About the author: Shin'ichirio Matsuo is a researcher in cryptography and information security at Georgetown University and co-founder of BSafe.network, a blockchain research and testing network used by 25 universities around the world.
Since Bitcoin became a concern for regulators such as the State of New York in 2015, discussions on the regulation of cryptocurrencies (currently known as G20 as cryptographic assets) have been in full swing around the world, including the Financial Stability Board (FSB) and financial operations. Discussions by institutions such as the Task Force (FATF) have attracted more attention.
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However, Facebook's cryptocurrency Libra has changed this pattern, and there may be a lot of debate about regulation in the future. To be sure, these debates will revolve around the size of Internet technology specialists rather than the technical architecture.
However, looking at the history of crypto assets and blockchains, although most governments are looking for new financial innovations based on blockchain, regulators have long been considered an enemy of blockchain.
The main problem is that in this ecosystem, we still have not established appropriate communication channels between stakeholders. Regulators do not have a functional language to communicate with open source engineers, and open source engineers are sometimes reluctant to talk to regulators.
Business entities want to use new, immature technologies to avoid conflicts with regulation. Citizens need to provide transparency to business entities, but because there is no universal standard, this transparency is hard to secure. In general, regulators do not want to hinder innovation, and open source engineers do not want to contribute to crime. The goal of both is almost the same, which is what I hope to see.
However, in order to make the situation much better, we need to solve this communication problem. This situation has now begun to change.
G20 historic discussion
On June 8 and 9 this year, the G20 Finance Minister and the Central Bank Governor held a meeting in Fukuoka, Japan, to convene a group of G20 member governments to discuss economic issues.
The Financial Stability Board, the Financial Action Task Force and the International Organization of Securities Commissions (IOSCO) are the bodies that develop regulatory rules under the leadership of the G20. Prior to the G20 Financial Summit, the Financial Stability Board published a well-reported report entitled "Decentralized Financial Technologies: Report on financial stability, regulatory and governance" (Decentralized financial technologies: Report on financial stability, regulatory and governance) Intention).
This report highlights the importance of multi-stakeholder discussions and points out that regulations and laws are not the perfect tool to form a healthy ecosystem. The report concludes that the contributions of all stakeholders, including open source engineers, are critical.
On June 8, the G20 leaders held a high-level seminar on “G20 Digital Age Financial Innovation and Future” to discuss the governance issues of multi-party stakeholders.
This is indeed a groundbreaking discussion, with different stakeholders involved in the meeting, including FSB Vice President Klas Knott, cryptographer and Managing Director of IIF (a world-renowned banking group) Brad Karr, and Jun Murai, a well-known “Internet Warrior” who developed the first inter-school Internet communication network in Japan.
The author takes photos with Klas Knott, Brad Karr, Adam Back, and Jun Murai. Source: Coindesk
Knott first elaborated on the report of the Financial Stability Board and other regulators' views, including their regulatory objectives. He went on to discuss many of the potential applications of decentralized finance, including inclusive finance. Back explains how blockchain technology can be an excellent tool for achieving regulatory goals.
I spoke about how the discussion of multi-stakeholders can promote the healthy development of unlicensed innovation in decentralized finance. We further agree that the discussion of multi-stakeholders is critical to achieving decentralized finance.
After this seminar and discussions with the G20 leaders, the official communiqué issued the following historical words:
“We appreciate the Financial Stability Board's report on decentralized financial technology and its potential impact on financial stability, regulation and governance, and how regulators can strengthen dialogue with broader stakeholders.”
What does multi-party stakeholder governance mean?
In general, the government tends to retain the right to control everything. The Internet has created a global space for communication and is the number one challenge to this order. Here, “global” is different from “international” because it is independent of the state.
The Internet is also one of the most successful cases of multi-stakeholder governance.
Even in the Internet sector, the government tried to be the only governance entity, but it ended in failure; the government is one of the stakeholders of the Internet Governance Forum (IGF) and the Internet Corporation for Assigned Names and Numbers (ICANN).
The foundation of this structure is strong, it not only meets regulations, but also promotes a large number of unlicensed innovations. A similar situation will occur in the financial sector, which is why the Financial Stability Board and the G20 are working towards the goals of the communique through the participation of multiple stakeholders, which may mean that their governance capacity will be reduced.
Here, stakeholders include open source developers, regulators, business entities, consumers, and academia, all of whom are looking for ways to address the current chaos in financial regulation and innovation. I think it's best to start with a common understanding of regulatory goals; these include financial stability, consumer protection, and crime prevention.
Discussions of these goals by multi-stakeholders will create healthier governance than regulation.
Academic promotion dialogue
Unfortunately, there is currently not enough communication between stakeholders. However, we need more calm dialogue based on evidence of common understanding and academic review.
The good news is that some of the existing initiatives have facilitated discussions among stakeholders. The Scaling Bitcoin workshop, established in 2015, aims to create a technical discussion forum led by academics. Similarly, regulators are today discussing their work with academics and economists.
2019 G20 Financial Innovation Seminar. Source: Coindesk
At this point, I believe that academia can act as a good trust hub and a neutral foundation to connect all stakeholders.
A university group called BSafe.network (currently 31 universities from 14 countries) has launched a new program to promote multi-stakeholder discussions based on global neutrality. After the G20 Financial Tracking Conference, BSafe.network and the University of British Columbia jointly organized a multi-stakeholder seminar called “G20 Meets G-20”. This is the first activity of a series of preliminary discussions among various stakeholders.
A similar workshop called the Decentralized Financial Architecture Workshop will be held in conjunction with the Scaling Bitcoin 2019 Tel-Aviv conference, and we hope to see a real exchange between regulators and Bitcoin engineers.
By observing the current debate about the Facebook Libra project, I came to the conclusion that we need more moderate discussions and support from the academic community to make our ideas healthier. In fact, the Libra Association did not explain how their architecture achieved management goals. A common understanding of the regulatory objectives and structure of all stakeholders is a necessary condition for starting a regulatory discussion.
This is a good test case for multi-party stakeholder governance applications.
Establishing a formal multi-stakeholder financial discussion institution may be more difficult than Internet governance, which may take more than a year to complete. But I believe that the historic message conveyed by the G20 and a series of seminars will open a new era of healthy blockchain ecosystems.