Blockchain Applications: Regulatory Horizons Beyond Finance
Main Takeaways
While much attention is given to the regulation of virtual assets like cryptocurrencies, Vishal Sacheendran, Binance's Head of Regional Markets, argues that blockchain technology's potential extends far beyond finance. Various industries such as supply chain management, healthcare, real estate, and energy are beginning to adopt blockchain, each with its own unique regulatory challenges.
Policymakers should expand their attention beyond virtual assets to consider how blockchain impacts other critical sectors.
In this piece, Vishal emphasizes the importance of collaboration between regulators, industry experts, and technology providers to develop effective regulatory frameworks.
A few weeks ago, I had the privilege of participating in the Second Digital Innovation Academic Forum in Korea. There, a distinguished academic posed an intriguing question: when it comes to blockchain applications, why do we keep hearing so much about the regulation of virtual assets, but barely anything about the regulation of other types of blockchain use cases?
Regulation of cryptocurrencies commands a lot of mainstream attention; however, virtual assets and finance are not the only areas where blockchain applications require regulation. Looking beyond the âcrypto hype,â regulators should also focus on other areas and industries where this technology will require new rules of the road and tailored approaches.
Virtual assets have emerged as a brand new asset class â and as such, regulators have raised concerns about their potential for being abused for fraud, money laundering, and other financial crimes. The exponentially growing popularity and adoption of virtual assets and the lack of mainstream knowledge about the intricacies of this blockchain application, have put them under the spotlight, leading to intense regulatory scrutiny.
The Financial Action Task Force (FATF) has established guidelines to ensure that virtual asset service providers (VASPs) adhere to anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations. The U.S. Securities and Exchange Commission (SEC) has been actively pursuing enforcement actions against projects and assets it branded as securities. In Europe, the Markets in Crypto-Assets (MiCA) regulation has been recently enacted to create a comprehensive regulatory framework for digital assets. These efforts highlight the massive regulatory attention that virtual assets receive globally.
While the regulatory focus on virtual assets is understandable, it is crucial to pay attention to the fact that blockchain technology will revolutionize various industries beyond finance, which warrants careful evaluation across the board. Holding the promise to transform various critical sectors of society, from supply chain management and healthcare to real estate and energy, blockchain-based applications will continue to require regulatory attention, posing both general and unique sector-specific challenges to policymakers.
The Need for Sector-Specific Regulations
Regulations are normally tied to concrete use cases (rather than the underlying technology that powers the use case), and that's why the blockchain rules and regulatory solutions will likely be tailored to areas of implementation. For instance, in finance, regulations need to ensure robust AML and CFT measures, as well as investor protection. In healthcare, regulations should focus on patient data privacy and the secure sharing of medical records. For NFT art, the legal status of artwork, copyright, and ownership rights must be clearly defined and enforced.
A collaborative, adaptive, and sector-specific regulatory focus allows for designing a regulatory landscape that addresses the challenges and opportunities of each sector, taking into account its unique combination of risks and challenges. Letâs take a look at a few sectors that have pushed forward with blockchain innovation.
In supply chain management, blockchain can track the provenance of goods from origin to consumer, ensuring transparency and reducing fraud. Walmartâs blockchain initiative has achieved this by tracking the journey of food products from farm to shelf, thus significantly reducing the time taken to trace the source of foodborne illnesses. VeChain, a leading blockchain platform, has been at the forefront of using blockchain technology to enhance supply chain transparency and efficiency in China. VeChain has partnered with Walmart China to track food products' journey from farm to shelf. Using the VeChainThor blockchain, Walmart China can provide customers with detailed information about the origin, processing, and logistics of food products by scanning QR codes on the packaging.
Challenges here involve ensuring data integrity, maintaining the privacy of trade secrets, and establishing liability and accountability across international borders. To address these issues, regulators could implement standards for data sharing and verification while ensuring that proprietary information is protected.
When it comes to healthcare, blockchain can secure patient records, streamline data sharing among healthcare providers, and track pharmaceuticals. A good example is MedRec, a project developed by MIT, which uses blockchain to create a decentralized health record management system, giving patients control over their medical data. The regulatory challenges in this sector include compliance with data protection laws like the Health Insurance Portability and Accountability Act (HIPAA), ensuring data accuracy and integrity, and managing consent for data sharing. Solutions must involve developing blockchain standards that align with existing healthcare regulations and creating frameworks for managing patient consent and access.
Another example, Myongji Hospital, one of South Korea's leading healthcare providers, has partnered with MEDIBLOC, a blockchain-based healthcare information platform, to enhance the management and security of patient data. MEDIBLOC's blockchain platform is designed to securely store and manage patient health records. In South Korea, healthcare providers must comply with the Personal Information Protection Act (PIPA). To address these regulatory challenges, MEDIBLOC ensures that its platform adheres to local data protection laws. The platform uses advanced encryption techniques to protect sensitive information and provides a transparent audit trail to ensure compliance with regulatory standards.
Voting systems represent another promising application of blockchain technology. Blockchain can create secure, transparent, and tamper-proof voting systems for elections. Here we should worry about ensuring voter privacy, preventing fraud and coercion, and verifying voter identities while maintaining anonymity. Addressing these challenges might involve developing cryptographic methods to anonymize voter identities and implementing robust authentication mechanisms to ensure the integrity of the voting process.
In 2018, Tsukuba City, known for its technological advancements and innovation, conducted a trial using blockchain technology for voting in a local election. This initiative was one of the first instances of using blockchain for voting in Japan. The blockchain technology ensured that each vote was securely recorded and immutable, making it impossible to tamper with the results. In Tsukuba's trial, the city worked closely with technology providers and legal experts to ensure that the blockchain voting system complied with Japan's regulatory framework. The system was designed to protect voter anonymity and ensure that all data was securely encrypted and stored.
In the real estate sector, blockchain can facilitate property transactions, maintain land registries, and streamline the verification of property ownership. Swedenâs Lantmäteriet (Land Registry) has been exploring blockchain to digitize and automate property transactions, reducing the time and costs associated with traditional methods. Meanwhile in Singapore, companies like Fraxtor provide a blockchain-enabled real estate investment platform that allows investors easy access to tokenized real estate investment projects.
Regulatory challenges here include defining legal recognition of blockchain-based property records, managing cross-border property transactions, and ensuring compliance with existing real estate laws. Hence policymakers need to expand legal frameworks so that they recognize digital property records and develop international standards for cross-border property transactions on blockchain.
Last but not least, in the energy sector, blockchain can be utilized to manage a more efficient distribution of our scarce energy resources. For example, Power Ledger, an Australian technology company, utilizes blockchain to enable peer-to-peer energy trading. Power Ledger has expanded its footprint to the United States, France, Austria, Malaysia, Japan, India, and Thailand. By recording energy transactions on the blockchain, Power Ledger facilitates transparent and efficient energy markets, allowing consumers to buy and sell excess solar energy directly with each other.
The challenges are standardizing regulations across jurisdictions, ensuring data privacy and security, and integrating with existing energy regulations. Solutions call for developing international standards for energy transactions, implementing robust data privacy protocols, and creating frameworks that build on top of existing energy regulations per jurisdiction.
Looking Beyond The Hype
As illustrated by specific use cases above, each blockchain application comes with its unique set of massive regulatory challenges that are not easy to tackle, requiring extensive research and understanding of the different sectors, constant experimentation and reiteration, debate, and trial and error by various public and private stakeholders. At the same time, some challenges are similar across many applications.
Why are we not hearing more about them in policy discussions?Â
Policymakers have an opportunity to broaden their focus beyond virtual assets to consider the revolutionary applications of blockchain across various sectors. By looking beyond the current hype on finance and cryptocurrency, regulators can allocate their resources more effectively. The regulatory approaches that have advanced in the cryptocurrency space can serve as inspiration and guidance, but most things will have to be worked out anew. This strategic regulatory expansion is crucial for unlocking the full potential of blockchain technology across the board.