[co-author: Lauri Lai]
As previously reported, on Thursday, March 9th, the Federal Trade Commission (FTC) hosted a forum on the consumer implications of recent developments in artificial intelligence (AI) and blockchain technologies. This is the second of two entries on the March 9th FinTech Forum. Today’s post focuses blockchain technologies. Coverage of the opening remarks and the AI discussion may be found here.
Blockchain Technologies
The panel discussions on blockchain technologies reflected the nascent stage of the technology, with industry representatives expressing confusion over the applicability of current regulation, and regulators expressing a lack of clarity over jurisdictional questions. Although blockchain technology is currently being utilized primarily for digital currencies such as BitCoin, the technology is beginning to proliferate in other sectors and many uses remain untapped. As panelist Peter Van Valkenburgh, Director of Research at the Coin Center, explained, blockchain technologies are simply “connected computers reaching agreement over shared data.” Where connected computers have shared data, each node can be used by another to verify identity credentials (including personal data such as credit scores), property records, or provisions of digital goods. Upon verifying the information the connected computers can also execute a transaction against that shared data as is the case, for example, in securities transactions.
The panelists all agreed that there was a great need for education on blockchain technologies—for consumers, regulators, and even large financial institutions. Justin Slaughter, Chief Policy Adviser and Special Counsel to Commissioner Sharon Bowen at the Commodity Futures Trading Commission, warned that without full understanding of the technology, regulators and firms risk overpromising what the technology can provide and discrediting the technology in the eyes of the general public. Because the technology has yet to be widely adopted, the panelists urged interested parties to begin educating themselves now so that they could be positioned to develop effective policies and practices when appropriate.
Because the connected computers that power blockchain technologies can be located anywhere in the world, blockchain technologies allow for seamless transactions across borders. While this is one of the primary drivers of the technology’s potential, it has also led to widespread jurisdictional confusion.
The panelists expressed concern about the segmented nature of financial regulation in the United States as compared to more unified systems in Singapore or the U.K. Slaughter, for example, suggested the possibility of forming an inter-agency task force to tackle the jurisdictional issues.
In the absence of a clear regulator and a limited understanding of the technology and its applications, the panelists primarily coalesced around the idea of developing industry-specific best practices until the technology matured. But some cautioned that the demand for innovation sometimes outpaces the development of responsible rules and regulations, and even industry self-regulation sometimes is not as consumer protective as is warranted.
Finally, blockchain technology’s ability to permanently keep ledgers raised privacy concerns. Aaron Wright noted that BitCoin is not anonymous, but pseudonymous, and constantly leaking metadata that may allow the data to be de-anonymized. Because Bitcoin keeps a permanent ledger of transactions, it is essentially a traceable digital cash that may enable surveillance or otherwise be misused. The interplay of blockchain and established privacy principles such as data retention and deletion will likely surface with calls for regulatory or self-regulatory solutions to address consumer concerns.
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Video and transcripts from the forum will be available here.
