Viewpoint: Regulation isn't the enemy of blockchain systems

Blockchain technology is not as widely used as it could be, largely since blockchain users don't trust each other, and adding more regulations could make the technology more widespread, Kevin Werbach, professor of legal studies and business ethics at the University of Pennsylvania, writes in The Conversation.

However, business leaders and users are slow to adopt blockchain-based systems because they fear potential government regulations may require them to make expensive or challenging changes, Mr. Werbach said.  

"Mistrust and regulatory uncertainty are strange problems for blockchain technology to have, though," he wrote. "The first widely adopted blockchain, bitcoin, was expressly created to allow financial transactions 'without relying on trust' or on governments overseeing the currency."

For example, users who lack trust in banks to accurately track transactions can instead rely on unchangeable mathematical algorithms through blockchain.

Additionally, the blockchain system is decentralized, with data stored on thousands of internet-connected computers across the globe, preventing regulators from shutting down the network entirely, Mr. Werbach said.

"The contradiction between blockchain's allegedly trust-less technology and its trust-needing users arises from a misunderstanding about human nature," he wrote. "Economists often view trust as a cost, because it takes effort to establish. But people actually want to use systems they can trust. Blockchain, as it turns out, doesn't herald the end of the need for trust. Most people will want laws and regulations to help make blockchain-based systems trustworthy."

People will use blockchain systems if they trust them, which is the only way the technology will see mass-market adoption, Mr. Werbach said.

"The jurisdictions with the best regulation — not the ones with the least — will attract activity. Like any technological system, blockchains combine software code and human activity," he wrote. "It's not enough to trust the computers — which, after all, are built and programmed by people. For the technology to be used widely and wisely, there must be mechanisms to hold the humans accountable, too."

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