Crypto Asset & ICO Governance, Risk Management & Compliance: Concise Guidebook for Financial and Legal Service Providers to The Emerging Crypto Asset Class
In 1439 a European Goldsmith created an invention that would change the course of history. The machine was hand powered and extremely primitive by industrial standards, and yet it has been credited for the industrial revolution itself and continues to this day to have a very profound impact on virtually everyone’s life. Blockchain technology should have no less of a disruptive impact.
The first time I worked with blockchain technology, I understood immediately that this thing was real and was going to be a game changer. The clearance and settlement of a typical securities transaction still takes days. I worked for several years at the largest securities clearing firm in the world out of law school, and had first-hand experience with the ancient technology and inefficiencies of the current back office and operational infrastructure in the securities industry. We know that all centrally planned and controlled systems eventually fail, and the more complex they are the more catastrophic the failure. The decentralized nature of the blockchain makes it more effective, efficient and fault tolerant. As a finance person who also happens to be a lawyer, and aside from the legal aspects, I view the blockchain and Initial Coin Offerings (“ICOs”) as a great evolution in the financial services industry and one that could potentially unleash free market capitalism as never before and create global financial inclusion.
The impact of global financial inclusion should not be underestimated, this may have more of an impact than anything else that ever occurred throughout human history except for the expansion of literacy.
In the same way that cell phones and solar panels have allowed people in underdeveloped economies to skip steps to modern globalism, blockchain has use cases such as voting, legal records and land title recording that will have the ability to empower individuals at the expense of controlling and oppressive governments. Free market capitalism has proven to be the best path to prosperity, and the blockchain and its applications empower individuals at the expense of central planners of government bureaucracies. The decentralization of computing power, like the expansion of literacy, will create economic abundance that will impact everyone on a very individual level. Global financial inclusion will create not only a future of economic abundance that we can’t even imagine, but an entire new world order of individual empowerment and a new world of possibilities.
There’s a misconception by some that Crypto Currencies (“Crypto”) is an unregulated activity and nothing could be further from the truth. It is regulated, so the real issue is just by whom and to what extent. Where Crypto is being used to disrupt traditional industries and businesses, the old rules still apply. Because blockchain is a decentralized, global technology not owned or controlled by any person, business or government, it is for all practical purposes already self-regulated to a great extent by the developers, users and community on a technical level. If government does nothing else, it ought to protect the rights and interests of the least of its citizens and so far, and this is what the United States Securities and Exchange Commission (“SEC”) is doing in going after the most egregious cases of fraud in the ICO’s space. That being said, in virtually all developed and free market economies there are vast bodies of law that apply to the underlying products or services, whether on or off the blockchain, and I think it might serve the industry better not to lose sight of this fact.
There appears to be a disconnect between both the understanding and knowledge of the regulators versus this technology, as well as between existing rules and regulations and the operational realities and potential of blockchain technology.