Dr. Khanh Dang Ngo - Regulation of Blockchain-based Platforms

In Frank, my name is, I am a tech lawyer with the British Simmonds and Simmonds focusing on capital markets. I'm a training capital markets, lawyer, but have some experience in inhouse with settlement curing. And this is the way the introduction tool blockchain, because blockchain is, this is the smart thing, how we settle or here it might disrupt how we settle and clear. And if Julian is here to inspire you about blockchain, then I would say, I'm here to bring you to reality topic regulation and blockchain. So blockchain and regulation has two things in common, at least two things in common.

The one would be, it comes with a set of its own language. So it comes with a set of words and vocabulary. We do. Other thing, the other element is that it is you have the impression that it's quite dry, but I hope I can perform something for you to, to, to listen for this great speech of junior regulation of block. Blockchain based platforms comes always with definitions of terms as a lawyer. We love terms and definitions to them, and it starts basically with two definitions that I want to provide you today. The one would be what is blockchain from legal perspective?

And the other one would be what is regulation or what is the law in this, in this topic? And it comes down to basically what I try to accomplish is in dialogue between two sets of principles, the one, the technology principles and the other one, the principles of regulation or law, and it comes down. And I would like to start with the end to conclude that the conclusion of this dialogue is that that is an open system that we are at the spring of collaboration in terms of two different worlds.

The one that is binary zero ones, and the other one would be legal, analog relationship set of foods, starting with blockchain. And this is, this is a presentation that I gave for legal colleagues and bankers. So pardon the, the high level approach, but for blockchain, for a legal, from a legal perspective program, from regulatory perspective, blockchain's nothing else. Then a history of ownership, record of ownership.

And when I started to, I'm sorry, when I started to think about blockchain and spoke to some of startup people in London and around the world, there was one guy, a Chinese guy who mentioned that in China, we already have blockchain since 2000, 2005 years. And actually he was wise actually, when we look back in time, the records of ownership has always existed because poverty law has always existed. And when we look into ancient China, the, the oldest record of ownership probably is in ancient China.

When you trans I'm sorry, when you trans a ownership of a masterpiece like this masterpiece, it's very beautiful. It's have a lot of value. And when you transfer this to someone else, transfer this to someone else, then the next owner has the right to put the stamp owners and with the stem, he would be the right owner of this masterpiece. And this is an example for us, not. So tech savvy lawyers to understand what blockchain is. It is a chronological record of ownership, but the blockchain transferred to nowadays time is different.

It is different because it is distributed and distributed means that the same record is distributed and recorded on different knots within the PHP network. And this is significant. We do relieve that from a legal perspective, there's a paradigm shift, a change of a mindset that changes from an analogous relationship between people, the direct relationship towards a decentralized relationship. And then we have to think about implications implications in terms of trust implications in terms of systematic operations and etcetera.

And I hope this is the sacrament that is most important in my speech is that this paradigm shift is going to change what we understand as law, but also it could change how we interact with each other. So blockchain, when you look into regulatory authorities, supervisory authorities view blockchain, particularly combining three technology innovations. And this see technology innovation starts with a peer tope network that provides you with a record of something of data, poverty.

Photography enables you to distribute information to the places that you want to, the people that you want with the information that you want. And the third part would be the consensus algorithm that verify the information that provides you with a single truth of record and blockchain. And this is a great discussion. When you look up regulatory authorities, when you look up European regulations, then it comes always down to DT distributed technology.

When I started thinking about blockchain, then basically blockchain is like my masterpiece in China is a chronological record of ownership by coming from there is, there are lot of ways how you can record how you can verify. And this is the reason when you look into regulation, they always talk about DT and blockchain per se. But I think when we think about Bitcoin blockchain, and we think about these ization, then it is worthwhile to look what's underneath this. I do understand that technologically, there are a lot of ways to have a consensus.

A that is not like the original blockchain or other blockchains does not need to be chronological. But nevertheless, I think not saying you lose, illustrates how we should amend our mindset. So this is the reason why I talk about blockchain and not DT. When we look in from a legal perspective, then blockchain is basically has two functions. The one is to certify something, it's a motorization of something, the record asset or a property. And you verify this and you verify this collaboratively. This means every node is able to verify if you want.

So if you construct the system and everyone in the networks able to verify, you don't have to, but this is the principle. So when we look into blockchain, there are several ways of developments. It starts with sat white paper, introducing the record of Bitcoin of digital, Q and C. And basically what it does is it records just a movement of asset and the availability of this asset.

And then you have a second development and this development is quite a smart contract with between introducing a second layer on the blockchain, introducing the possibility that you implement programmable code itself, executes and self enforces. And the third wave that we are looking into is the goes beyond Q CS and smart contract. It's a combination of contracts and developing of decentralized applications for organizations. And this has a huge impact on how we deal with organizations, applications, and so on. So let's look at the use cases.

Let's look at the use cases and when you see blockchain one, oh, the use cases will record a digital total or digital queues. Then I'm sorry, I just skipped this. The potential use cases are, are money forward. So whatever data you can record digitized and automized, I should say is the potential use case in, in this part. And probably we, we have later chance to, to talk deeper into certain use cases if you, if you want to, but this is just a ski, what is possible.

And our, our clients and the market protection is 2017 would be the year where the first product would directly software blockchain platforms and systems arrive. And for the more for person's, they would probably say a blockchain is a disruptive innovation on search of a use case, but it's true. So let's talk about the second term regulation and regulation in terms of blockchain is always starts. This was the single question. Do we need a blockchain law? Do we need a single blockchain regulation?

And this derives from a debate in the 1990s when cyberspace occur and was very, the legal debate was very interested in understanding what is cyberspace. And it comes down to the question is there should be a law of the horse and the law of the horse means can we, we touch the horse?

Can we, from from lead perspective, can we regulate the horse itself? And, and abstract speaking, respect speaking is, do we need a single body of law? And of course, as a lawyer, there, it depends who you ask one, and this is quite fun in the 1990s, it just, the United States published a white paper concluding that you don't need a sing body of floor for cyberspace because a horse is a horse.

You, you cannot regulate the horse, but what you can regulate is the application of different laws. So poverty law, contract law and transit law, you can regulate, and you can regulate new behavior through the laws and of the host. And the second opinion or the opposite opinion comes from a law professor in, in Harvard, you coin to phrase code is law. And the basic idea about this phrase is to end uppin idea about this phrase is that you have different forces that can regulate human behavior. Different forces means practically for the one who be the law.

You can indirectly regulate new behavior. Then you have, would have norms. Ethical norms would have to wear a suit. If I give a speech for instance, and this regulates my behavior and the third would be architecture. So for instance, you sit in front of the speaker, so you can look how I stand and what I'm presenting, and this regulates XR tape. It regulates why it happens. And thought force would be like architecture. Professor LASIK says that this would be code programmable code.

And it comes down to the basic conclusion that assumption should say is that code like architecture can regulate human behavior for their reason. We need a singular body of law.

And, and something important for, for us is that we can, that we can put things into perspective and put things into perspective is we have different draws where we can put in things that we think are important. And, and I think the easiest way to provide you with the perspective for lawyers is to distinguish between three layers. And the one would be the system system layer. This is where the it comes in. You can regulate the, it, you can regulate the platform itself and to operators. The second one would be what you do on the platform has interaction with the real world.

And then you would have horses, a horse. You can have applications of law to what's happening on the blockchain. And the third one would be the conceptual one, which is more academic. How will blockchain and decentralized applications changed the law. And right now, when we look into what, what law firms are doing, what regulators are doing, they're doing executive. They look from a systematic perspective and they look from the interactive perspective. So they look how our blockchains structured and what are the implications to the existing framework.

And academics look further and, and say, what are the conceptional changes and the change of mindset that we have with blockchain. So from the systematic perspective, we can conclude the two, two conditions should, should be met. If you want to regulate coaching, the one would be you about the peer peer network. The one would be decentralization. I saw a presentation where it guy, it's a great presentation about Bitcoin. And then he concludes that Bitcoin's nothing but independent money.

And I thought this was quite right because in a peer tope network, depending on the structuring of this network, each of the node would be independent and verified information. So what we can say from deeper perspectives, if you want to regulate a blockchain system, you have to change your mindset because where we are coming from is a party to party relationship. It's an analog directly relationship. It's not distributed. And the second thing would be, and this comes down to the four forces of regulation that the regulation that we know as far is an exposed regulation.

It means it gives us the freedom to do whatever we want. Meaning we can enter into contract. We have the freedom not to enforce the contract. For instance, if I buy a, my MacBook to Julian, then I would be contractually obligated to transfer my MacBook to Julian, but I don't have to and say a freedom. I'm right. And this is why regulation and law. This is when regulation and law comes in. It steps in when it says, no Julian deserves my laptop because he gave me consideration. And for that reason you need, we need to enforce this through.

And this is different in code code and architecture enforce this ex as mentioned, you sit in front of me so you can hear me and see me well, well, but you cannot see the people behind he very well. And this is what regulates exe and what regulates ex automatically. So what I reason when regulation focuses on a systematic perspective on blockchain, it always will regulate your operators. It has to distinguish the, the operators who's operating the system.

What are the liabilities and how can it regulate the behavior of the operator coming to the first use case virtual currency and virtual currency. We usually talk about Bitcoin and so on, but they are estimated 500 or more similar virtual that compete with each other. And what they now is that it's cheap, fast and secure transfer between individuals, firms, and actions, same machines. And it comes down to legal challenges. And the legal challenges is checking the time the legal challenges is, are money forward, but it would come down.

When we look into what supervisor forward is discussing right now, what they monitor right now is the conclusion is that blockchain is not it's premature to regulate. Remember we come from a centralized analog view of relationships, and this decentralized structure on system is not been introduced from the regulator. So what the regulators later says, okay, will blockchain put this into our existing legal framework and look how it fits and to tell you truth, it fits well.

Well, because it doesn't fit at all. But what you can do is you can put this framework and then try to have a certain points fitting in this framework, but then you would deconstruct the, the idea of decentralization.

And we, we come to that. But when you look into the first use case of virtual currency, the recording of a digital talking and digital ancy, then of course it would compete with our fi money. So it would compete with money policies that needs to be enforced.

But again, when you look at the European, the EBA and the asthma papers reports, it comes down to, to say, let's wait and see, let's wait and see how far it will spread. And when it will spread with jumping.