Blockchain technology will be subject to regulation, whether people like it or not. The United Kingdom may very well be the first country to present its regulatory guidelines in the coming months. The Bank of England’s Fintech Accelerator program is one of the reasons why this regulation will come to fruition, as distributed ledgers are the foundation of new and innovative products and services.
Regulating Private and Permissioned Blockchains Is Good
When any government states they will regulate blockchain technology, it is important to keep in mind that we are talking about permissioned distributed ledgers. The Bitcoin blockchain cannot be regulated, as there is no one to exert control over it. If the network rejects any proposed changes or guidelines, they will not go into effect. Things are very different where private blockchains are concerned.
Regulators are particularly concerned over risk mitigation and how permissioned distributed ledgers will handle this aspect. Since none of these systems will require proof of work or network consensus, there are plenty of risks associated with this technology. One rogue element among trusted parties can create a lot of havoc.
At the same time, UK regulators are looking closely at the permissionless blockchains as well. Events such as The DAO hack stem forth from deploying premature technology in a live environment. Moreover, there was a lot of sloppy coding involved, which is of particular concern for what was supposed to be a trustless ecosystem.
Changes will also be coming from the European Commission, as they are looking at ways to allow private blockchains in the financial sector. However, they want to ensure money laundering cannot become an issue, as it is today. The added transparency of blockchain tech should help in this regard, but permissioned blockchains may not provide the full records one would be looking for.
One thing to keep in mind is how these regulatory guidelines may not be imposed until a few months – or years – from today. Establishing a regulatory draft is one thing, but the final version will always look very different. At the same time, these guidelines may affect the cryptocurrency sector – and particularly exchanges – as well, which can be either a good or a bad thing.
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