On March 9, I participated in a BECON Conference taking place in Barcelona in a panel to discuss blockchain and government. BECON (Blockchain Ecosystem Network) is a global and cross-sector platform for collaboration, networking, explaining and advancing Blockchain methodologies and solutions. In partnership with BECON, the goal of the Catalan Ministry of Presidency is to accelerate the growth of a sustainable ecosystem that drives the application and implementation of Blockchain in all private and public sectors in Catalunya.
As a lawyer passionate about innovation and technology, I drew the attention to the debate of how the challenges posed by blockchain technology should be addressed from a regulatory standpoint. Should we adopt a permissive approach and accept risk-taking in order to allow experimentation and innovation? Or, otherwise, should we adopt a precautionary approach, the thinking that often governs policy towards emerging technologies and disallow innovation until it is proved that they will cause no harm?
This discussion comes down to the debate between regulation and deregulation, and to whether a lack of regulation is synonym of restriction, something which is currently at the forefront of discussions in our courts regarding the sharing economy both at the national and European level and affects all technological developments.
The term “permissionless innovation” refers to the notion that experimentation with new technologies and business models should generally be permitted by default. It is not an absolutist position that rejects any government intervention. Rather, it is an aspirational goal that stresses the benefit of allowing innovation as the default position to begin policy debates. It switches the burden of proof to those who favor precautionary regulation and asks them to explain why ongoing experimentation with new technologies or business models should be disallowed.
A culture of permissionless innovation has been traditionally common in the United States. After spending last summer in Silicon Valley with Imagine Creativity Center working precisely in a project with blockchain technology, I can say that a permissionless innovation culture can have a tremendous impact to promote innovation and opportunities and would allow us to attract international talent, retain and incentivize it and to transform Barcelona and Spain in an innovation hub.
Regarding the particular case of blockchain technology, because bitcoin is the only case of massive use of blockchain technology, the first steps at the regulatory level in Europe have been centered in the conceptualization of this criptocurrency, particularly from a taxation point of view and for anti-money laundering purposes.
One of the main worries of regulators is the decentralized nature of this technology and the anonymity of its users, which incentivizes the OTC (Over-The-Counter) market. Therefore, there is a challenge to prevent its misuse for illicit purposes and to reinforce the benefits of this technology, such as transparency, traceability and cost reduction.
It is clear that there are regulatory challenges that have to be addressed at a cross-sectorial level. The global and distributed nature of this technology reinforces the need of defining its legal nature, who should be held liable in the event of error or malfunction and the recognition of legal validity of the data or documents stored in the blockchain and of the smart contracts as legally binding agreements, amongst others.
In addition, one of the main questions remaining is how, in a context of anonymity of users distributed worldwide, we are going to determine the jurisdiction and applicable law. In these cases, and especially when the execution of a smart contract fails for some reason, faced with the difficulty and insecurity of determining who is liable, the solution that is being proposed is the uptake of insurance by the parties, centralized or descentralized. This type of solutions can have a tremendous impact in the way we address our relationships nowadays. Faced with these challenges, one of the main issues is trying to solve global problems with local solutions. We should take into account the worldwide regulatory context and follow the best practices.
In the US, the state of Vermont is the first one at the international level to enact a law that presumes that documents and data stored in the blockchain are authentic and valid in legal proceedings. In addition, other US states are exploring the use of blockchain technology. Particularly, the State of Arizona is considering legislation stating that smart contracts are essentially equivalent to all other forms of valid contracts. In both cases, state law is being amended to create a kind of legal backing for blockchain-based information creating legal certainty about this emerging technology and promoting experimentation and innovation. This type of regulation promotes the development of this technology and attracts international talent to develop use cases.
In the long run, another interesting debate is the analysis of the Federal Reserve, which draws the attention to the possibility of having to modify many of our current regulations, especially in the financial industry, as our systems are centralized-based. If this disruptive technology becomes a standard, many regulations and systems that have been around for many years will have to change at a global level.
Summing up, in my opinion, we should embrace a culture of permissionless innovation, promoting the experimentation with new technologies and business models and providing legal certainty. Blockchain, as a permissionless system, requires a permissive aproach to regulation to develop all its potential. The same applies for all emerging technological developments. This is the way if we want to position Barcelona as a leading innovation hub.