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OPINION: The Regulation of Blockchain by Governments?

Prof. Bill Buchanan OBE

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Blockchain regulation - Can Governments keep up?

RFCs built the Internet…

Governments of the world are feeling a little left out, as they try to wrestle back some control of the Internet and its security mechanisms.

They kinda missed out on the development of Internet protocols but kept pushing their case through international standards agencies. The Internet Age, though, just didn’t want to be held back by every nation of the world having their say on what should be a standard or not.

Governments and large companies often like the “status quo” and are happy with that. And so, too, if governments had had any form of influence on Bitcoins, there is no way they would have ever existed in any meaningful form. A lack of control of currency and the threat of other currencies are major worries for most dominant nations of the world – it’s the ways they keep things under control. If governments had spotted the potential of the Internet, they would have already taxed and regulated it, and aimed to suppress its growth. But the Internet grew because the “techies” got together, and decided what was right.

Committee Rooms

Blockchain regulation - RFCWithin standards agencies, such as the ISO, many countries looked after their own interests, and companies would often lobby for their methods, or lobby against others. As so RFCs (Requests For Comments) were born, and where subject experts drafted their viewpoints on a standard, and waited for comments, and then published them online.

The industry followed in droves, and governments were left pushing through standards which had little impact on real-life systems and which slowed the whole process down. Everyone agreed on the standard, and just because it didn’t have an ISO number, didn’t mean that it wasn’t adopted. There was no paying several thousand dollars to view the standard, RFCs were published in plain text format for every citizen in the world to view (and comment on). It was the first part of the consensus, and where governments lost a major part of their control. Any standard which was written with an obvious bias would often fail to be adopted, and there are many cases of RFCs which were not taken forward.

Without RFCs, we would not be where we are now, and you may well still be connecting with a 33K modem (I appreciate it’s not the case, but international standards often take many years to sort out, and stifle innovation and protect the interests of large companies and large nations).

Governments taking back control?

In a world of consensus the mechanics of governments just turns too slow, and often they are raining against developments, such as strong encryption and Tor networking. With the continual rise of cryptocurrency and Blockchain, governments now have the opportunity to jump on board and help set standards, or if they delay, their countries could be left with little in the way of future influence.

And so Russia sees an opportunity in defining the methods of cryptography used within their jurisdictions, and thus help support the development of their economy through blockchain work. It is thus alleged, though the ISO (International Standardization Organization), that the Russia’s Federal Security Service (FSB) wants to push through plans for no “Non-Western” cryptography for the development of blockchain methods.

Within the ISO committee it was reported that experts in Russia have been tasked with integrating Russian cryptographic algorithms within international blockchain standards:

“Without certified means of digital signatures used in the blockchain, Russian state bodies won’t be able to use blockchain. There shall be no Western cryptography there,”

These possibly aim to support the development of localized blockchains and which support the development of Russian businesses, especially as the government aims to introduce a certification of rights in using blockchain (through the Russia’s Federal Agency for Technical Regulation and Metrology). By 2019, the Russian government aims to set up the legal requirements for those creating blockchain applications.

Conclusions

I see both sides of the picture here, and where governments aim to help their own businesses, but over-regulation can often stifle innovation and slow down development. In the UK, who knows where we are going and whether “wrestling back control” could end up with a model where Blockchain and Cryptography were regulated for UK businesses. But I know that if a government sees the potential for business development, they will try to maximise the opportunity for their own country. If they catch the wave, it can have great advantages, but if they suppress the wave, they can damage their own business infrastructure, and often countries will never catch-up if they miss the innovation wave.

I’m a technologist and not an economist, but I hope the UK and Scottish Governments can support openness and freedom in the adoption of blockchain and cryptography into every part of the public sector, and engage with amazing SMEs, and help them create the future. The seeds are beginning to be sown, so we now need our small and innovative companies to grow them, and without government constraints and heavy regulations.

I hope to see the governments not regulating and controlling, and disrupting and innovating. We need our public services to change, and blockchain and cryptography allow us to build a new trusted world, and which properly replaces our old and creaking Internet (built on RFCs, of course). We are at the dawn of the new age, and governments can’t stop it, so they’d better get on board, and get out of the way, while we create a new world.

Professor Bill Buchanan OBE

Prof. Bill Buchanan OBE

Professor - Edinburgh Napier University

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