On Monday afternoon at the Money 20/20 conference in Copenhagen, a panel of industry leaders provided an update on their views of the current status of regulation in the Bitcoin and blockchain spaces in Europe. Of primary note was a statement around the short term future of digital currency regulation in Europe. Speaking on issues surrounding attention being placed on Anti-Money Laundering (AML) concerns, Monica Monaco of Trust EU Affairs made a bold yet not-surprising statement, given recent global affairs. “Brussels is paying attention”, asserted Mrs. Monaco. “There will be (European level) regulation between now and summer.”
Fascinatingly, many European Bitcoin startups want to be regulated, claims Monaco, “especially the good guys.” Increased regulation helps bring legitimacy to the space, and the industry itself is growing up quickly. Increasingly, across Europe and beyond, digital currency and blockchain initiatives are attracting more experienced serial entrepreneurs who lived through the internet bubble and bring more experience and credibility to the space, which resonates with both investors and regulators alike.
Pioneers in Regulation
One region that has been friendly and will continue to be a leader in digital currency regulation is the Isle of Man. Brian Donegan of the Isle of Man Government wants his small nation to continue to lead the way. “Nothing will change until we have a standard that everyone can realize and work with. It paves the way for global acceptance, and has to happen,” remarked Mr. Donegan. Given the Isle of Man’s work on creating the Designated Businesses Act of 2015, he said that his region is happy to lead the charge and provide experiments on these initiatives.
Money 20/20: Regulating the Blockchain
With regards to blockchain regulation, specifically, Dr. Paolo Tasca of Deutche Bundesbank remarked on the challenges of finding regulation that involves many traditionally disparate parts. “Here, there are elements of payments, monetary transactions, and technology involved,” said Tasca. Mr. Tasca sees parallels with what’s happening now in the blockchain space to what happened in 2002 with home banking and personal finance, and how these presented similar challenges to the regulatory environment. Mrs. Monaco made a valuable point, adding that blockchains also challenge settlement risks and consumer protection concerns. “When you go to decentralized, who controls what, it’s a major shift for regulators. How can you centralize control of something that’s decentralized? Can you? Should you? This is not solved yet.”
Speaking to the general style of how innovation should occur within a blockchain, Veronica McGregor of Hogan Lovells echoed sentiment towards finding empowering yet safe regulatory frameworks. Rather than having an overarching form of regulation, Mrs. McGregor sees use case specific regulation. For example, the recent R3 settlement test which leveraged blockchain technology will likely lead to further regulation in that realm.
Managing Potential for Anonymity
One topic which garnered significant attention was that of anonymity. Due to concerns of Anti-Money Laundering and potential terrorist financing, this repeatedly is a point of concern for regulators. Speaking to this, Brian Donegan:
“Banks really worry about the financial piece. The identity piece. They have sanctions compliance that they have to adhere to. They have to know who to sanction. The holy grail of the technology is the identity piece” A commonly heard sentiment, it seems to reign true; as soon as the identity piece is solved it’ll likely help regulators get onboard to the technology and Banks will follow quickly if governments get on board. “Banks need to ensure that their relationship with their local regulator isn’t damaged”, Mr. Donegan remarks.
Regulating Ethereum and Smart Contracts
Lastly, addressing a question around Ethereum and smart contracts, the panel seemed to feel that regulators would need to take a similar approach to that taken towards some of the first Bitcoin startups, that being to apply regulation at the entry and exit points. As Mrs. McGregor, “We have to regulate the entry points. In a smart contract, whoever has oversight over those persons will face regulation. Additionally, Mrs. Monaco added, “Smart contracts could be very good for consumers and their use could be very good for society as long as we protect users for their use. Must be compatible on the rules of the country their sitting.”
In summary, the panel today certainly proved to be wide ranging, informative, and stimulating. It seems that, over the past 2-3 years, the increased interest which regulators have taken in Bitcoin and Blockchains has given rise to a much stronger understanding of and valuable discussion around the issues at hand. The views and concerns in America are quite similar to those in Europe, and the two will likely look towards one another for answers and the technologies continue to develop and evolve.
What are your thoughts on the remarks by the panel members above? How does Bitcoin, Blockchain, and smart contractual regulation inter-relate? Will regulators be able to put forth meaningful frameworks without stifling innovation? Share your thoughts below!
Images courtesy of The Telegraph, Money 20/20.