EU Parliament discusses blockchain regulation

Gabrielle Patrick is a UK and US lawyer specialising in crypto-finance and distributed ledger (DL) technology. She is also the co-founder and general counsel of Epiphyte, a company that allows instant trade settlement and the use of DLs.

In response to this, Patrick provided an investigative report on recent EU Parliament events that focused on discussing digital currencies and blockchain technology.

In an unprecedented move, the EU Parliament held a non-commercial cryptocurrency and blockchain roundtable last week. The aim was to educate members (MEPs) about the world of blockchain technology and prepare for future stages of the governance agenda.

The event was attended by representatives from the European Commission, the Bank for International Settlements, the World Bank, the United Nations, Europol, the European Securities and Markets Authority, the UK Treasury, the Bank of England, Nasdaq, as well as blockchain startups and Epiphyte. The event was promoted by the European Digital Currency and Blockchain Technology Forum, a public platform for virtual currencies and distributed ledger technologies.

One of the key points of the discussion was about the strong support for blockchain technology and not regulating the technology prematurely or excessively.

Under Chatham House rule-making, when discussing the transition from the analog world to the digital world, from stand-alone banks to online banks, the emphasis is on describing the regulatory approach rather than prescribing it.

The real discussion is not about the Bitcoin blockchain or distributed ledger technology, but about the shared ledger that allows financial services to connect to each other.

Deeper Discussion

The roundtable explored how cryptocurrencies are raising questions about the issuance of money itself and the structural instability of the financial system. Since monopolies are structurally unstable because they rely on a lack of systemic connectivity and diversity, cryptocurrencies could see the end of the 300-year era of banks’ monopoly on debt.

Epiphyte hosted a discussion on how shared ledgers can be used as a tool to improve regulatory reporting and oversight. While this aspect has been neglected in past Bitcoin/blockchain conversations, it is an area that deserves a lot of attention.

This is the first time we’ve seen a technology that allows for a single, standardized view of data that can be updated by multiple individual global agencies, or that can create different permission levels across multiple digital keys to meet regulatory needs based on different initiatives.

Legal perspective

From a legal perspective, there is also a need to explore the exact governance approach for shared ledgers.

What we are seeing now are different types of ledgers that offer a range of management options - public law, private law, algorithmic governance or programmable systems/behavior.

This is the first time this model of governance has been presented to us in this way, and the law still needs to be worked out. For example, there needs to be a legally recognised way to own stocks and bonds using a shared ledger, and to finalise or transfer those ledgers.

Regulation needs to support innovation without being overly burdensome, and should be based on clear policy objectives.

It is observed that shared ledgers and cryptocurrencies were invented shortly after the regulatory objectives that fostered the current system were established.

It is therefore important to keep in mind whether current regulatory objectives are limiting creativity and, if so, what changes are needed. At the same time, roundtable participants described shared ledgers and cryptocurrencies as emerging, disruptive innovations that require efforts to identify gaps in current regulations and determine how to fill them without premature or overly burdensome regulation.

While there are already signals to regulate Bitcoin exchanges and wallets, being able to differentiate between regulated and unregulated wallets, as well as the grey area of ​​multi-sig custody, will be important.

Regulatory aspects

Regulators say new innovations will bring new risks, but cryptocurrencies and shared bills represent a cheap and efficient global payments infrastructure that should not be over-regulated for now.

The roundtable discussed a variety of topics, such as the need for government-issued cryptocurrencies that allow for instant transaction settlement, the amount of work required to implement the technology, and the lack of evidence that cryptocurrencies pose systemic risks or provide a channel for money laundering.

Perhaps the most powerful message from the EU Parliament is that we need a permissionless environment to enable true innovation, and that premature regulation will only limit the use of cryptocurrencies and shared bills.