Why world regulators do not trust the blockchain systems?

Blockchain technologies have stirred up not only the wide public, but also administrative structures of many countries by theiremergence.

It should be noted that for many years this system has remained an amateur "niche" invention of a community of programmers who dreamed of creating an independent economic structure.

Only when investors of the Silicon Valleybecame interested in the chain, even those who are less interested in financial innovations have gradually learned about it.

Every year, more and more notes appeared in the network about transactions with bitcoins and other Internet currencies.

The value of cryptocurrencies depends directly on their relevance and, as soon as advertising influences have been strengthened, both popularity and the rate of some cryptocurrenciessoared to unpredictable level.

Thus,bitcoins  with other cryptocurrencies, ICO with its tokens, crypto-exchanges and many other thingsnaturally became part of our life.

Regulatory authorities are increasingly showing their distrust to the blockchain projects, referring to the inconstancyof the cryptocurrency market.

But the real problem for state bodies and major economic regulators was its independence. Large-scale financial transactions can be made between partners directly, information about them remains the most confidential, and minimum amount for the speed of the completion of the transaction is paidinstead of taxes.

The fact is that the information in the blockchain system is not stored in one place, but is distributed among a multitude of participants in the chain. At the same time, each new information block is hashed by arbitrary participating computers, which makes its decoding practically impossible.

Blockchain can memorize huge amounts of information, which can not be forged or altered.

Banking and management financial structures that should keep the world economy stable could not leave the blockchainout of account. Taking into consideration that the cost of the most prevalent cryptocurrencies reaches thousands of dollars, thenlarge-scale financial transactions are being carried out through the blockchain system, which the state can not track.

Despite the foregoing, the points of view of government authorities on the blockchain vary greatly; some of them are fundamentally negative, another ones are trying to maintain neutrality, and others are creating a loyal regulatory environment to attract such a digital business.

Today, the main "pitfalls" of blockchain in the opinions of regulators are the following factors:

1. There is no legal basis for the blockchain as a source of unchanged dataand dataprotected from unauthorized hacking, which could confirm their reliability from a legal point of view.

Before using blockchain as a unique and reliable source of correct information, appropriate legislative framework is required, which has not yet been developed. In spite of the fact thatthe blockchain is recognized as the reliable and protected from the ill-intentioned interferences registry of information in the IT community, there are still no precedents for the legal recognition of the authenticity of its data.

2. Lack of legal framework regarding the territoriality of blocks of distributed registers. By definition, common distributed blockchain registers do not have a specific location. Thus, each of the nodes of a chain can fall under different legislative requirements of different jurisdictions.

There is no "central controlling body" that would regulate each particular register. As it is impossible to trace the primary sources of the blocks of a chain, it is also impossible to assign responsibility to anyone for the information that they contain.

3. The main financial instrument of the blockchain network is the cryptocurrency. Its purchase and use in a growing number of areas of business threaten the economy of each state in macro-scale.

Blockchain remains uncontrollable and ungoverned for regulators, and large-scale financial transactions are carried outwithin it. Based on its technology, new forms of investment are being created and an innovative Internet economy is being built.

The development and influence of economy are too difficult to predict in the degree of correctness that would satisfy government regulators.


You can contact Law&Trust International’s lawyers to find out more about regulating blockchain in specific jurisdictions via online chat or by phone.