Navigating Blockchain’s Complex Regulatory Landscape

Andreas Veneris, professor of electrical and computer engineering at the University of Toronto, tells PYMNTS why cross-border payments would be a good start for blockchain regulation.

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Legislators have been toying with the idea of regulating the blockchain field for several years, but they only recently started passing legislation in earnest. This interest is long overdue, said Veneris, spurred by the collapse of the stablecoin TerraUSD this past May. This fall cost investors tens of billions of dollars despite its pegging to the U.S. dollar, casting intense doubt on the viability of stable cryptocurrencies.

“The collapse of TerraUSD brought up the need for stronger, more thorough and more detailed regulation to protect the public from scams and fishy cryptocurrencies,” Veneris said.

These regulatory efforts remain quite slapdash, however, as lawmakers are still trying to understand this complex technology and craft appropriate legislation. Governments commonly perceive cryptocurrency as a payment for dubious purposes and not as its own complex economy on par with traditional financial systems.

“The regulatory environment is still a mess, but in fairness, it’s still a very new medium,” he said. “But the genie’s out of the bottle right now, and they cannot stop the ride. It’s like BitTorrent 20 years ago. The music industry tried to scare people into not downloading songs, but that didn’t work out at all.”

The best way forward for blockchain regulations is to focus on cross-border payments, said Veneris. These already rely on international cooperation and avoid the central problem of per-country regulation. Different countries will likely never totally agree on the best way to regulate the blockchain, and cryptocurrency exchanges can easily flock to the country with the loosest laws and continue to sell all around the world.

“For the purposes of advancing interoperability, it might be necessary for regulators to have some provisions that are similar,” he said. “If they are not similar, there will be a lot of opportunities for regulatory arbitrage, where one country’s regulations are not in line with another country’s regulations. People might want to take advantage of other jurisdictions with relaxed regulatory provisions.”