Speaking at last month’s 4th Annual DC Blockchain Summit, US Commodity Futures Trading Commission Chairman J. Christopher Giancarlo lays out his position on how he and his colleagues can rise to the challenge of applying effective regulations to “exponential” technologies – such as blockchain.
The CFTC has stalled the approval of Bakkt, the upcoming cryptocurrency trading platform from Intercontinental Exchange that promises to feature physically-settled Bitcoin futures, amid concerns about security and the custody of customers’ assets. The Commissioner has taken a pro-crypto stance. The issue, however, is that, according to Giancarlo, we are in a new period of innovation with a number of different characteristics from all previous phases. As such, these differences requires “a new, differentiated regulatory response.”
The first is that we live in a period of exponential technological change. That is, the sheer speed of innovation has increased exponentially, both in terms of production of new models and products and their subsequent public adoption. The former dynamic is driven by increases in the power of computing coupled with decreases in computing costs, and the latter is a function of how the internet and mobile allow for rapid public adoption and scalability. These dynamics put pressure on regulators to keep pace with rapidly changing markets, especially given the potential for new technologies to impact markets in short order.
The second characteristic is the disintermediation of traditional actors or business models, which can challenge regulators and existing regulatory frameworks. Consider, for example, how the digitization of everything, including music, travel, trading, and even farming have furthered the decentralization of traditional intermediaries. Such decentralization of key economic actors is an enormous challenge to most regulatory approaches and frameworks, which tend to focus on key intermediaries through registration of major market participants and designation of self-regulatory organizations comprised of such participants.