Here's how politicians should regulate the blockchain


Blockchain is advertised as the solution for everything from managing electricity networks to forming a new religion, and like any innovation, it has attracted regulators' attention. This should not lead to the panic of startups planning to interrupt a particular sector – instead, anyone using the distributed ledger would be wise to call their local regulator first.

This may be contrary to the belief in the start-up community that innovation dies when regulators arrive, but Catherine Mulligan, a visiting researcher at the Cryptocurrency Research Center at Imperial College, argues that for make the blockchain work, the legislators must be in-theside.

Mulligan's work focuses on building the structures on which the blockchain will be based, considering the technical side with the underlying standards and protocols that will guarantee the interoperability of the systems, as well as the social implications of the blockchain. "What I'm trying to understand with my research is what will be the actual impact, how industries will be restructured," he says.

Regulators are already destroying the wild west of bitcoins and ICOs, both of which operate using blockchain. But general accounting systems are also considered and tested in a variety of companies, from insurance to shipping. "Previous generations of technologies have been about the same business processes faster, safer and cheaper," says Mulligan. "Blockchain requires you to completely redefine those business processes, because to use a blockchain, you have to completely transform the way your business works."

But the implementation of blockchain in a company or in a process will require a lot of work, he adds. "Blockchain requires you to work beyond business boundaries, and this creates all kinds of problems." When companies or industry consortia come to Mulligan to ask for help in setting up their systems, start with the same question: have you checked with your regulator?

It does not make this warning because of the technology itself; depends on how it is used. The use of blockchain within a company, the so-called private blockchain, is simply a new way of storing data, says David Gerard, author of Attack of the 50-foot Blockchain. "Change the word to" Shared Excel spreadsheets "and you'll see that many of these proposals [for legislative changes] they are fundamentally stupid, "says Gerard.

It is not just about technology, but about how it is used. Mulligan says more and more companies are considering blockchain as a way to organize their entire industry. "It's a number of competitors coming together to create a blockchain solution that will allow them to exchange data or share transactions," he says. And this has a number of implications, as when competitors work together, the regulators of the competition want to know. "This is due to the monopoly or the laws on oligopoly: the antitrust".

For this reason, it makes sense to involve industry regulators early, not to get approval for the technology, but to avoid allegations of collusion. "I think regulators would like to participate in the first kind of blockchain projects that emerge, just to learn, and they will probably become less interested when they realize that it's not about collusion or prices, it's about industrial efficiency."

This does not necessarily require new regulations; antitrust laws already exist, after all. "So it's not like we need regulation blockchain, we just need regulators and every industry to understand the blockchain," says Mulligan.

There are other laws that collide with blockchain, in particular with data privacy. Gerard notes that the GDPR, the EU data regulation that came into force in May, requires companies to be able to delete or update personal information, but one of the blockchain's main strengths is that it is immutable. "Do not put personal data in a database that you can not change, and this is blockchain," says Gerard. "This is all with a Merkle tree, do not put [private data] in Git repositories, do not put them on blockchain, because one of the key factors of GDPR is that the database must be editable. "

Rather than modifying GDPR or asking for an exclusion to circumvent data laws, it makes more sense to simply not use these structures to store private data. "Some people are asking for legislative cuts so they do not have to properly write blockchain," says Gerard. "Frankly, there's no reason to carve out just because you're using a database that uses a particular format." If you need to bend or rewrite the laws just to use blockchain as a database, he says, maybe not.

Blockchain is an answer to a very specific problem – and this is limiting its use case up to now, says Ferdinando Ametrano of the University of Milan-Bicocca. Those authorized private blockchains advertised as a solution for data checks in companies? In reality they do not exist. "There is no production case that uses them," says Ametrano, noting that most of the examples you will read will remain in the development phase. "So what should regulators regulate? Something that does not exist? Early regulation will pose a risk that could hinder innovation."

Sometimes regulation is needed to enable innovation, such as the legislative adjustments necessary to allow driverless cars on the roads to be tested. At other times, regulators are slow to manage the downsides, such as the tension between gig economy platforms and labor law. "In all technology systems – we see it with IoT, smart cities, privacy issues with Facebook or Google – the problem for regulators is obviously that they are always a little behind the technological development," says Mulligan. "And so you have companies like Uber, for example, who run very openly the approach" you do this before, sorry later ".

With the blockchain, the antitrust challenges will probably follow the model of driverless cars; you will have to talk to your regulator to also try a system that shares data between competitors. From the point of view of privacy, we may have to wait and see what damage, if it exists, results. "Let's see how it works, because otherwise we can not regulate it," says Ametrano.

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