Good news today that Australia has bipartisan support for cryptocurrency (e.g. bitcoin) as an offical form of currency. You can read the article here: Bipartisan push for the Reserve Bank to back Australian bitcoin (Eryk Bagshaw, SMH, 8 Aug 2017). More commentary and history at Bitsonline (Jon Southurst, 7 Aug 2017).
Liberal Senator Jane Hume and Labor Senator Sam Dastyari have formed the Parliamentary Friends of Blockchain which launches today at Parliament House.
The government can do a lot to foster an environment where Australia can lead the world in the adoption of new technologies. They can use incentives and subsidies to level the playing field in the short to medium term. They can also use regulation to create certainty and protect the vulnerable.
However, even well meaning government activity can create unintended consequences. What principles should we use to guide thought? Here are my initial suggestions:
- Self regulation can be faster, cheaper and more flexible. Shout out to the the Australian Digital Currency Commerce Association (http://adcca.org.au) for their efforts.
- Recognise blockchain is more than fintech. So this will cross multipl industries.
- Move quickly since progressive countries around the world are ahead of Australia.
- Regulate specifically to avoid trying to shoehorn blockchain technologies into existing regulations.
- Regulate lightly to avoid killing innovation.
Blockchain is more than fintech. Hu Liang produced a nice quadrant analysis (CoinDesk, 6 Aug 2017) and chart (below). Clearly the revolution has started in the lower right (Quadrant 1) with bitcoin, other digital currencies and payment solutions; clearly “fintech”. Applications start to stray further from fintech in Quadrant 4 (i.e. new asset classes, don’t just think of financial capital) and further still in Quadrant 3 (a new technology stack).
However, the biggest disruption will come in the bottom right (Quadrant 2 - Decentralised Infrastructure) where the blockchain creates new means of social and commercial organisation.
In all these quadrants, blockchain will touch multiple industry segments that matter to Australia, including agriculture, energy, government, health, logistics, media, and resources, as well as finance.
We need to move quickly, as many nations are already actively supporting blockchain and building a critical mass of talent, expertise and capital. These countries include Estonia, Singapore, Switzerland and China. This is an area where australia's sophisticated economy, relatively small population (but not too small) and geography can play to our advantage.
By regulating specifically, I mean that we should try to avoid shoehorning blockchain into existing regulations for currency, securities, banking or tax. Blockchain is based on fundamentally different concepts and relies heavily on network effects (somewhat like money, our predominate social organising tool). However, a particular digital token may have the characteristics of a currency, security, document, contract and digital app - which regualtion should apply?
Regulating lightly is crucial to avoid crimping innovation. A great example is the internet itself. While individual fortunes were won and lost, the decision to regulate lightly has led to benefits to society.
Moreover, prescriptive regulation always creates loopholes. Perhaps rather than anticipate every possible scam, we could use big data to detect market failures. World leading researchers at Australia’s Capital Markets Cooperative Research Centre have already commercialised technology that can detect dozens of types of market failure.
Australia is managing the secretariat of the international technical committee for the development of blockchain standards after the ISO approved Standards Australia’s proposal for new international standards on blockchain. This is a great opportunity, but there are risks. Like money, blockchain is a tool for social organisation, so we need to consider the social implications of technical standards. As an engineer, I know we're not always the best people to make implicit policy decisions, and I have seen it happen in the energy industry. Moreover, premature levels of standardisation could stifle innovation or enable large corporations (that can afford to send staff to the standards setting process) to entrench incumbency.
Other nations are moving to create safe sand boxes and unleash innovation, and build critical mass. Lets not be left behind. Lets take a few small but calculated risks as a nation.