Regulators and standards bodies are at risk of standardizing obsolete technology by creating rules for blockchain networks that are already years old, according to Joe Pindar, blockchain and cryptography director at Thales.
“There have been three generations of blockchain, starting with the Hyperledgers and the Ethereums, which came first and were the most widely used. The industry moved on to a new generation called IOTA, which is applicable to the internet of things. Now we’re in the third generation, with the likes of Cosmos,” he says.
“What organizations like the International Organization for Standardization (ISO) are running the risk of is that this is still a very new, emerging technology. Two of those generations of blockchain, and all of the technological benefits that they deliver have been released after the standardization process has begun. We’re standardizing obsolete technology, and that should be a concern for standardization committees.”
The ISO lists 11 standards for blockchain and distributed ledger technology under development. ISO/CD 22739, a standard on terminology which has progressed furthest, is currently in the committee stage of development. It faces two more stages – enquiry and approval – before publication.
“There are two sides to this,” says Tim Mcgarr, digital market development manager at the British Standards Institution (BSI). “One is to make sure that standards are updated to make sure these new developments come in, and the second it to make sure that these organizations – the ones in the first and second generations of blockchain – are involved in the work, as well as those pushing the latest iterations.”
The BSI lists 11 standards under development, though one is currently in its approval stage: PD IDO/TR 23455, which aims to create an overview of the interactions between smart contracts in blockchain systems.
“Standards can actually really help rather than hinder the growth of blockchain,” says McGarr. “In some spheres it has an unwarranted reputation and to get it to the mass market you need to convince general businesses which aren’t very technology focused that this is something good for them.” McGarr adds that the BSI has an open-door policy when it comes to the makeup of its standards committees and welcomes those that want to push the technology forward.
In the US, the Commodities and Futures Trading Commission (CFTC) released a request for input on cryptoassets and the workings of the Ethereum blockchain. The Securities and Exchange Commission (SEC) awarded its first no-action letter (NAL) to a blockchain-based fundraising platform on April 3. In a speech the following week, SEC chairman Jay Clayton said that the regulators division of enforcement has brought cases “that demonstrate there is a path to compliance with federal securities laws going forward.”
“What I think makes perfect sense is where well-designed regulations don't go down into specific detail of using a specific type of service using a specific network protocol,” says Pindar. “It’s better to be based on principles. For example, if you have an asset and it is transferred and there is a capital gain there are rules and procedures you have to go through. All of this can be applied to blockchain in its current form.”
Often the problem comes down to how blockchain technologies are defined, adds Pindar. “Quite simply, from a technological perspective we don’t know how to fully define them. There are certain characteristics which are relevant in all different types of the blockchain environment, but some are very different. For instance, a first generation blockchain may have everything connected together in a single network. It’s like everyone trying to connect to your local office network and all the transactions trying to go through that.
“What something like Cosmos has realized is that it doesn’t work like that. You have to have different zones of people working together, being connected together. It’s a model that has worked for the internet and is widely successful.
“My concern is that people are so focused on that first generation blockchain getting off the ground they are trying to do everything on a single network,” adds Pindar. “The likes of JP Morgan and other innovators in the space and doing exactly the right thing, they are focusing on mature technology that's on the shelf right now, but they know that over time there can be efforts put in place to work out how you can connect to multiple networks.”