Blockchain companies cannot operate effectively in an environment with unclear rules of engagement. The United States Securities Exchange Commission (SEC) understands this and has now taken steps to lay down the proper guidelines for blockchain companies in the United States by improving its blockchain risk monitoring capabilities. Based on a recent FedBizOpps notice, it appears the SEC is seeking to engage in an “enterprise-wide data subscription for blockchain ledger data.” This will help improve blockchain risk monitoring and could be the first step in laying down the ground rules for blockchain technology in the United States. Many people are continually seeking the SEC to provide clear guidance.
Blockchain Risk Monitoring: The Beginning of Regulation
The SEC has received a lot of criticism for its slow pace in forming regulations for blockchain technology. Experts have pointed to the fact that other developed nations like Switzerland, Russia, and even the EU have already set up measures aimed at developing their blockchain regulatory framework. With the rise of crypto-related scams and Ponzi schemes, the SEC and the Commodity Futures Trading Commission (CFTC) came together in April to issue a joint statement warning US citizens about fraudulent digital assets, but this only solves half the problem. Blockchain innovation cannot thrive without proper regulation, by improving its blockchain risk monitoring capabilities; the SEC might just be laying the ground work for regulation in the future.
An extrapolation from the notice on FedBizOpps.gov states that:
“The United States Securities and Exchange Commission…intends to procure a commercially available off-the-shelf (COTS) enterprise-wide data subscription for blockchain ledger data to support its efforts to monitor risk, improve compliance, and inform Commission policy with respect to digital assets.”
Currently, the SEC focuses on Bitcoin, Ethereum and other leading blockchains. The blockchain risk monitoring amendment will only affect companies that have or will be involved in commercially available off-the-shelf (COTS) blockchain products or services.
Slow Pace of Blockchain Regulation in the US
Despite all its advantages, many business and consumers are hesitant to develop or use blockchain technology in the absence of a predictable legal ecosystem. This has led advocates of the technology like the Chamber of Digital Commerce to call for government intervention in the aspect of regulation, but regulating the blockchain is not as easy as it seems. Blockchain products have taken off quickly due to the libertarian ideologies that the creators of these applications espouse. Bitcoin, for example, tackles the drawbacks of the current centralized financial system. It takes power away from the government and the banks and put it in the hands of the individual.
However, Bitcoin is only one of the many applications that utilize blockchain technology, and this can be quite problematic because there are several aspects to the blockchain. Regulating blockchain will require in-depth knowledge and expertise on the technology and its various sub-applications. Unfortunately, this level of experience and expertise is not readily available because the technology is still relatively new. For instance, it is still uncertain how government agencies like the SEC can regulate smart contracts.
Blockchains are not only complicated, but they also change rapidly. This is due to developers consistently tinkering with the technology. Developers constantly are seeking out ways to improve in terms of speed and efficiency. They are also pursuing new measures to curb potential security risks. These improvements cause many blockchains to change and advance at a rapid rate; any form of regulation must, therefore, take into account the dynamic nature of this technology.
Regulation is Inevitable
Countries like South Korea and Malta are leading the charge in blockchain development. Some experts already think it may be too late for the US to jump on the bandwagon. More blockchain developers keep moving out of the US to “blockchain-friendly” nations. The sense of urgency with regards to clarity on blockchain regulation has reached the ears of government officials. For example, Minnesota Congressman Tim Emmer sees the importance of blockchain. Specificially Emmer notes it is a way for the United States to maintain its technological dominance in the world.
Speaking on the potential of blockchain technology, Emmer remarked that:
“This stuff has the potential to completely decentralize the way we live and make the individual central to the way they live their life.”
Another congressman, Warren Davidson, has gone as far as making moves to regulate cryptocurrencies and initial coin offerings (ICOs). Davidson’s focus is on the growth of legitimate cryptocurrency startups. It is only a matter of time before a more encompassing framework for blockchain regulation emerges in the United States. Blockchain risk monitoring may just be the thing to get the ball rolling.