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US crypto regulation could be restricting blockchain development

Jackson, Olly.  International Financial Law Review

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Trade Journal

International Financial Law Review

London: Euromoney Institutional Investor PLC

Citation/Abstract coverage: Sep 1982 - present

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; London (May 9, 2018).

A regulatory decision on whether Ethereum is a security could well have a damaging impact

A decision from the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) that ethereum – the second most valuable cryptocurrency – is a security, not a commodity could potentially have wide ranging effects on exchanges and investors. It could also further bolster regulation in a sector that had remained relatively untouched until recently.

The blockchain ethereum is the most popular choice for investors because of the ease with which it is can produce smart contracts, code capable of monitoring, and executing and enforcing agreements. While the technology is almost universally lauded as having a potentially revolutionary impact over a whole raft of sectors, fiercer regulation could restrict its development and see businesses and customers lose out on the benefits it can provide.

The blockchain ledger can process transactions more quickly, securely and efficiently than standard databases used currently. For example, using blockchain, a contract could be shared with multiple parties and edited once at a time, rather than passing around a paper document to the contracting parties. What is particularly advantageous about the ethereum blockchain are that its nodes – or users – store the most up-to-date state of each smart contract.

In March 2018, SEC chairman Jay Clayton came out in support of blockchain technology. Last week, JP Morgan filed a patent for a blockchain-based peer-to-peer payments services between banks. This is only part of a fast-increasing desire from established banks to invest in the space.

But securities regulation could put a halt to this progress, particularly when considering that issuers are often small start-up companies or even individuals who would struggle to comply with the more onerous rules. 

Kevin Grimm, chief executive of the Daily Bit, said that shoehorning blockchain...