There is often a sense of tension between organization and innovation. There is a widespread belief that these two important parts of our society are in conflict with each other. When these two meet as partners, we can actually influence change and change the world for the better.
There is no healthier place in the blockchain industry than this.
In recent months, we have seen regulators around the world try to formulate new rules and guidelines without sufficient input from the most important stakeholders who are most knowledgeable about the technology – the innovators themselves.
Related topics: Stable currencies pose new dilemmas for regulators as their adoption is intertwined.
We saw this in the US at the end of 2020, when the Financial Crime Prevention Network (FinCEN) presented a regulatory proposal that will have a significant impact on the digital currency landscape. Initially, they only allowed a two-week suspension period at the end of the year. Finally, after receiving feedback from stakeholders, FinCEN extended this period. By all accounts, there is a meaningful dialogue with the industry right now before we move on to more bases. Since then, FinCEN has been replaced by the FATF’s anti-money laundering project, and it wanted to follow the “old way” without resorting to the private sector for help.
We saw this again in February when the Central Bank of Nigeria (CBN) issued a circular that caused confusion about how it relates to cryptocurrencies. As a result, many promising fintech companies using blockchain were inactive and did not know what to do next. Following concerns within and outside the industry, including other regulatory bodies in Nigeria that have raised concerns, CBN is now set to partner with the blockchain industry. They will research to find ways to develop rules that balance the interests they and others may have, while allowing the value of the blockchain to benefit the region.
About the topic: More harm than good? Cryptocurrency users in Nigeria do not believe in CBN blocking
As recently as April, Turkey announced stricter rules for cryptocurrencies, only to quickly demonstrate a softer approach after a sharp downturn in industry and the country’s growing user base.
About the topic: Is cryptocurrency banned in Turkey – is this just the beginning?
Innovation strengthens regulators
Presumably, innovators and regulators can act as nice comrades. Regulators have a greater responsibility to protect consumers and prevent economic crime, while maintaining economic opportunities and participation in economic life, rather than wasting it. Perhaps contrary to popular belief, these are values that blockchain creators share with regulators.
This technology originates in many countries, as well as many entrepreneurs and innovators, to provide consumers with a higher level of access and protection. Blockchain can help achieve these goals by offering cheap and efficient payment options and providing government agencies with better consumer protection tools.
First, the unchanging ledger emerges as a new instrument of openness and accountability to deter and catch financial criminals. Forensic companies such as Elliptic have, for example, created tools that can identify patterns that indicate illegal activity based on publicly available ledger information. Unlike traditional banking systems, general ledger allows investigators to see the movement of funds and identify suspicious activity before or as a means of detecting criminal activity.
Second, blockchain networks may have built-in protocol-level mapping functionality. For example, on the Stellar network, which is an open source public blockchain network, digital asset issuers can control who owns their assets. Understand the need to restore the value of a previous transaction in the event of fraud, theft or regulatory action – similar to what the traditional economy calls a “bounce”, Stellar Network works with features to enable this functionality. This document emphasizes that the power of decentralization can be exploited while providing attractive features for centralized networks that simultaneously improve compliance.
Finally, there is an entire ecosystem of companies building compliance tools that better assess and analyze risk. Thus, companies not only have the tools they need to comply with current regulations, but also new ones.