In a breakthrough special address to the Depository Trust Clearing Corporation 2016 Blockchain Symposium, CFTC Commissioner J. Christopher Giancarlo, signalling the changing attitude of regulators towards blockchain technology, called on regulators to follow private sector innovation, and not lead, to adopt a light touch approach and to primarily follow the philosophy of “do no harm”, a strategy employed during the early days of the internet when regulators rarely interfered.
Acknowledging the ever growing interest in blockchain tech and hailing its many benefits, the commissioner stated:
[A] dramatic example of the potential benefits to regulators of blockchain technology is in the collapse of Lehman Brothers.
If an accurate [Blockchain] record of all of Lehman’s transactions had been available in 2008, then Lehman’s prudential regulators could have used data mining tools, smart contracts and other analytical applications to recognize anomalies in trade activity, divergence in counterparty exposure (specifically those willing to trade with Lehman), widening credit spreads and disruptions in short-term funding activity. Regulators could have reacted sooner to Lehman’s deteriorating creditworthiness.
This is one of the first acknowledgements of the main benefits of bitcoin and blockchain technology, a safer monetary system. Launched on January the 3rd 2009, following the dramatic events of the Lehman collapse which lead to hundreds of billions if not a trillion or more dollars in bank bailouts and a prolonged recession, bitcoin’s genesis block reads: “Chancellor on the Brink of Second Bank Bail Out”.
The acknowledgment of the many benefits of blockchain technology by regulators may signal the end of regulatory uncertainty and may further boost what is perceived to be an exploding interest in this area, with investment in Fintech quadrupling in China according to a recent report by KPMG and with some hailing an upcoming fourth industrial revolution.
Implicitly criticizing the disastrous “BitLicense”, which unfortunately has led to many bitcoin and blockchain related businesses simply denying New Yorker’s access to their services despite surveys showing that New York has most demand out of Fintech hubs for Fintech services, the commissioner stated:
U.S. lawmakers concerned about the rapid loss of jobs in the U.S. financial service industry, especially in the New York City area, should look to provide “space” to U.S. [Blockchain] innovation and entrepreneurship and the well-paying American jobs that will surely follow.
In a further jab at IRS’s draconian digital currency taxation rules which may allow for double taxation in treating digital currency transactions as a commodity even when used as a currency, the commissioner hailed as an example to follow the approach of UK’s Financial Conduct Authority (FCA) which “has committed to regulatory forbearance on [Blockchain] development for the foreseeable future in an effort to give innovators “space” to develop and improve the technology… [and] is even going one step further and engaging in discussions with the industry to determine whether [Blockchain technology] could meet the FCA’s own needs”.
In concluding, the commissioner drew a powerful comparison to the approach regulators employed in the early days of the internet, stating that time has proved it works as can be seen by the unimaginable changes brought by the invention of the internet in the past 20 years.
“Regulators must show that same forethought and restraint now” – the commissioner stated before adding:
[T]oday, I call on my agency, the CFTC, and other U.S. and overseas policy makers and regulatory counterparts to repeat that broad-minded approach.
Featured image from Shutterstock. CFTC image from Facebook/CFTC.