Addison Cameron-Huff is an independent technology lawyer who focusses on the bitcoin and Internet startup space. His clients include prominent blockchain businesspeople and developers.
In this opinion piece,Cameron-Huff builds on thoughts voiced in a recent panel discussion at CIGI's blockchain workshop held in Toronto.
Despite the levels of hype, "blockchain" is, at its core, a software concept like relational databases or BitTorrent.
Proponents argue it is set to change real estate, accounting, securities and a gamut of other industries. But, how should this technology be regulated? A better question might be, 'Should it be?' And if so, 'How?'
Lawmakers generally try to create rules that are technology neutral. Indeed, one of the most pressing criticisms of New York's BitLicense regulation was that it deviated from this approach.
Why this has been successful is because regulators know that software developers move faster than they do.
When rules are created for specific technologies, there’s a danger that rapid innovation will result in hollow laws on the books (eg semiconductor topography protection). The term "blockchain" has only been in use for a few years and no one can confidently whether this specific iteration of the technology will win out (although some people are working on blockchain prediction markets to help with that).
Still, many believe blockchain technology holds enormous promise, even if there are very few applications in the field right now. There’s no evidence of any problems and lots of evidence of innovation. There’s a growing consensus in the developed world that before government rules are created, there should be a critical analysis of the benefits and costs.
This type of analysis is essential to avoid smothering desirable changes in the name of avoiding potential (or actual) costs to society. Blockchain technology may have costs (in specific implementations) but there are enormous potential gains.
Exercise in futility
Even if a convincing case were made to regulate blockchain, how would this be done? By regulating what sort of code people can create?
Attempts in the US to regulate cryptography in the 1990s show the futility and costs of this approach. Focusing on the ends rather than the means would be a more promising regulatory avenue. But, the “ends” of blockchain are so varied that this won't be a useful exercise.
Time spent creating regulations for blockchain technologies means time not spent honing or creating regulations for larger societal issues.
Bitcoin and Ethereum, the ecosystem's two largest public blockchains, have a combined global market cap of under $10bn. By comparison, $10tn worth of gold is traded each quarter.
Regulators have far bigger fish to fry – time spent dealing with blockchain is time not spent dealing with more impactful issues.
Time will come
Still, that's not to say regulation won't ever be necessary.
Blockchain technologies may in the future cause major changes for highly regulated industries like securities trading or real estate. One way that this technological change could trigger a need for regulatory change is if the new technologies reduce the number of middlemen (layers) in the industry.
If blockchain businesses and applications can merge the layers of a system then there may be a need to consolidate or rethink the regulatory scheme to fit the new reality.
For example, if one system can handle land title registration, viewing and transfer, then perhaps the regulations can be consolidated to regulate the new actor that takes on the roles of several old ones.
Blockchain technologies will be built into products and services that decentralize our world.
There will be some changes to existing services, jobs and industries but so far there’s no evidence that these changes are clear enough, urgent enough or large enough to justify any kind of blanket regulation of blockchain technology.
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