Blockchain and Government: The Balancing Act

Blockchain and Government: The Balancing Act
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This past Monday, we saw China institute a temporary ban on Initial Coin Offerings and delist many blockchain tokens from publicly traded exchanges. China’s decision drove markets into a short-term panic and saw the value of bitcoin drop over 10% in less than a day. While the day-to-day changes in the price of bitcoin (a decentralized currency with roots in libertarian ideals) and other alternative blockchain-based tokens will not ultimately determine the future potential and application of this emerging technology, the China ban did bring into focus the relationship and tension between government and blockchain technologies.

Blockchain technology is here to stay. The decentralized organizing principles around blockchain have the potential to alter how we organize our societies and institutions. The manner in which governments engage with it will determine if blockchain serves as a boon or bust for their nation. Here are three domains in which critical decisions must be made:

Appropriate Regulation:

Like all technologies, blockchain technology is morally neutral. The manner in which we structure and monitor these organizations and their applications will determine the outcomes they produce for societies. Billions of dollars are rushing into this space. By many estimates, as financial institutions begin to enter the sector, this is only the beginning. Governments must ask how they can balance the potential wealth and job creation blockchain tech represents with public safety and order. Governments that aim to stymie the technology and see it as a threat will likely also not see the potential benefit it can represent for their nations. At present, we are seeing a flight of organizations to less stringently regulated governments, like Switzerland. Governments that embrace blockchain and find optimal ways for it to be applied and channeled for societally beneficial effect stand to gain a great deal.

Innovative Application:

The decentralized ledger technology at the core of blockchain tech is becoming very popular for a reason. It is more efficient, secure, and cost effective than many of the centrally intermediated systems of digital transactions we have today. For example, a plethora of Real Estate Investment organizations are emerging as blockchain applications. The potential for greater liquidity, reduced transaction fees, and democratization of investment is vastly superior to the traditional GP-LP structure we see in REITs today. Applications for Intellectual Property, Organizational Management, and Supply Chain are emerging by the day. Governments themselves have the opportunity to use blockchain to improve their own efficiency and reduce costs. Those that do so successfully will simply be more effective than those that don’t.

Wise Integration:

The businesses and applications that have started to arise are in direct competition with their forbearers. Although large financial institutions like Goldman-Sachs have invested in blockchain businesses, the underlying organizational methodology of a decentralized ledger is a direct threat to the status quo. The ability to send money anonymously, peer-to-peer, for example, makes taxation and service fees that government and financial institutions rely on, much more difficult to enforce. The concept of government as we know it is even, potentially, in question. Governments must ask how to best integrate existing methods of business and societal organizing with this innovation. Navigating this tension offers fews simple answers and will require experimentation and mistakes.

In the end, blockchain technology applications have only just started to enter the mainstream. The ways in which governments regulate, apply, and integrate them into their nations will contribute to a culture around the technology that will play a large role in determining its effects. As we’ve seen with the rise of the internet, the potential implications for the economies and stabilities of nations as a whole rely upon it.

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