younger members to take leadership positions to explore blockchain technology.

He added:

“You end up with a young team where we want to know what Jamie said before we even want to know about blockchain.”

Chainalysis founder and CEO Jonathan Levin has his own detailed strategy — to popularize blockchain technology to any institution’s policy makers, including large conglomerates.

Instead of blindly pursuing the "young group", Levin suggested that the organization should designate someone who has some knowledge of Bitcoin or blockchain and let him become an expert to popularize blockchain knowledge.

Levin, co-author of an article on educating British government officials about blockchain technology, said:

"Only when an employee is given a specific position will he work harder to do it."

He explained that while you may not be able to get 25 or 30 people to understand and take action to implement blockchain technology, you can designate one person to be a leader in promoting blockchain technology.

Levin said:

“When they are asked to take on leadership responsibilities, they will redouble their efforts to learn blockchain knowledge.”

Overcoming banking problems

It’s not just government regulators that are hesitant to explore bitcoin and other blockchain applications. Policymakers at big banks are also cautious.

Partin Valabhaneni of international law firm Arnold & Porter co-authored the report, titled “Overcoming Obstacles to Banking Virtual Currency Businesses,” which paints a bleak picture of the banking industry’s relationship with bitcoin businesses.

Unsurprisingly, the digital currency industry has generally been unable to apply for bank accounts, and even if Bitcoin entrepreneurs can obtain bank accounts, it will take six months to a year.

Partin Valabhaneni

Valabhaneni said:

"The bank's standards set you a lot of restrictions because they think your account is too risky."

Although these comments were primarily directed at U.S. bitcoin companies, their global platforms have all encountered similar difficulties.

However, Valabhaneni said no one bank or regulator should be held responsible for the predicament and that education should be used to improve the situation.

“We can get the banks to learn; a lot of banks are putting a lot of effort into the experimentation, but they’re not willing to give these businesses bank accounts.”

Of course, the attitudes of these banks are not representative. Alan Lane, CEO of Silvergate Bank, said that the company is working with 15-20 banks and is open to digital currency companies.

“We serve enterprises, and it just so happens that bitcoin and blockchain companies are also enterprises.”

In order to avoid objections from the bank's board of directors, Lane and his team were very careful with their wording, fearing that the board would worry that cooperating with Bitcoin companies might affect the bank's credibility.

"We can only talk about blockchain technology if we are ready, and I would like to say that we are ready."

Contrary to reports, Lane said he could start working with bitcoin businesses within a month or two; the company would start by offering open house visits.

Xapo is a well-known company that has obtained a bank account, and the company's chairman Ted Rogers also provided some useful advice for startups looking to work with banks; despite the company's $40 million in venture capital, the path to bank cooperation has not been easy.

He said the company's attitude may have been problematic in the early stages of the app's development; but after going through the "five stages of grief", the team decided to have a friendly dialogue with the bank.

Entrepreneurs without venture capital backing can’t afford this kind of tortuous cost, and Rogers advises that companies shouldn’t view banks as the enemy. Rather than blindly chasing high-end corporate accounts, founders should take it slow, introduce the company’s business first, and then introduce more complex businesses.

“I think this will also be beneficial for cryptocurrency companies because there is a lot to learn.”

Central bank digital currency

David Andolfatto

If all goes well, one of the most extreme possibilities is that global central banks such as the Federal Reserve might issue their own digital currencies.

While this may seem like wishful thinking among blockchain diehards, David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, said the idea is more feasible than people think.

"We should pay attention to the current situation, most of our money is on the Internet."

Another idea on the panel was that a so-called FedCoin could compete with other digital currencies; Andolfatto hopes that if that were possible, it could lead to a more stable financial system.

Simon Johnson, professor of entrepreneurship at MIT’s Sloan School of Management, said banks outside of central banks may be able to issue money with increasing ease.

He added, “We should also think about the situation before 1914,” referring to the year the Federal Reserve was founded.

Johnson said FedCoin would not threaten the Fed’s position but would become a new tool for it.

"It's literally just another currency."