Blockchain enthusiasts are eager to talk up its positives of providing an enduring and immutable public record of transaction, especially useful when dealing with multiple parties and fragmented sectors. Another appealing aspect of blockchain is its ability to maintain privacy of secure transactions, a facet particularly attractive to traders of luxury goods such as art dealers.
But blockchain also has its downsides and a chief concern is the inconsistency with which regulators around the world view the distributed ledger. Regulating cryptocurrencies in a consistent manner is a pressing concern as misuse of bitcoin by criminal gangs is tarnishing the reputation of blockchain. An Australian Criminal Intelligence Commission report, for example, estimates money laundering costs the country $28.43 billion a year – and noted that criminals increasingly favour bitcoin.
A panel discussion at London Blockchain Week in January 2018 exposed fissures between regulators. On the Isle of Man, initial coin offerings (ICOs) – where businesses raise capital through cryptocurrencies – are evaluated in the context of whether they are a security or a utility, said Brian Donegan Head of Operations, Fintech and Digital Development, Isle of Man Department of Economic Development. “Our regulator determines which it is,” he said.
In the US, by contrast, it’s a safe bet that if you offer a token the regulator, the FCC, will categorise it as a security, confirmed Richard Levin, FinTech and Regulation specialist at law firm Polsinelli PC. “If you desist and claim it is a token, they will go after you as a trader selling unlicensed securities,” Levin explained.
Despite the conflict in approach by global regulators, the panel was upbeat about the future of cryptocurrencies and Gabrielle Patrick, CEO and General Counsel of Knabu Distributed Systems predicted one of the incumbent banks would make a hybrid crypto offering by 2019. More significantly, blockchain is entering the space of not merely being a payments platform but a desirable infrastructure, reckoned Donegan.
“Despite the caution of the giant regulators, the momentum is behind the relenting drive of the technology, to innovate and disrupt,” Donegan claimed. “People look at the value of bitcoin every five seconds, but ultimately it’s less about the value of the currency and more about the value of the technology. It’s a currency that travels ‘frictionlessly’ around the world. Yes, we are seeing teething problems now, but they will be dealt with over time.”
While bitcoin and cryptocurrencies make negative headlines for being the latest tool of cyber criminals, or because mining bitcoin consumes unsustainable amounts of energy, the proposition of the underlying platform is irresistible. Governments, regulators and industry won’t be able to sit on the fence for too long, otherwise the opportunity to innovate and create new marks will pass them by.