The rise of every new technology or industry comes with added regulatory scrutiny, as we’ve witnessed with the internet, social media, ridesharing,and many other sectors. Regulators are treading a fine line between regulating it with the right approach, which will enable the industry to prosper and gain mainstream adoption, or by over-regulating it, which may inhibit its potential. Finding the right balance when navigating through areas for regulation in new technologies can be challenging but a task that regulators need to embrace. New technologies and industries can bring massive benefits to the community through economic growth, improved quality of life, etc but at the same time without adequate regulations, bad actors may thrive in extracting value from genuine participants. The following quote illustrates the thinking behind regulating with the right approach: “Speed limits and traffic lights provided public safety but also helped cars become mainstream. It is only with bringing things inside—and sort of clearly within our public policy goals—that new technology has a chance of broader adoption”. The current regulation outlook revolves around two key areas: 1) KYC/AML compliance and 2) classification of securities.
How blockchain can prevent Fraud through the decentralization of information
Greed is the excessive desire for more than is needed or deserved — not for the greater good but for one’s selfish interest, and at the detriment of others and society at large.
Bad actors with the intention of committing fraud to one’s selfish interest will design an elaborated scheme to have full opacity within the organization.
In private companies, full internal controls are very often not in place which might be due to the nature of the industry where the company needs to be nimble.
This gives rise to opportunities for bad actors to plot fraudulent schemes at the expense of the company.
As actions are not verified, third parties and information are not readily available due to the nature of the system, where only decision makers hold all the information.
This creates an obvious point of failure, with severe information gaps between employees of an organization, resulting in the lack of transparency, therefore, allowing fraudulent activities occurring.
The Economics of Blockchain
Blockchain was first introduced in October 2008 through the white paper released by Satoshi Nakamoto describing how a virtual currency (Bitcoin) could potentially work. Blockchain by design is a decentralized technology, where information held on its network reconciled to the database regularly. The blockchain database isn’t stored in any single location instead, it is spread across nodes on the blockchain network. Similar to a peer to peer network, transactions are broadcast, database hosted by a network of computers accessible to the public with no centralized storage, making it impossible for hackers to manipulate. Blockchain technology is unique in the way that it brings together existing technology of peer to peer network, cryptography, along with game theory (providing rewards through competition) to establish a secure medium where functions can take place without a centralized entity.