Regulation has always been a topic for discussion in blockchain. Typically, this is in the context of how the blockchain and digital asset industries might be regulated, and whether existing regimes should be made to accommodate blockchain and the new applications which stem from it.
But blockchain’s power lies in its ability to provide solutions to a broad range of problems. Rather than wait to wonder what regulators will do next, blockchain developers should ask how blockchain can be used to assist regulators – not just those with responsibility for the digital asset industry, but for other industries as well.
And if blockchain is about solving problems, then regulation has problems to solve. In fact, the regulatory community has the same problems many others are struggling with – security, record-keeping, redundant and siloed data – but it is also still playing catchup with digital criminals who are becoming more sophisticated every day. Reporting obligations continue to pile up, increasing the complexity and intensity of compliance work for both the regulatory bodies and the regulated businesses – exponentially more so for smaller firms who are just getting started.
Regulation is not the enemy
But regulation shouldn’t be seen as a threat. It is a critical part of society and is vital for allowing new industries and disruptive technologies to reach their potential responsibly. If regulators and compliance teams can do their jobs effectively, everybody stands to benefit. The less room for wild-west companies to offer non-compliant and ultimately damaging services, the better.
In order for regulation to avoid being cast as the enemy, it needs to be practical both in its conception and enforcement. This is the reason for the RegTech movement, and it’s the reason that blockchain is the perfect partner.
Increasing regulations are manageable with blockchain
A blockchain is simply a ledger, the kind held by millions of users, companies, government agencies and other entities to keep their records. But with blockchain, there can be one single ledger which is distributed, meaning it is contributed to by many people and yet transactions recorded on the ledger itself are unchangeable and immutable. This offers transparency without the need to trust a third party to maintain the ledger. In turn, this means that a blockchain is a much faster way of storing and accessing data than any traditional system could ever be.
With blockchain, the accuracy of records is assured
A blockchain’s ability to store and process massive amounts of data can also simplify tax compliance by providing a robust system for ensuring the accuracy of records. It also means that the record will be kept in real-time, speeding up every business process which relies on data retrieval and removes the need for arduous reconciliation tasks.
Imagine what it would mean to have a distributed, transparent, immutable and auditable ledger of transactions for things like identity verification.
Rather than a person needing to verify their identity for every organisation that needs it (which will inevitably lead to inconsistent data and introduce multiple vulnerability points for attackers), a person might use an app, powered by blockchain, to act as a repository for their identity information. Those who need to verify identity – government services, for example – would make an identity verification request to that user, who will use the app to give approval for the third party to access their identity details.
Once verified, the verification will be recorded on the blockchain. This avoids the need for sensitive identity data – such as passport information – to be stored in countless data centres across the world, any of which might be vulnerable to cyberattack. For the entity seeking the verification – who is likely an institution subject to strict know-your-customer requirements – their compliance is easily verified and provable.
Blockchains are scalable
The throughput and scalability offered by some blockchains means that all of this can become a reality. For example, Bitcoin SV can scale right now, having already been tested to handle volumes of transactions that rival that of VISA, currently considered the gold standard for transaction processing, and can do so at a fraction of the cost.
What this all means is that through blockchain, regulation has the chance to shake its reputation of painful and onerous administrative work for both the compliance team and the regulator. It can be made simpler and at the same time far better: more secure, more efficient, more transparent than the status quo. It can’t be forgotten that fundamentally, regulation is made for the betterment of society. What makes regulation better makes society better.