In this video, we'll call on the work of Blockchain Research Institute contributor, Joel Telpner. He's chair of the FinTech and blockchain practice at the law firm, Sullivan & Worcester. We look at attempts to regulate the Internet previously and also financial markets and what they can teach us about blockchain regulation. The Internet is a good comparison with blockchain, another disruptive in global technology, and finance of course is tied to blockchain by cryptocurrency applications like Bitcoin and the Ethereum and overall the digitization of financial assets, which is underway. It's still no simple task to regulate the Internet. It sits at the intersection of computing and communications, and it's global. Some of the early Internet pioneers insisted the Internet couldn't be regulated because of its openness and its international and global reach. A more mainstream group of users agreed the Internet was free from state regulation, but they recognized the value of self-regulation. Lots of blockchain users now repeat these arguments almost word for word. It's safe to assume that blockchain industry folks like early Internet developers have more expertise than most regulators do on the subject. We can learn from the Internet's development in areas like technical standards setting. In reality, the Internet didn't develop in a fully regulation free zone. It's public adoption was marked by massive copyright infringement, so much so international treaties were signed to get a handle on the industry shaking problem of piracy. The Internet of information really broke our whole intellectual property regime because it was a platform for publishing information. We didn't have a platform for communicating assets so we ended up publishing assets, and that was a big problem. So there were treaties along with some heavy handed domestic regulations to implement them, and they show us that the mainstream reaction is two little self regulation. The debate over net neutrality is a good example. Net neutrality means broadband providers should allow equal access to all content in applications. Supporters say it would lead to better information, freedom of speech, prevent cost, discrimination, encourage innovation, competition, and investment in infrastructure. It would also make full Internet more accessible to everyone. Opponents argue that a neutral network would actually decrease innovation and investment. So the United States implemented a net neutrality policy under the Obama administration. The current administration is since reversed the policy. Regulators should watch what happens next and still the lessons relevant to blockchain technologies and applications. We'll eventually find out which approach actually protects the public and promotes innovation. So blockchain, the second era of the Internet, is also fundamentally different from the first era. The first era enabled people and organizations to communicate, copy, and manage information. The second era deals much more with very fundamental things, assets like money, securities, intellectual property, our identities, cultural assets like music, or votes. All of which there is a stronger public interests. In these areas, societies expect governments and regulators to get involved and to protect their interests and to ensure that there's no criminal behavior and to create stable, opened, and well-functioning market places. So the old view, hands-off the Internet, doesn't apply the same way to hands-off blockchain because it's dealing with assets at the core of our economy. We can elect to finance when asking whether complex problems call for complex regulation. Some 9.3 million American families lost their homes in the great mortgage meltdown of 2008. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was the answer to this crisis. But that regulation is thousands of pages long and contains hundreds of provisions requiring US regulators to make and roll out new rules and conduct dozens of studies. The big financial services institutions have spend billions of dollars to comply with these new rules. Community banks and credit unions who don't have those kinds of resources have struggled. The cost of complying with the new rules has hit them hard. Over half of those people pulled on Dodd-Frank's impact agreed. Financial services regulation had little effect or destabilize markets even more. Regulators need to pause and to learn from the unintended consequences of their overreaction to a crisis or to some new innovation. European Parliamentary Research Services issued this caution. They said legal systems may not be able to assert any control over the borderless, decentralized activities taking place on distributed ledgers. Geographically defined legal systems don't usually prosecute crimes beyond their borders, and in a sense national regulation is the wrong size for this global technology and global economy. So blockchain will test the resolve of local officials who tried to assert their separate and sometimes opposing interests. Blockchain community needs to push governments before it's too late. They need to push for adoption of a set of global blockchain rights, guiding government's approach to regulation. These rights should address a minimum things like unrestricted access to blockchain applications, as appropriate, unless those applications violate our overall social contract. They should also address the balance between your right to distribute and to access information, and your right to privacy and to protect your data. They should also address the legitimate need for governments to restrict the flow of information, provided it's infrequent and the reasons are transparent. The enforcement of contractual rights must also be enshrined because international commerce depends on such confidence. These rights must also keep in mind civil societies wide-ranging a variety of standards for measuring torches, libelist, and defamatory acts. Blockchain applications will continue to push the limits on how to deal with such varied perspectives. We mustn't use distributed ledger technology to disregard societies behavioral norms, nor should regulators disregard our core values. As with the Internet, there are different approaches to the level of regulation around blockchain development and growth. As for major brands and institutions, for their work developing blockchain applications to fit their existing products. They're creating apps to handle all kinds of transactions more cheaply and securely. Their large global footprints can withstand the cost of regulatory compliance across multiple jurisdictions, and then the experience and resources to deal with competing regulatory demands. These dynamics don't apply to start-ups, especially in this space. Small companies usually lack the resources to create the needed policies and procedures across jurisdictions. Sometimes regulators don't even have start-ups on their radar and make no regulatory efforts to monitor them. It's clear that there's no single regulatory model we can apply to both powerful incumbents wading into blockchain and to the smaller development groups and startups. To complicate things, such start-ups and entrepreneurs aim to disrupt how we do business. Their new blockchain applications will eventually displace or could destroy current players in market, after market. Think about what Amazon did to the traditional not just book industry, but to the retail industry. Some of these businesses hope to bring millions of people into the global economy, especially in developing markets with financial products offered on blockchain. They work outside traditional banking channels, outside the reach of current regulations and oversight. A patchwork of regulators won't cut it to govern a blockchain-based market driven by small diverse players. A key challenge for regulators is to protect the public interest but not to crush innovation because this technology is at the heart of building a whole new innovation economy. Distributed ledgers have already changed how we do transactions, and it usually cuts the cost of intermediaries like exchanges and clearing agents. The applications and methods coming from these technologies may have significant unexpected effects on operations and enforcement even when unrelated to existing regulations. So policymakers need to rethink how they regulate certain activities. Overall we'll be well-served if regulators understand blockchain adopt principles tailored to distributed ledger technology and then implement them in an open, clear, and consistent way.
