It’s increasingly common, especially in the United States and even in the European Union, to hear complaints that political and regulatory institutions are ineffective in grappling big problems.
But when it comes to setting the stage for the advances that cryptocurrencies and blockchain can bring to the global economy, the work that is quietly being conducted at policy-setting global forums belies that outlook.
Research and study being undertaken at the Organisation for Economic Co-operation and Development (OECD), the United Nations, at the World Economic Forum and at various international policy-setting task forces are helping set the stage for how cryptocurrencies and blockchain can operate.
While these groups, including various financial task forces, do not directly set regulations in member nations, they do produce policy recommendations that explicitly inform where national and international regulations are headed.
A case in point is the Financial Action Task Force (FATF). The international policy-setting G7 task force, housed at the OECD’s offices, was set up with the goal of combating money laundering and the financing of terrorist activity and organizations.
While every banker who deals with know-your-customer and anti-money-laundering regulations knows FATF, the organization is little known outside the world of global finance. However, as FATF seeks to fulfill its mandate to stamp out terrorism financing, it must also ensure that the world of cryptocurrencies and blockchain does not become a venue for those actors.
If FATF does its work correctly, it will create a public good and will also help establish a framework that will encourage the growth of an industry that could eventually be worth $2 trillion over the next three years as hundreds of new assets classes migrate onto the technology.
The foundational bedrock of impeding terrorist financing is being able to identity both parties in a financial transaction — something the blockchain could be used to record. However, blockchain offers the promise of anonymous transactions. While those two things appear to be in conflict, they don’t have to be.
For example, FATF and other global entities are working on setting rules and standards for what’s called self-sovereign identity (SSI), potentially allowing people on the blockchain to both be verified as authentic (and not terrorists) while also allowing them to maintain anonymity, if desired.
SSI standards could remove significant risk from the nascent blockchain/cryptocurrency ecosystem — resulting in a major economic and commercial boom. It would also yield a meaningful public good, for example, allowing refugees to maintain a verifiable identity even as the fabric of their nation falls apart.
Instead of relying on states and governments to authenticate identity and prove someone is not a criminal, SSI can use such information as cell phone records, medical history, social media activity and consumer data to verify identity. Blockchain allows this to take place without revealing the content of the records, thereby enhancing privacy. That positive civic advance is the diametric opposite of the oppressive Big Brother-style use of data to control and punish citizens embedded in China’s social credit score policy.
Similarly, the OECD publishes due diligence guidance to set international rules for responsible supply chain management of minerals, including tin, tantalum, tungsten and gold, as well as all other mineral resources, including precious stones. The body is now examining the impact of blockchain on the supply chain.
A cell phone, for instance, contains about 42 minerals, which could be authenticated on different blockchains. To learn how responsible companies can deal with this, the OECD is organizing a hackathon to figure out common platforms and lexicons to overcome this new challenge of having to deal with multiple blockchains. Resolving this challenge brings an obvious economic benefit, but it also has a social good as well — helping eradicate such things as blood diamonds, for example.
This effort and others are helping establish a global taxonomy that will ease cross-border communication via a blockchain framework that is inherently borderless. As this taxonomy becomes more established and these forums develop rules and regulations, there will be myriad social benefits while the confidence underpinning the blockchain will strengthen.
We’re already starting to see the real-world benefits from the work of these international forums. In Rwanda, for example, blockchain is being used to enable banking transactions for people who previously had no access to financial services. The service will soon be expanded to such places as Kenya, Tanzania, Mauritius, Namibia, and Botswana. Rwanda is also moving its land registry to the blockchain, a move that will improve the enforceability of contracts in the rapidly growing African economy.
As global forums produce more and more standards, the business of blockchain and cryptocurrencies will grow in tandem.
Benjamin Yablon is executive vice president and director of global strategy for SALT Blockchain Financial Technology.
Get the top tech stories of the day delivered to your inbox. Subscribe to MarketWatch’s free Tech Daily newsletter. Sign up here.