How Blockchain Trends Depend on Regulation?
A comprehensive regulatory framework will give Blockchain technology the boost it requires to earn the trust of both businesses and consumers. Learn more in this article.
Since Satoshi Nakamoto (whose true identity remains a mystery) created Bitcoin’s whitepaper in 2008, we have experienced an explosion in applications for its underlying technology – blockchain. Presently, tech has become a significant force to be reckoned with, threatening to impact every industry from banking and finance to voting and government.
We have witnessed the Mastercoin and its use of ICOs for the first time, the collapse of several crypto exchanges such as Mt Gox, the rise of smart contracts through Ethereum, the ground-breaking $75m Coinbase fundraising, and whatnot. But are we past the experimental phase of blockchain? And what are the prospects for the technology? Here are the top blockchain trends that have defined its future.
Blockchain Businesses Need Coordinated Regulation
Businesses related to various industries worldwide have been exploring blockchain’s potential for honing key processes, but already in 2018, a significant shift in favor of practical applications was initiated. According to a study by Deloitte, 74% of traditional businesses can see themselves applying blockchain. Also, more than 40% can envision their organization adopting blockchain in the future.
The Intercontinental Exchange (ICE), in collaboration with Microsoft, Boston Consulting Group (BCG), and Starbucks, launched a venture called “Bakkt,” intended to offer a regulated Bitcoin market.
The Australian Securities Exchange has already dropped its CHESS system to employ a distributed ledger technology based on the blockchain. But, of course, it had been testing the system for years before making the bold move.
Institutions have been busy building new business models around blockchain technology, if not already using it. If this kind of shift is any indicator, it goes to show that companies and institutions will continue to embrace the technology. The only thing slowing us down at the moment is the lack of coordinated regulation.
Attention to Cryptocurrency Industry from Regulators
Whenever a ground-breaking technology like blockchain comes into play and starts creating large sums of wealth, those in power tend to intensify their scrutiny. This might not come as good news to those of us whose enthusiasm in the blockchain is partly owed to the free markets. However, a comprehensive regulatory framework will give the technology the boost it requires to earn the trust of both businesses and consumers.
The only issue is that regulatory agencies (such as the US-based SEC, CFTC, and FinCEN) seem to approach this issue from contradicting angles. For example, according to a report released by CBINSIGHTS, the U.S. Securities and Exchange Commission (SEC) treats most tokens as securities.
SEC Chairman Jay Clayton expressed that he wished to separate ICOs and cryptocurrencies to regulate ICOs like securities offerings. At the same time, SEC summoned to court several cryptocurrency organizations and hedge funds that held ICOs.
In the meantime, FinCEN is treating any developer that deals in convertible virtual currency (including ICO coins and tokens) as a money transmitter. In short, it treats cryptocurrencies as money, which is contradictory to the CFTC’s definition, which considers cryptos to be commodities. The good news is that many industry policy organizations – like Coin Centre – are swift in their effort to offer blockchain educational resources and programs to legislators and regulators.
Outside the U.S. borders, South Korea moved to regulate cryptocurrency exchanges the same way as banks. Such government support for crypto trading sets a much-needed example for other countries.
In Russia, the government is establishing new blockchain and cryptocurrency regulations through state Duma. Likewise, Dubai has been quick to announce its integration of blockchain into multiple projects. Meanwhile, Malta is championing crypto-friendly laws in the Mediterranean.
However, the borderless nature of blockchain technology poses a significant challenge when it comes to regulation. Therefore, the most successful regulatory framework will be a global one, or at least one that aligns with the rules of most countries.
Reverse Initial Coin Offerings (ICOs)
Blockchain companies sometimes sell tokens in the form of ICOs to raise funds. These tokens provide utility within (or access to) the decentralized system. However, the tokens are scarce and most often rise in value according to the laws of supply and demand.
ICOs have become a prevalent approach to attracting investments for startups in the blockchain space. So far in 2018 alone, according to ICODATA.IO, funds raised through ICOs exceed $7B.
As new players join the blockchain game and the industry expands, a new trend has been developed – reverse ICOs. Essentially, it happens when an already established company launches an ICO and then shifts the whole business or simply a part of it to the tokenized structure. For example, Kik, a popular messaging application, raised funds for their decentralized offerings through a reverse ICO.
Any established company can take advantage of the reverse ICO model to bring decentralized solutions to the table while attracting a new blockchain-based platform. It is quite an effective technique because the company usually has a working business model, an established customer base, a reputation, an existing infrastructure, and a team already used to working in harmony.
Security Tokens (STO)
Another trend that has set the pace for blockchain is security tokens, which are given through Security Token Offerings (STO). They offer exactly what they sound like – securities on a blockchain ecosystem. Their principle is not so different from traditional ICO, only that they most often represent shares of its equity.
STOs have breached the gap between the blockchain industry and the conventional financial systems. They could represent any form of real-world assets, from company shares to real estate and other financial assets.
One advantage of STOs is that they can be programmed so that the code determines how they are utilized – like a loan being programmed to pay out automatically – and they cut off intermediaries. What’s more, their digital nature translates to liquidity, making it easier to trade one’s assets over the web.
Among the companies exploring STOs is Polymath (with POLY token), Overstock (with tZero), Securitize, and CoinList.
One clear thing is that blockchain technology always has one more trick up the sleeve, especially when you consider that it is still in its early stages.