By Andrey Sergeenkov
As 2018 drew to a close, crypto skeptics were ready to write obituaries after the devastating bear market that year. Talk of blockchain and cryptocurrency demise was rife among seasoned analysts. Just over twelve months later, the industry has shown remarkable resilience to rebound back.
Regulators are a segment of stakeholders who seem to be appreciating that crypto is here to stay, with Federal agencies in the US and Chinese authorities praising the potential of this technology in their respective countries’ digital future.
Blockchain technology has gained independent credibility over and above its application in cryptocurrency. The opportunities are endless as the emerging enterprise sector continues to draw plaudits. So far, this technology has grown in spite of regulatory infrastructure rather than because of it. A suitable regulatory climate is essential for widespread adoption.
This is how Jason Lee, Vice President of NEM Foundation, describes the industry’s evolution:
“2017 was the year of the blockchain craze. In 2018, we hit the brakes towards the end of the year. For 2019 and the start of 2020, Don Tapscott at the World Economic Forum Annual Meeting reports says that the ‘blockchain revolution ground to a halt.’ This is because not all initiatives are going past the proof of concept stage just as blockchain regulation shapes progressively as it moves forward in the right direction. In 2020, real use case projects are starting to shape up and will play a crucial role.”
Therefore, industry leaders and enthusiasts at large are eagerly following regulator sentiment. Themes like consumer data protection and harnessing tech will be constant in these discussions. What is going to be the major themes around blockchain regulation in 2020?
Privacy and anonymity on enterprise blockchain
Anonymity and privacy were defining aspects of the decentralized blockchain projects. This sector went mostly unchecked until blockchain platforms became increasingly popular.
Last year, the release of the Libra project whitepaper by Facebook brought these issues to the fore. Specifically, concerns about blockchain enterprises, including cloud services and handling customer data gave regulators an opening to legislate on such platforms. Blockchain enterprise will continue to draw unprecedented legislative scrutiny in 2020.
In late 2018, the US Department of Homeland Security started scrutinizing privacy tokens that shield user information. Similarly, G20 countries issued regulations in June 2019 for exchanges to comply with “anti-money laundering” (AML) and “know your customer” (KYC) requirements. In February 2019, the Cyberspace Administration of China (CAC) implemented additional guidelines specifically for blockchain companies.
Chinese regulators claimed that these measures are aimed at settings the standard for blockchain development in the country. In the US, the Blockchain Promotion Act of 2019 focuses on finding potential applications for the distributed ledger and opportunities through which government agencies can explore and incorporate the technology. 2020 is sure to bring more scrutiny and legislation on this premise.
Crypto regulation over perceived threats to national currencies
Many countries initially took a position of ignorance about cryptocurrencies. However, as bitcoin took a larger-than-life profile after the monster rally in 2017, this position was no longer tenable. The only reason that blockchain experienced the crypto winter was due to being unregulated rather than the breakdown by governments.
The unchecked printing of money before and after the financial crisis of 2008 by the Central Bank led to some people becoming disillusioned about centralized financial systems. Bitcoin and other cryptocurrencies offered an alternative to these people. As with any power structure, the entities in charge will not relinquish power with ease.
China took drastic measures against trading cryptocurrencies in 2017. Last year, India went even further and completely banned non-sovereign cryptocurrencies. The fundamental aspect of decentralization is an existential threat to the ability of major central banks to control monetary policy.
Even without expressly stating this position, the Securities and Exchange Commission in the U.S. decided to classify coins like Telegram Open Network (TON) as securities to regulate their rise. Regulators in the U.S. see blockchain currencies and commerce as an issue that needs to be addressed.
As 2020 begins, some countries are looking at digital currencies as an opportunity rather than a threat. China astonished the world last year when the People’s Bank of China announced that it was researching on a national digital currency. Such a development could trigger an arms race of sorts between nations that want to be the first to innovate in this space.
China as an emerging leader in regulations
China has openly embraced blockchain technology. President XI Jinping gave a ringing endorsement to the power of this sector in October 2019. During his speech, Jinping said blockchain is an “important breakthrough in independent innovation of core technologies” and will “help China gain an edge in the theoretical, innovative and industrial aspects of this emerging field.”
While this announcement came as a surprise, it is a well-calculated and probably necessary move on the part of China’s government.
NEM’s Lee sees the big picture in understanding why China is suddenly keen on blockchain optimization. “Embracing blockchain was a smart move by President Xi Jinping; policymakers are starting to realize the benefits of decentralization,” he says. “Blockchain is an enormous cost saver for many industries, and not only is it more resilient to hacks, [but] it also does not bind you to a specific platform, which makes it the ideal solution for multi-vendor cooperation.”
Lee states that the People’s Bank of China is almost ready to launch a sovereign digital yuan with a global use case. “President Xi urges China to seize the opportunity to accelerate the nation’s innovation. Enterprise blockchain can potentially see a clear pathway of growth in China as they ride the coattails of excitement,” he says.
It will be interesting to see what direction China’s regulations take. This jurisdiction is particularly interesting for enterprise blockchains that major on anonymity. China is obviously keen on being a leader in the blockchain space. On the flip side, China ordinarily wants to have a level of control over tech platforms in the country, which is the antithesis of fully anonymous platforms. What will the future look like for enterprise blockchains in China?
But even before China formally embraced blockchain technology, other states were already active in the space. An example is Singapore, which has established itself as a regional hub for blockchain and crypto platforms.
Startups like NEM have found a suitable environment in the city-state in a quest to transform the industry. The Singapore-based NEM offers businesses a quick and secure way to deploy blockchain in their operations. The blockchain is built from the ground up and focuses on solving real-world needs on a global scale with high performance, customization, and security.
Enterprises can utilize NEM’s powerful API interface with any programming language for secure transactions and impeccable record keeping.
Accordingly, developers and enterprises have an efficient hub to innovate and work. Permissioned private blockchains ensure trailblazing transaction rates for internal ledgers.
The acceleration in regulation is favorable for platforms with proven use cases and reliable track records. Enterprise blockchain platforms that maximize the impact of blockchain by facilitating developers and commerce are first in line.
“It will be harder for individuals to pull off new blockchain projects—at least anything that would be regulated and gain widespread acceptance,” Lee says. “Regulations will raise the bar, and while that serves to protect the users, it will make innovation more challenging. But regulators that develop policies for flourishing will attract the opportunity. Blockchain platforms that would help the developers with compliance have the highest chance of gaining traction in such environments.”
Probable evolution of regulation in 2020
Regulations are taking a more facilitative approach rather than being primarily restrictive. Governments now appreciate the power of blockchain technology better because of its proven capabilities and efficiency.
Lee thinks that industry leaders should embrace and be leading voices in shaping regulations. “Enterprise blockchains—like tech in general—have to learn that regulation is not something they should avoid, break or fight; they should play along, and that will even lead to better products for their customers,” he says.
The possible unveiling of China’s national digital currency can be a real game-changer, especially for stablecoins, cryptocurrencies that have been pegged to a fiat counterpart. It will be interesting to see whether other countries follow China’s lead. Given the disruption that blockchain is already causing through sectors like fintech, other developed countries will be monitoring China’s moves closely because of the potential overhaul blockchain can bring to their financial systems.
The bottom line is that blockchain and cryptocurrencies have the tag of opportunity rather than a threat. Countries that take the initiative to develop a suitable regulatory framework will likely be leaders in the blockchain space.
Andrey Sergeenkov is the founder of BTC Peers