From the underground
From the underground

It has been a big month for blockchain technology, which has made the crossover from the underworld to the halls of central banks and the executive suites of Goldman Sachs. In late September, a Congressional Blockchain Caucus was launched and the DC Blockchain Centeran information hub for policymakers, opened. Both mark an interest in the United States in the underlying technology of bitcoin. CIGI Senior Fellow and digital currencies expert Julie Maupin is researching the international law dimensions of blockchain technology. We caught up with her to get a sense of what these recent initiatives mean for the future success of blockchains, and how distributed ledger technologies stand to change the way we organize our collective lives, for good.

CIGI: Though blockchain technology isn’t new, the organizations and individuals talking about its promise are. To what extent do the initiatives in Washington signify a changing perception of the technology?  

Julie Maupin: The uptick in Washington interest shows blockchain is hitting the mainstream.  It’s no longer viewed as a counterculture technology whose appeal – and potential utility – is limited to the criminal underworld.  Blockchain is slowly starting to penetrate the awareness of a much broader spectrum of society.  What started out as a shiny new toy within an insular community of cypherpunks has quickly spread to tech start-ups, then angel investors, then the research labs of large global companies, then government innovation offices, then on to regulators, lawmakers, and now increasingly, the general public.  There’s still a long way to go before the average person starts sprinkling words like “blockchain” or “cryptocurrency” or even “bitcoin” into daily conversations, much less actually using blockchain based applications for everyday purposes.  But the trajectory has been explosive; it’s moving much faster than internet adoption.  I think Washington’s interest – and the equally fierce interest shown in recent weeks by the European Union and by major governments in Asia, Africa, and Latin America – indicates a desire both to understand the technology and also to ensure government doesn’t fall too far behind.  There’s a recognition that blockchain is coming and coming fast, and that early movers will be better placed than latecomers to tap its potential.

CIGI: For those who might not know much about blockchain, why is it a game changer for the banking industry?

Maupin: The simple answer is that it’s a cheaper, faster, more secure, and potentially more private way of transferring money and assets. I live in Germany, and most of my family lives in the US.  Suppose I want to send my niece $100 for her birthday.  If I send the money from my German bank account to her US bank account, it will take 7-10 days to clear, passing through 6 to 10 intermediaries along the way (each of which takes its cut), so that in the end only about $65 actually arrives on the other end.  And the smaller the transfer, the more gets eaten up in fees along the way.  But if I transfer the same amount of money using a blockchain-based currency like Bitcoin or Ether, the transfer will take somewhere between 17 seconds (in the case of Ether) and 10 minutes (in the case of Bitcoin) to clear, and it will cost me pennies to validate.  I often demo this “live” when I give talks on blockchain to public audiences.  It takes about two minutes, an internet connection, and two internet-enabled devices (mine and theirs) to generate a digital wallet for a random audience member and send him or her some cryptocurrency.  People are astounded by how easy and efficient it is.

CIGI: What other applications could blockchain technology have?

Maupin: Money transfers are only one of many exciting potential applications for blockchain.  You can think of a blockchain as essentially a distributed digital database whose entries can be trusted by all who interface with it.   They can be set up in such a way as to allow anyone and everyone all over the world to view, access, and transact on them (so-called “public” or “permissionless” blockchains); alternatively, they can be constructed so as to permit usage by only certain persons or institutions whose identities have been verified (“private” or “permissioned” blockchains).  The technicalities differ across the two settings.  But taken together, they open up a whole new world of digital transacting possibilities.  

Investors can be enabled to trade stocks, bonds, options, derivatives, and other financial instruments with one another – directly and globally – without ever having to go through a broker or central exchange.  Voters can cast their ballots for government office-holders on secure, tamper-proof digital ledgers from the convenience of their homes (no more need for polling stations and voting booths).  Similarly, corporate shareholders can be empowered to vote their shares and proxies without having to attend shareholder meetings in person.  Governments can authorize individuals to transfer titles to land, automobiles, intellectual property rights, and other titled assets in exchange for money on an official government blockchain that records the transfer in real time and thereafter serves as proof of ownership.  Companies can use blockchains to improve their global supply-chain management.  Some of the possible applications being floated at present sound mundane, others revolutionary, and still others wildly utopian.  But if even 10 per cent of these applications materialize, it could portend a significant re-organization of not only our markets but our societies in the coming decades.

CIGI: A recent IBM study found that 65 per cent of banks expect to have blockchains underway in three years. What would an uptick in blockchain use mean for international regulations around financial transactions?

Maupin: More use will inevitably lead to more regulatory intervention.  Inefficient as some of our existing global financial regulations are, there are legitimate public policy aims behind them, and those won’t disappear with the advent of blockchain.  The interesting question is what global blockchain innovation will mean for global regulatory innovation.  Blockchain is by nature a jurisdictionless, and in some cases even identityless, technology.  Geospatially, it’s simultaneously everywhere (global) and nowhere (de-centralized across distributed nodes, all of which can operate without location identifiers).  It’s theoretically usable by anyone, but since users are digitally represented “on chain” by strings of letters and numbers, it’s possible for them to remain pseudonymous.  In fact, some of the latest privacy-oriented blockchains we’re now seeing launch (Monero recently, and soon ZCash) could even make total anonymity possible.  This is great news for personal data privacy, but potentially very bad news for some existing regulatory regimes, like the anti-money-laundering and counter-terrorist financing rules. 

The challenge, in a world of blockchains, is that attempting to regulate financial transactions on a country-by-country basis starts to make less and less sense.  The technology cries out for new forms of cooperation across governments – creative and experimental ways of embedding the policy goals of our existing financial architecture (the laudable ones at least!) into this new de-centralized digital landscape.  I’m very optimistic about it.  I think the technological innovation going on in blockchain today is going to prove tremendously productive for governance, both within and across borders.  Blockchains are giving everyday citizens easily accessible alternatives to existing power structures.  Where those power structures have failed to meet the needs of their constituents, they should and now can be disrupted.  In the end, this kind of healthy competition will serve democracy well.

There’s a recognition that blockchain is coming and coming fast, and that early movers will be better placed than latecomers to tap its potential.
The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.