Trade associations from across the world or teaming up together to address the need for consistent laws and regulations governing digital currencies and the technology behind them. Tuesday, the involved organizations including the Chamber of Digital Commerce, based, in Washington D.C. launched the Global Blockchain forum, “blockchain” being the term to describe the technology behind digital currency, to help shape blockchain international policy.
“The Global Blockchain Forum is a platform for international collaboration,” says Perianne Boring, founder and president of the Chamber. “We’re bringing together the leading trade associations representing the digital assets/blockchain industry around the world. As we engage with these various governments, it’s important that the associations and stakeholders working with these public policymakers have some type of coordination to their efforts.”
The other founding members include the Australian Digital Currency & Commerce Association (ADCCA), UK Digital Currency Association (UKDCA) and Association of Crypto-Currency Enterprises and Startups, Singapore (ACCESS).
So far, such efforts have not been coordinated in any formal way, though $1.1 billion of venture capital investment has been poured into the space in recent years. In fact, the idea for the forum came about because Boring and Australia’s Ron Tucker, the chair of ADCCA, found that the work in their respective jurisdictions was quite similar.
The lack of unified policies between jurisdictions can be quite costly for startups. The Chamber estimates that companies operating across the United States and abiding by different state regimes for “money transmitters” — companies that provide money transfer services — pay anywhere between $2 million and $5 million a year in compliance costs. For instance, New York State has its own licensing regime for virtual currency businesses called the BitLicense. California, on the other hand, updated its money transmitter statutes to include a definition of a virtual currency business.
“So if you’re operating in the United States and you have customers in New York and California, which most of these companies would,”says Boring, “you have two completely different policy approaches.”
Additionally, at the federal level, the different regulators don’t keep a consistent view. For instance, the U.S. Commodities Futures Trading Commission treats Bitcoin and blockchain technology as a commodity; the Securities and Exchange Commission as a security; the Financial Crimes Enforcement Network (FinCen) as a currency; and the IRS as property.
“A worst-case scenario here would be if conflict-of-law issues arise where you literally could not be in compliance with all the laws,” says Boring. “This is a huge impediment to innovation, investment, and to the growth of the industry in general.”
And a similar scenario plays out across jurisdictions. “The U.S. federal government can take one direction in how they’re going to statutorily define the technology, and then you hop across the pond to the UK and they look at it through a completely different lens,” says Boring. “For companies who have customers in the U.S. and the UK, compliance costs are going to get extremely costly very fast.” And that doesn’t even include the European Union, Asia, Australia, etc.
Some of the GBF’s goals are to promote and support the exchange of information and best practices amongst participants; increase awareness of blockchain technology and the potential economic and social opportunities it creates; and to liaise with relevant government agencies and international organizations to help create consistent digital currency regulation, policy and legislation.
“There’s going to be raft of incredible commercial opportunities moving forward, thanks to blockchain technology,” says Tucker. “We want to help foster international relationships and collaboration amongst business and commerce, whether it be the existing incumbents and global participants in the consulting professional services out there — some of our members at ADCCA include PwC, Deloitte and Dun & Bradstreet, the credit reporting agency. Once you pair those with the up-and-coming startup digital currency and blockchain businesses, there’s an entire revolution to come.”
Over the last two years, his organization has successfully advocated that the Australian government not doubly apply value added tax on digital currency transactions and developed a digital currency industry code of conduct that, for instance, suggests that members have appropriate AML/KYC processes in place and undertake an annual code compliance audit.
Some of the members of the Global Blockchain Forum have already begun working on projects. Several are currently working with industry, government and academia to formulate standards for real world applications, such as identity management. An initiative called d.ID — distributed identity — aims to create blockchain-powered identities for individuals not tied to a central corporation such as Google or Facebook.
Additionally, through the GBF, countries can learn from each other’s’ regulatory practices. Noting that the US has at least 10 regulatory bodies that have already put out regulation or are looking to assert jurisdiction over this technology, Boring says jurisdictions like Singapore and the UK are much simpler and that the U.S. could learn from them. “That’s why were seeing what we’re calling regulatory arbitrage — the Singapore brain drain — where companies are leaving the U.S. and going to countries where the reporting and compliance costs are going to be a lot less and it’s going to be more affordable to apply,” she says. “But that doesn’t mean that these areas are less safe or that you see more crime. What you’re seeing is a more realistic way to deal with this technology.”
Examples of Bitcoin startups that have found other countries’ regulatory regimes to be favorable include itBit, which initially launched in Singapore and later also opened in the U.S., and London-based Blockchain.info, which has found U.S. policy “more fragmented,” and UK policy more “consistent,” says chief executive Peter Smith. “We’ve seen more of these breakthrough deals happen in the United Kingdom. Big exchange startups like Circle, Coinbase, and itBit have been hunting for a deal like the one [announced last week] with Circle and Barclays in the UK for a long time. That deal — the first big marquee deal between a digital currency startup and bank — happened in the UK. And I think that’s telling.”
Looking forward, Boring anticipates that the task for regulators will only become more complicated, as the blockchain is applied to areas beyond currency. For instance, she says that regulations need to be written narrowly now so that when future applications such as smart contracts (technology or software that automatically executes the terms of a contract when the conditions are met) or clearing and settlement on the blockchain come to market, they are not left in regulatory limbo.
“This is why it’s important to have best practices early on,” says Boring, “because as we see the blockchain grow and you see different times of innovation and cases and uses come forward, the regulation needs to be flexible enough to allow for that innovation.”
Article/Photo via: forbes.com