Crypto economics Government: Blockchain Governance [Institutional Cryptoeconomics]
Cryptoeconomics Government Series
Let’s go straight to how blockchain works. On the utilization of cryptography in blockchain in the form of SHA256 for Bitcoin, Dagger-Hashimoto algorithm for Ethereum and Scrypt for Litecoin posed a huge challenge to regulatory attempts.
The current surveillance program, such as those run by the NSA or sharing programs such as the 5-eyes are not able to break current cryptography methods as they are sufficiently robust given computing power available today.
This meant that blockchain frameworks cannot be stopped. It can be outlawed but is not completely enforceable by agents of the country at a low cost. [At the moment that is, in 2017]
Many key policy makers and central bankers thus, have two underlying decisions to make on the blockchain framework.
1. How willing will my nation (government as a whole) be willing to work with blockchain developments?
2. How are national regulatory bodies (Cybersecurity, Anti-money Laundering, and Police) going to regulate and enforce the use of crypto currencies [such as Bitcoin for illegal purposes eg. narcotics purchase, or international crime?
Point 1: National Blockchain development (Institutional Cryptoeconomics)
Depends entirely on the amount of exposure that the leading faction or democratic/autocratic leader of the country had received. A nation’s willingness to adopt blockchain framework and benefit from blockchain economics depends entirely on the initial adoption of cryptoeconomics blockchain frameworks. Some successful examples include:
• Switzerland, specifically Zug which carried out the world’s first pilot program and started accepting Bitcoins in lieu of Swiss francs CHF. There exists today a ‘Crypto Valley’ in Switzerland, launched with strong intentions to become the de facto location for cryptocurrency businesses and foundations globally. Development roadmap of the Crypto Valley can be found at www.cryptovalley.swiss
• Singapore carried out Project Ubin. A project organized and managed by the country’s central bank. “UBIN” was a project that pulled together nationally licensed banks in Singapore in order to use blockchain frameworks for immediate payment settlements (and thus clearing). It has been indirectly addressed as “Singapore Dollar on Ledger” which meant that the government of Singapore had acquired sufficient ground knowledge to move some or all of its essential central banking functions onto a blockchain framework if it so desires. Leveraging on its acquired knowledge on blockchain economics and cryptoeconomics.
The UBIN Project involved banks such as the Development Bank of Singapore [DBS], JP Morgan, Bank of America, Credit Suisse.
Readers will do well to notice that the two countries mentioned above are global banking powerhouses. Their governments and policymakers have decided to adopt a positive-neutral and rigorous developmental stance.
Read on as we examine the friendliness index of current governments on cryptocurrencies and blockchain economics globally
National Government Friendliness Indicator [This Indicator was last updated on September 16, 2017. CLICK HERE FOR THE LATEST UPDATED LIST]
Readers will do well to notice that the two countries mentioned above are global banking powerhouses. Their governments and policymakers have decided to adopt a positive-neutral but developmental stance.
- Japan [Laws have been passed on the asset’s status]
There are many countries that have signaled similar intentions too.
- Papua New Guinea
- South Korea [The author acknowledges that both South Koreans and the Chinese are large market makers. However, user adoption does not mean adoption by key decision makers]
- Canada [See South Korea]
- China [Previously neutral stance remains to be reviewed, pending PBoC’s stance on cryptocurrencies in general. ETH ICOs have however been banned.]
- United States [The author notes that the Nebraska Ethics Board [appointed by Nebraska state Supreme Court] allows all lawyers of the State of Nebraska to accept Bitcoin in exchange for services provided. Coupled with Silicon Valley, tech evangelists, and consistent cryptography innovation the United States retains a Neutral rating]
- Russia [Previously negative stance has been upgraded to neutral]
On the flip side, countries that are unsure will tend to adopt a neutral-negative approach instead of a fully negative approach.
As of this post, the countries/intragovernmental organizations are:
- European Union [As an EU body, EU regulators funded US$5 million to research methods to possibly defile the integrity of existing blockchain frameworks]
- United Arab Emirates
Negative Approach – A negative approach does not mean that the country named isn’t developing blockchain frameworks for its own use or licensing others to do on its behalf. Rather the government has little to no interest in Blockchain Governance in general:
- Thailand [BTC banned, only govt licensed blockchains are allowed]
- Taiwan [Taiwan’s supervision body blocked the propagation of Bitcoin ATMs from being deployed. The government will have to do more to signal any real intention of developments]
- India [India’s Central Bank issued a forward guidance concerning the use and network effects of Bitcoin and all other cryptocurrencies. The act of issuing this guidance can be interpreted as a negative view.
– Readers should note that a government’s current stance is not an indication of their stance going forward. Governments can switch positions and postures whenever it is beneficial for them.
– A government’s current stance also does not mean that developments are not occurring within the country. In fact, governments that are anti blockchain might feel the need to look into crypto economics and Bitcoin economics even more to enact plausible regulations.
– A government’s stance is not an indication of its population adoption of blockchain frameworks and their interest in blockchain economics. Take the Chinese for example, who are huge supporters of Bitcoin, Ethereum and all other cryptocurrencies.
Without the physical world, Ideas will not exist.
– Joey Lawsin
- Government and policing bodies can implement regulations immediately only through increasing surveillance tools employed against residents within its borders. This means that the state will have to deploy additional resources to enforce rules and regulations with regards to blockchain adoption.
- Implementing regulations now meant that governments will be going in blind. Risking additional costs while knowing that cryptographic methods such as SHA256 will take millions of years to crack in 2017.
- Regulators do not only have to ensure that tax requirements are met. Older blockchain frameworks such as BTC [baseline SHA2] might be broken by hostile agents. In that case, regulators and government officials would need to step in to prevent any compromise the blockchain. Protecting it
It is a fact that government employees, civil servants, and industry regulators face many challenges when trying to regulate blockchain. We will examine more direct methods of governance in the next update.
Cryptoeconomics Asia has two concurrent topics at the moment. Firstly, the micro cryptoeconomics series which is targetted for general readers who wish to understand current developments in the blockchain framework. Secondly, the government/governance series which are geared towards civil administrators and holders of public office.
Read about Crypto Microeconomics Series below.
Links to the Full Crypto Microeconomics Series
Crypto Microeconomics (Intro)
Crypto Microeconomics – Basic Definitions in Cryptoeconomics Part 1 & Part 2
Crypto Microeconomics – Role of Economics (Irrationality)
Crypto Microeconomics – Extended role of economics
[This Article] Crypto Microeconomics – Introduction to Cryptoeconomic Microfoundations
Crypto Microeconomics – Basic Models and Agents
Crypto Microeconomics – IO Perspective
Crypto Microeconomics – The Real Economy