The challenges to blockchain commercialization lie mostly in technological impediments. After all, there’s still a lot we don’t know about just how to utilize what many are billing as revolutionary technology.
But as blockchain’s potential impact expands exponentially, the regulatory aspect of blockchain technology remains a formidable roadblock. Without clear direction on to whom they should answer, even the most compliant firm might find itself stuck in a troublesome regulatory landscape.
Because blockchain has the potential to affect a great number of people, regulatory bodies have begun taking aim, said Blake Estes, counsel in Alston & Bird’s Financial Services and Products Group and co-leader of the firm’s Blockchain and Distributed Ledger Tech Team.
But Estes added that this influx of regulatory interest is a good thing for business because without oversight, firms struggle to take decisive action in any direction. And without a clear path of where they ought to go, no company can implement blockchain-based application to the full extent of its capabilities.
So the question remains: who will take control in this new regulatory environment to decide the protocol moving ahead?
According to Estes, most regulation will be use-based for blockchain applications. It’s not likely there will ever be one overarching, omnipotent regulator with all of blockchain’s vast applications in its purview. Instead, Estes noted, “it very much depends on how you apply the technology.”
“Blockchain has broad applicability and potential, which the cryptocurrency issuers are applying in different ways. Few are in mass use today,” said Mark Testoni, president and CEO of SAP National Security Services, a technology-driven security advisory firm.
“In ten years, we’ll look back at blockchain as important to our next generation of processes, but we don’t know which will be most significant yet,” Testoni said.
As we attempt to uncover that previously unknown significance, regulation has come out of the woodwork.
“Regulation is inevitable as these assets scale, particularly those focused on financial and banking processes,” Testoni said. The financially-inclined use cases for blockchain garner the most attention both from the media and from possible regulators because of the nature of big wins and big losses: people simply talk about them a lot.
“Large-scale losses create headlines … Governments will start to look at how to gain more control, not only to protect the investing public, but to avoid losing control over central banking, taxation and other flow processes,” Testoni added.
Testoni’s point is evidenced by the recent announcement from South Korea’s Financial Services Commission that all cryptocurrency trades need to be linked to real bank accounts with real names.
While it seems a reasonable standard, it impacts the very nature of how crypto assets got their start — anonymity.
“This attempts to address the challenge of tracing cryptocurrency transactions that may be used for cybercrime or illegal activity,” Testoni said. “We could see more governing practices like these internationally.”
And it seems blockchain application will end up bending to regulators, despite calls to shed some of the anonymity that rocketed coin applications into the global vernacular in just a few years.
In the end, only the exchanges with a long-term reputation for financial crime control, transparency and anti-fraud, anti-laundering means will survive, said Daniel Wager, vice president of global financial crime compliance for LexisNexis Risk Solutions.
“They have to implement risk-appropriate financial crime controls if they want to survive,” Wager noted.
Get more of TheStreet’s crypto coverage here.