Say the word ‘blockchain’ and most will think of Elon Musk and Dogecoin, or the NFT craze that swept the internet, churning out fan tokens and capitalising on noughties memes. But these are just distractions to the real power of blockchain. At its core a decentralized public ledger system, the technology within will fundamentally alter how we are connected to the world around us in the future.
Blockchain is invisible and everywhere. Without its underlying technology, many of our daily activities would be halted, or even made impossible. Morning commutes spent listening to Spotify would fall silent due to the platform having no way to collect fees from users and advertisers. Orders from Amazon would sit in warehouses for weeks thanks to the shutdown of supply chains all over the world.
Doctors would lose access to private medical data. Homes outfitted with smart tech would be unusable. Refrigerators would not be able to talk to delivery services, facial recognition doorbells would lock owners out, and autonomous cars would sit useless on their driveways. And if anyone wanted to sell their now impractical house, even mortgages have entered the blockchain market.
Despite all these established uses, blockchain’s role in everyday life is still only just getting started. Cryptographically protected distributed public ledgers are a powerful tool which will replace many existing private centralized ledgers with profound effects on our global markets and society.
But the promise of free decentralisation has gotten governments scared. China is the clearest example of the hard line drawn in the sand, disallowing all exchange of cryptocurrencies except those sanctioned by the central state. And just this week, the United States quietly issued a relatively hidden provision in the new $1 trillion bill to help pay for new roads and bridges by doubling down on the tax collection of crypto activities.
As Hailey Lennon, crypto and blockchain regulation expert writes: “If passed, the regulation will require any broker (a person or company who regularly provides a service that executes transfers of digital assets on behalf of another person) to report those transactions to the IRS, like securities brokers must do for stock and bond trading.”
Importantly, the bill casts an overly broad and ambiguous net over the blockchain industry that threatens to strangle it just as it is starting to mature. This isn’t just the latest attempt by state governments to apply brick and mortar rules to the internet, but one that could inflict a real blow to the industry.
If the ambiguity remains, it risks pushing innovation overseas, as has been the case with the lack of clarity in recent years from the SEC. It may also condemn blockchain developers to downsize their business actions in fear of broaching vague legal definitions. And anyone who participates in cryptocurrency networks, even consumers, could unknowingly find themself in violation if deemed a broker. These risks seriously disincentivize mainstream adoption of blockchain.
As it stands, blockchain largely exists in a regulatory black hole. Since its inception, it has confused policy makers and scared off politicians. The answer of how to proceed is therefore not simple. Too much regulation, as the US has shown, threatens to hinder technological innovation. Too little, and blockchain runs the risk of becoming side-lined as a passing fad once surrendered to market forces.
This is not to say the industry itself is without fault. There is a lack of interconnectivity within technological development with exciting developments often walled-off within expanding markets such as healthcare and financial technology. A climate of hyper-privacy, once lauded as competitive, has proved too opaque for regulatory forces.
But there is room for optimism—many forget that blockchain technology will be a multi-decade transformation. It will take time to nurture the same level of public trust in its social security as a traditional database created and maintained by a central governing body. Even so, already hundreds of billions of dollars of blockchains applications are operating today to keep financial systems running and secure.
The UK is best positioned to learn from the mistakes of US policymakers, but with the added freedom of securing consumer protection that has seen big tech platforms such as Amazon and Facebook criticised by governments for mishandling user data. If the UK shines a more welcoming light on blockchain, it has reason to leverage public ledgers to benefit every aspect of British life, such as democratic elections.
With smarter regulation, a decentralised network of blockchains will carry the potential to give back control to the individual, perhaps even in time proving itself as the most democratic technology created in human history.