How Intelligent Law can improve the Potential for blockchain

Regulatory bodies must evolve together with the markets they govern, and as soon as it comes to the crypto marketplace, it becomes particularly important.
With extreme positions on both sides, some would have us believe that decentralized regulation and technology are all mutually exclusive. As pervasive because narrative has become, a more evolved perspective is that both decentralization and regulation are all inevitable, so the very best results will stream together with regulators and innovators coming together. But what will that collaboration look like?At that the Stellar Development Foundation, our perspective is the fact that regulators and innovators will (and should) affect one another, which means both sides should be ready to compromise. Let’s begin with some fair self-reflection: ” There is not any inherent quality of blockchain or even cryptocurrency that deserves to be wholly untrue, however on the other hand, neither does the tech deserve to be banned or regulated only because it is fresh or different.The Financial Action Task ForceDistributed ledger technology is a paradigm shift. Conventional finance is vertical and intermediated, while decentralized finance (DeFi) is flat and peer-to-peer (P2P). The issue we now face is that financial regulations are almost uniformly premised on regulating intermediaries — no more intermediary signifies no jurisdictional hook. It is this lack of clear authority which makes regulators nervous about a principal future. The Financial Action Task Force, or FATF, confessed this fear specifically in its recent draft guidance on virtual resources and VASPs:”Additionally, full maturity of these protocols which enable P2P transactions might foreshadow a future minus fiscal intermediaries, possibly challenging the potency of the FATF Recommendations.” However, since we previously mentioned, when it concerns the FATF draft guidance, fears of missing market share or shrinking regulatory turf don’t form a foundation for sound policymaking.Related: FATF draft guidance targets DeFi with complianceOften, the fears that follow with a paradigm shift create a regulatory crackdown. De-risking is a choice example. As regulators promulgate ever-tougher Anti-Money Laundering regulations, companies respond by cutting off support to less profitable customers. Because of this, regulatory and company interests are servedbut more and more people, particularly the international poor and companies that serve themfind themselves locked from the fiscal system. The FATF recently acknowledged its role in perpetuating this pernicious issue. But, those forced from the fiscal system by regulation are the most people blockchain tech most enables by reducing their dependence on intermediaries. In the Stellar Development Foundationwe see this firsthand during our work with partners like Leaf International and Tala, that enable the working poor and migrants fleeing catastrophe or persecution in their home nations with blockchain-based accessibility to fiscal services.Different approachesDespite including advantages, country-level responses to blockchain are mixed. And they’re reaping the reward. These countries are becoming international blockchain technology hubs.Innovators and entrepreneurs have been attracted to their certain and secure regulatory environments. The decision ahead isn’t any longer whether to govern, but how. Fortunately, policymakers don’t have to decide in a vacuum and would do well to learn from the 2 groups of nations mentioned above — those attempting to keep crypto out and people welcoming it in. Without exception, those countries that proactively tailored their regulatory bodies into the technology are more effective than those who tried to prohibit it. And yet, while it is not too late to the U.S. to adhere to the successful examples, it must affirmatively opt to perform so.FinCENThe Financial Crimes Enforcement Network’s (FinCEN) proposed self-hosted wallet principle provides a practical case study of this selection. From the beginning, FinCEN’s proposal was aggressive toward decentralization and individual empowerment. When it wouldn’t explicitly prohibit self-hosted wallets, many think it would in practice. However, that the blockchain community responded in drive, delivering a record amount of comments within a really short time. Among the topics that emerged from these comments was that FinCEN had access to the majority of the data the proposal sought as a result of inherent transparency of people blockchains. To its credit, FinCEN seems to have listened and will be looking for additional involvement with individuals who know the technology best. While we will have to wait to learn the way the story finishes, FinCEN appears to now be participating in the collaborative strategy with industry envisioned — but not necessarily practiced — by the rulemaking procedure. Compromise isn’t easy, but it yields the best results.Related: Governments are searching to close the gap on unhosted walletsTakeawaysThe assignment of regulators is to safeguard markets, not to make sure they never alter. Policymakers should accept that decentralization is a new, different paradigm deserving of its regulatory approach. The business’s resistance thus far isn’t so much to the concept of being regulated, but instead to being pressured into a regulatory framework which does not match. In spite of this, regulators and innovators can discover middle ground, but only if both sides keep a open mind.Similarly, the blockchain community must do a much better job of explaining why and how the technology differs, educating policymakers about the real risks while emphasizing actual examples of its advantages. Additionally, we should adopt suitably tailored regulation.After all, the validity that will come out of regulatory approval of the technology may very well be the final hurdle on the path to mass adoption.The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the opinions and views of Cointelegraph.Seth Hertlein is the head of policy and government relations in the Stellar Development Foundation, a nonprofit organization that supports the growth and growth of Stellar, an open minded system which joins the world’s financial infrastructure. Seth began his career as a securities regulator and most recently served as executive manager and assistant general counsel for public policy and regulatory affairs at FS Investments, a leading alternative asset manager. Seth holds an MBA in finance from Wright State University and a JD from The Ohio State University.

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