The Block Chain - A New Regulatory Paradigm
I have devoted my career to effective regulation of markets in order to create and promote trust, certainty and stability. My view is that open, free markets were and always will be the best way to promote shared prosperity, so long as those markets are transparent and well-protected against fraud and abuse. For this to occur, we have always needed regulations and regulators. And I’m proud to have played a part in promoting regulations and an environment that promoted transparency, protections of the investing public and well-functioning capital markets.
The reason I’ve chosen to take an advisory role with Blockchain and other firms engaged in crypto-currencies is precisely because of the opportunity they present to achieve the outcomes of good market regulations in new and interesting ways. These are new technologies and therefore we are just beginning to understand them, but what we already see is quite promising.
The challenge in any form of prudential regulation – which is the system created by multiple regulatory schemes and agencies – is this: How quickly does it respond to failures in the market system? When there is a bad actor committing fraud, do traditional regulatory agencies and actors catch it in time? The sad truth is that they lag. Other efforts to close that gap have proven wanting. Self-regulation doesn’t work in some cases; regulation by litigation presents a powerful disincentive to fraud, but rarely imposes broad compliance.
Blockchain’s business model is appealing precisely because it creates its own regulatory framework within its value proposition. First, it is the world’s largest bitcoin wallet software provider. With over four million wallets, Blockchain is the wallet software of choice for those transacting with bitcoins. Second, Blockchain.info provides a diagnostic tool that allows the public to view and research the public ledger of all Bitcoin transactions. As more transactions become digital, the kind of transparency enabled by Blockchain’s tools will amplify the market’s ability to self-correct bad acts and inefficiencies. Finally, Blockchain understands that for a company to grow, it must empower its industry’s developers. To this end, Blockchain provides the most reliable and widely-used API service. Blockchain’s API enables software programmers to build new applications on top of the Bitcoin protocol.
In short, within the Bitcoin economy, Blockchain functions as both a provider of services, a platform for other developers and a fully incentivized system for correction and fraud detection.
Whether this is a model for other financial markets is debatable, but I believe it is promising and worthy of investment and support – particularly as the Bitcoin economy takes shape. I have always enjoyed seeing new companies and new markets succeed – and my goal for Blockchain is to see its business not only thrive but nurture a new regulatory model.
Arthur Levitt was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission (SEC) from 1993 to 2001. Widely respected as a champion of the individual investor, his distinguished career has placed him at the intersection of policy and financial regulation for decades. Levitt previously served as a policy advisor to Goldman Sachs and is a Director of Bloomberg LP, as well as serving as a senior adviser at the Carlyle Group.