Much of the success of the technological revolution of the past several decades has been that either governments have chosen not to regulate or to impose only light touch regulation, or that innovation has simply happened faster than regulators could keep up.
But now, regulators and legislators seem increasingly eager to impose government involvement as soon as an innovation hits the headlines.
So, with the increasing visibility of cryptocurrency legislators and regulators have been busy. Forbes magazine reports that Members of Congress have introduced 18 pieces of legislation to regulate or otherwise involve government in blockchain or cryptocurrency. Seventeen states have done the same according to the National Conference of State Legislatures.
What is blockchain and cryptocurrency? A block chain is simply a list of transactions, with the information related to a transaction, such as date, time and payment forming a “block.” The buyer and the seller can see the entry, the block of information, as it is shared online in an electronic ledger and confirm its accuracy. Multiple buyers or sellers can be involved in a transaction. As each transaction occurs new data blocks are created to form a “chain.” The chain of blocks can either be viewed and interacted with openly, called “permissionless” or interaction can be limited to certain people, called “permissioned.”
Blockchain is an underlying technology then, not an application. Blockchain operates via distributed computing, that is, a blockchain operates by sharing computing tasks across different computers which could be located anywhere. This is unlike cloud computing which allows a person to store and access data via the internet rather than on local hard disk storage. That is, one can store data or access information “over there” on a computer rather than “right here.”
Cryptocurrency is only one application of blockchain technology. This distributed computing-based ledger of transactions technology can be used for all manner of transactions such as recording of real estate records, copyright ownership or medical records. Or could be used for contracts or even voting. The use of blockchain makes sense whenever the goal is to enhance security and transparency, to provide enhanced traceability of transactions and to create greater efficiency and reduced costs.
Digital currency is an ideal use of blockchain technology. The transaction list allows for people who do not know each other to make secure transactions without a third-party verifier, such as a bank. This saves the costs of involving a third party, enhances security as no sensitive information is exchanged so stolen identities and the financial harm are nearly eliminated.
But it’s not just the middle men who get cut out by blockchain-- government cannot grab its cut of the money either. And that may be why regulators are going off the chain on blockchain.
December 9, 2021