Building blocks
As interest around the revolutionary potential of blockchain technology continues to mount, PEN speaks to the founder of EDCAB, Siân Jones
Cryptocurrencies and distributed ledger technologies are revolutionising the finance industry, offering security and privacy in peer-to-peer financial transactions, and Europe is leading the way in fostering the environment for the embrace of these truly game-changing technologies. Siân Jones is the founder of the European Digital Currency and Blockchain Technology Forum (EDCAB), a non-profit organisation which liaises with policy makers, legislators and stakeholders to create a space for blockchain technology and virtual currencies. She spoke to PEN about advances in virtual currency technology, Europe’s role at the forefront of its development, and industry needs. With blockchain in its infancy – Jones likens the present stage of development to that of the internet in the early 1990s – it is evidently a critical moment for the technology.
There is a lot of interest in the developments you are working on around blockchain technologies, cryptocurrencies and related subjects. What are your views on the role of the European institutions and policy makers? Do they understand these technological innovations and the implications of their deployment?
I think that the recent European Parliament Economic and Monetary Affairs Committee report on virtual currencies shows an incredibly astute understanding of the subject. I think the rapporteurs have definitely gotten to grips with this innovation. They understand the technology remarkably well and have thought through the implications, which I think is truly insightful but also unusual, because it is a technical subject and the implications are easily misunderstood. But, in the main, they’ve avoided falling for the headlines and have instead got to grips with the subject.
What would you like to see from the European Commission or the European Council in terms of concrete actions and proposals in support of your work?
We were asked to give an address at a public hearing on virtual currencies in January, and a clip of this can be found at the EDCAB website (http://www.edcab.eu/). What we called for was in large measure what we’ve received so far; for example, we advocated that legislators should avoid jumping to introduce legislation and regulations around new technology, because the business activities and actors in those spaces are probably regulated in any event, and if they are then the development of the technology is already regulated, and, if not, then that should remain the case.
This is new technology which is in its very early infancy, but we’re trying to reach its full potential and figure out exactly what it’s going to do, what the purpose is, and what the possibilities are. We need some breathing space to achieve that end, to let the technology flourish, and then afterwards to see if there’s a need for regulation. That is actually what we’ve got from parliament, and the committee’s report has some encouraging words to say about the innovative potential and the desire not to stifle that potential with too much regulation at the outset.
At the same time, we recognise that as any new technology grows, things can change and develop quickly, and so we must keep a watchful eye on blockchain technologies in case specific risks emerge. For example, we need to keep an eye on cybercrime risks – whether credit derived or systemic risks – and, where appropriate, take whatever action is needed.
So, to monitor the technology, ECON proposed the creation of a task force that would be set up and led by the commission. In his response, Commissioner Hill indicated that the commission sees virtual currencies as something to be included in the mandate of a new FinTech task force. In this way, there may be a very pragmatic approach that won’t involve unnecessary cost burdens for citizens, but still achieves the same end result in ensuring that the technology is monitored for potential changes in risk profile.
That fairly hands-off approach is to be applauded, but there is one specific area of legislation that’s being considered as part of the commission’s action plan to combat terrorist financing, which is to include virtual currency exchanges and custodian wallet providers as ‘obliged entities’ within the 4th Anti-Money Laundering Directive, and that responds to the council’s call at the end of last year, and its endorsement of the plan at the beginning of February. I think parliament and the council will almost certainly support the proposal.
© Christiaan Colen
How does working and doing business in Europe compare to other regions of the world, e.g. the US or Asia, when it comes to innovating in finance? What advantages does that have when it comes to addressing challenges?
If we are looking at virtual currencies and blockchains then I think Europe has now positioned itself head and shoulders above other regions of the world in this regard. It’s unusual for the European Parliament, or indeed any parliament, to endorse a technology, which is in effect what they did in late May. They have recognised innovative potential and therefore the benefit of innovating in this field, which gives encouragement to innovators to start their own businesses and use this technology.
Businesses benefit from certainty, especially regulatory certainty, and this is a new technology and it has not been clear up until now what the regulatory landscape will look like. That uncertainty is a slowing factor in innovation as it affects willingness to invest, inroads for venture capital, and even businesses being able to open bank accounts.
This is a problem that’s quite widely known across a range of FinTech areas, but particularly so in virtual currency and blockchain-related businesses and start-ups. It can be a struggle to get banking operating and to open bank accounts, and part of the reason for that is regulatory uncertainty. But now, Europe has given some regulatory certainty by saying that it’s not something that they want to regulate beyond the fundamental anti-money laundering considerations that are particular to virtual currency exchanges and custodian wallet providers. That means the rest of the space – because we can’t yet call it an industry – now has some certainty that it’s not going to be regulated in terms of blockchain or virtual currency regulations, only the regulations that already exist. This allows them to know exactly what they are expected to do and what rules they need to meet when making an exchange, and allows them to work out their compliance cost and adjust their business models accordingly.
In the rest of the world, this is not the case. For example, in New York they introduced early regulation that was wide-ranging and comprehensive. When last I checked, there was only one company there with a bitcoin licence one year down the line; the small, innovative businesses had fled the state, and so you can see that that approach had a stifling impact upon innovation. Of course, this is not everywhere in the world, but I don’t know of anywhere that has given as much certainty to enable businesses to plan, operate and interoperate with other businesses, banks and payment institutions as Europe.
What is your perception of the reactions of more traditional institutions in the finance sector – banks and other organisations – to bitcoin technology and other emerging innovations?
Bitcoin and virtual currencies are problematic for banks, and I think they will remain so for some time. I’m not expecting a dramatic change on cryptocurrency-related business as a result of the adoption of this report; I think that will be a slower process, perhaps years.
But in terms of banks’ use of the technology themselves, I think we have seen a huge growth in banks’ interest in blockchain and distributed ledger technology. There are probably very few banks that are not doing some work in that space, and some are very involved, undertaking proofs of concept to see how they can use the technology to bring more efficiency to their businesses, and how some financial industries could be reshaped by use of the technology. Certainly, the regulatory certainty that’s now been given will be helpful in accelerating their interest in this field.
Siân Jones
European Digital Currency & Blockchain Technology Forum
www.edcab.eu
