How to Bridge Gap Between Governments & Industry?

How to Bridge Gap Between Governments & Industry?

Cryptocurrency regulation remains a challenge for governments, and there seems to be no easy way to get around this topic. Some voices seek to make all decentralized finance (DeFi) products illegal, and conversely, some oppose any regulations. Regardless of the most extreme voices on either margin, there’s a pressing need for a bridge between industry innovators and regulators if the industry hopes to increase investor confidence.

Unlike other commodities, the challenge posed by attempts to regulate DeFi products is caused by the fundamental aspect of DeFi, decentralization. In the context of blockchain-based financial assets, decentralization refers to the transfer of control and decision-making from a centralized entity to a distributed network. Decentralized networks aim to limit the amount of trust that participants must place in one another and to prevent them from interfering with one another in ways that would impair the network’s performance.

Instead, a distributed ledger that contains identical data is accessible to each network member. Most of the network’s members will reject any member whose ledger has been altered or corrupted. Decentralization is core to the nature of cryptocurrencies & DeFi assets; it offers security, freedom from censorship, and privacy. Unlike fiat currencies regulated by central banks or government monetary policy, DeFi assets don’t have a central authority, jurisdiction, or uniform policy.

Nonetheless, governments have found that the absence of a central authority makes it more complex to implement regulatory requirements. This inherent complexity has led some nations, such as Algeria & Vietnam, to refuse to engage with DeFi products, banning cryptocurrency possession or usage. A push to implement blanket bans has also resulted from highly-public scams, which have dented investor trust.

Nations that have refused to entertain even the idea of the industry are certainly only hobbling themselves; there are many innovative uses for blockchain technology in the finance sphere beyond Bitcoin, and even cryptocurrencies alone present opportunities. However, some questions need to be answered to achieve greater levels of trust in the market, namely, how do crypto companies comply with financial reporting? Who tracks suspicious or fraudulent activities? Where can they report these activities? In most cases, legacy financial institutions have been subject to such requirements for decades.

Naturally, most countries at this point do not have all the answers to how to regulate this dynamic industry. However, one way of creating know-how and bridging the gap between the crypto/blockchain industry and regulation is by creating forums for regulators to collaborate with tech industry players.

Examples of those forums are the Global Blockchain Forum, the EU Blockchain Observatory, Forum, and the Praegressum Coalition. The Global Blockchain Forum is an international initiative of the Chamber of Digital Commerce. The Group works with the world’s leading blockchain policy experts to develop industry best practices and help shape global regulatory interoperability. Their mission is to promote the acceptance and use of digital assets and blockchain-based technologies. Through education, advocacy, and working closely with policymakers, regulatory agencies, and industry, they hope to develop an environment that fosters innovation, jobs, and investment.

The EU Blockchain Observatory and Forum monitor blockchain initiatives in Europe, producing a comprehensive source of blockchain knowledge to create an attractive and transparent forum for sharing information and opinion about the technology and making adequate recommendations on the role the EU could play in promoting and regulating blockchain. This initiative was created as a European Parliament pilot project and has recently gained much traction.

Finally, a nascent project is called the Praegressum Coalition. They advocate for the local application of blockchain technology regulation, discussing the possibility of a regulatory framework that is flexible enough to meet the needs of every locale while still working for American realities. 

It is important to note that these forums are not seeking to perpetuate an ongoing lack of regulation, as some ill-informed politicians seem to think, but are seeking an adequate set of regulations. Like any public-facing industry, a lack of regulatory clarity from the government ultimately causes more difficulties for serious business.

For instance, guaranteeing consumer and investor protection against some of the risks associated with the investment in crypto-assets and other blockchain-based financial products, as well as assisting clients in avoiding fraudulent schemes, is something that both the industry & governments seem to agree on, and would represent the foundations of a sensible regulatory regime for the broader public. These rules won’t damage the crucial aspects of DeFi but would raise trust in the industry, increasing the adoption of these technologies.

Share