Why Regulatory Complexity Is Suddenly a Big Deal for Enterprise Blockchain Adoption

by Steve Murphy 0

blockchain

This article appears in VB (venturebeat) and the title applies to general industrial usage, not just financial services, for which regulatory concerns around blockchain is certainly nothing sudden. The author’s points generally apply to the eventual transition from early stage implementations, which have been permissioned blockchains, to public network as industrialized versions come to market.

Enterprises have come a long way in the last 18 months as they adopt blockchain technology. Companies have moved through the PowerPoint phase and into proof of concepts and pilots and are now headed to the industrialization phase, but we are still far from the vision of general purpose network infrastructure moving value the way the internet moves information.

Another important point is that implementations have not been particularly about moving money, and certainly not in cryptocurrencies.  Longer term scale and blockchain efficiency is wrapped up in the ability to move goods, information and payments together. The author points out that tokenized assets are a key, along with settling payments in fiat currencies, not cryptos. FSIs are particularly conservative about this point, not just because of the notorious regulatory uncertainty but also volatile nature of the crypto space. But this piece is about general industry, where the same concerns exist.

In addition to tokenizing assets, companies want to settle their payments in traditional currencies. Most actual financial transfers on blockchains today are in cryptocurrencies, but most companies do their business in traditional fiat currencies like the dollar or the euro. 

So just as FSIs navigate the regulatory landscape on a daily basis, larger industrials tend to also tiptoe around the blockchain space until clarity arrives

The most efficient way for companies to do business with each other is to move away from private blockchains and shift to public networks. That’s not feasible right now because public network transactions have no privacy, but as improved cryptography tools become more widely available, specifically zero knowledge proofs, it will be feasible for companies to have secure, private transactions over the public networks, starting as early as 2019……The key obstacle to realizing any of this vision is regulatory clarity. Once companies put their assets on the public networks and start transacting with them, they must take into account many of the same rules that banks need to around Know-Your-Customer (KYC) and Anti-Money-Laundering (AML).

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

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