Shin’ichirio Matsuo is a research professor and the director of
B-TED research center at Georgetown University. He is also a co-founder
of the BSafe.network, a global blockchain research test network used by
31 universities.
Since 2015, when bitcoin became an issue for regulators like the
state of New York, the regulation of cryptocurrency (the G20 now calls
it as a crypto asset) has been discussed in many places, mainly at
bodies like the Financial Stability Board (FSB) and the Financial Action Task Force (FATF).
However, Facebook’s Libra cryptocurrency
has changed the landscape, ensuring a massive number of debates on
regulation are likely ahead. To be sure, these debates will be about the
size of companies specializing in internet technologies more than they
are about technology architecture.
Yet, throughout the history of crypto asset and blockchain,
regulators have been considered an enemy, even as most governments have
sought new financial innovations based on the blockchain.
The main issue is, we still don’t have proper communication channels
among stakeholders in this ecosystem. Regulators don’t have a functional
language to talk with open-source engineers. Open-source engineers
sometimes do not want to speak with regulators.
Business entities wish to use new and immature technologies by
avoiding frictions with regulation. Citizens need transparency to
business entities, but there are no standard criteria to ensure
transparency of business. Generally (and I hope) regulators don’t want
to discourage innovation, and open-source engineers don’t want to
facilitate crimes. The goals of both are almost the same.
But, to make the situation more productive, we need to solve this communication problem. That is now beginning to happen.
Historical discussion at the G20
On June 8 and 9 of this year, the G20’s financial ministers and
central bank governors met in Fukuoka, Japan, bringing together a group
of 20 governments that discuss issues related to economics.
The FSB, FATF and the International Organization of Securities
Commissions (IOSCO) are the organizations which form regulations under
G20 leadership. Before the G20 financial track, the FSB published an
insightful report titled “Decentralized financial technologies: Report on financial stability, regulatory and governance implications.”
This report emphasized the importance of multi-stakeholder
discussions, and that regulations and laws are not an 100 percent
perfect tool for forming a healthy ecosystem. It concluded contributions
from all stakeholders, including open-source engineers, are essential.
On June 8, the G20 held “G20 High-level Seminar on Financial
Innovation Our Future in the Digital Age” to discuss the issue of
multi-stakeholder governance.
This was indeed the genesis block of discussions by different stakeholders, including Klas Knott, the vice-chair of FSB, Brad Karr, managing director of IIF (a world group of established banks), Adam Back, the famous cryptographer, Shinichiro Matsuo (myself) who represents neutral academia views, and Jun Murai
(moderator), the famous “Internet Samurai” who developed the first-ever
inter-university internet communications network in Japan.
All Panelists: Jun Murai, Adam Back, Brad Karr, Klas Knott, and Shin’ichiro Matsuo (from the left)Knott firstly explained the FSB report and the views of his fellow
regulators, including their regulatory goals. Karr went on to discuss
many potential applications of decentralized finance, including
financial inclusion. Back explained how blockchain technology is an
excellent tool to achieve regulatory goals.
I discussed how multi-stakeholder discussion would facilitate healthy
permissionless innovations in decentralized finance. We further agreed
that the multi-stakeholder discussion is essential for decentralized
finance to be made real.
As a result of this seminar and G20 discussion, the following historical sentence was written in the official communique.
“We welcome the FSB report on decentralized financial
technologies, and the possible implications for financial stability,
regulation and governance, and how regulators can enhance the dialogue
with a wider group of stakeholders.”
What multi-stakeholder governance means
In general, governments tend to keep their right to control
everything. The internet, which creates a global space of communication,
was the first challenge to this order. Here, “global” is different from
“international,” because it is independent from the nation.
The internet is also one of the most successful cases of multi-stakeholder governance.
Even in the case of the internet, the government tried to be the only
entity of governance, but the effort failed; governments are one of the
stakeholders of Internet Governance Forum (IGF) and Internet
Corporation for Assigned Names and Numbers (ICANN).
This structure is an excellent foundation that facilitates a huge
amount of permissionless innovation, but is also compliant with
regulations. A similar situation will happen in finance, and this is the
reason why the FSB and G20 are working toward the communique, through
the involvement of multi-stakeholders might imply reducing their power
of governance.
Here, stakeholders include open-source developers, regulators,
business entities, consumers and academia, who are all seeking to solve
the current chaos in terms of regulation and innovation in finance. I
think it is good to start with have common understandings of regulatory
goals; they are financial stability, consumer protection and preventing
crimes.
Multi-stakeholder discussion on these goals will create healthier governance than regulation.
Academia facilitates the dialogue
Unfortunately, communications among stakeholders are not sufficient
at this moment. However, we need more calm dialogue based on shared
understandings and based on academically reviewed pieces of evidence.
One piece of good news is there are several existing initiatives which facilitate discussions among stakeholders. The Scaling Bitcoin workshop
was established in 2015 to create a forum for technology discussions
led by academics. Likewise, regulators today discuss their work with
academics and economists.
Picture of G20 meets G-20 workshop in VancouverThis in mind, I believe academia can serve as a good trust anchor and
neutral foundation to connect all stakeholder in one place.
A group of universities (currently 31 universities from 14 countries) called BSafe.network has
started a new initiative to facilitate multi-stakeholder discussions
based on its global neutrality. Right after the G20 financial track
meeting, BSafe.network held a multi-stakeholder workshop “G20 meets G-20” with the University of British Columbia. It was the first event of a preliminary series of multi-stakeholder discussions.
A similar workshop, “Decentralized Financial Architecture Workshop,”
will be co-located with Scaling Bitcoin 2019 Tel-Aviv, and we hope to
see real engagement between regulators and bitcoin engineers.
Observing the current debates on Facebook’s Libra, I conclude we need
more moderated and academia-backed discussions to make innovations
healthier. The fact is, the Libra Association does not explain how their
architecture achieves regulatory goals. Common understandings on
regulatory goals and architecture among all stakeholders are essential
to start a regulation discussion.
This is a good test case to apply the multi-stakeholder governance.
It may be more difficult than the case of internet governance to
establish a formal body for multi-stakeholder discussion on finance. It
might take more than a year. However, I believe the historical message
triggered by the G20 and a series of workshops will open the door to a
new era of a healthy blockchain ecosystem.
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