Often there is tension between innovation and regulation. These two important parts of the society are at odds. Only when these two come together there is a possibility of any change.
This holds true for the blockchain industry.
The last few months has seen different regulators trying to formulate new rules and also guidance sans enough knowledge from the stakeholders who are knowledgeable about the technology, the innovators.
Innovations Empower Regulators
The regulators have a big duty to not only deter financial crimes but also protect the consumers, while supporting the financial inclusion and economic opportunity. These values are shared by the innovators and the regulators of blockchain.
The genesis for many innovators and entrepreneurs is providing the consumer with a high level of protection and access. Blockchain helps in these goals by offering efficient and low cost payment capabilities and also empower the regulators with tools for consumer protection.
The public ledger is the new transparency tool. This also helps in accountability to catch or deter financial criminals.
One example is the Elliptic, a forensic analysis firm that has built tools that are able to identify patterns indicating illicit activity. This is based on the ledger information available publicly. This ledger system allows the investigators to see any movement of funds and also identify any activity that is suspicious before any criminal activity.
It is possible for the blockchain networks to have compliance functionality that is built in the protocol level. One example is the Stellar network, where the issuers are able to control who owns the assets.
There are many businesses working towards the creation of compliance tools that can assess and also analyze the risk better. There are innovators who are ready to use these tools as and when needed. The technology of blockchain is, and can be, used in a compliant manner at present. This employs the KYC (know your customer) and the practices of anti-money laundering used by financial institutions that are regulated. These developments can help in better and efficient assessments of risks. This helps in bringing down the barrier of financial inclusion.
Communication is the Solution
It is important that the stakeholders, public and private, have a collaborative and open dialogue about regulating digital currency and block chain.
Creating regulatory frameworks or giving reaction that are knee-jerking to the perceived risks sans any regard to the potential benefits is no way to approach any innovation.
Regulators and innovators working together can solve the ‘so-called’ problems and work towards expanding access to financial markets. It is important to create the right regulatory frameworks and policy for blockchain technology.
It is important that the innovators of blockchain have direct communication with the regulators and shape the required guidelines.
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