Daily Management Review

At The Cusp Of ‘Radical Change’, New Zealand’s First Attempt At Regulating The Blockchain Technology


Too much regulation takes away the benefit of blockchain technology, while too little of it also creates problems, says experts.

The empowering technology of Bitcoin and other crypto-currencies, Blockchain, gracefully transforms the purchase culture, business transactions and other fields of daily life. While, governments as well as banks around the world wrestles to contain this “rising disruptive force”, an experts’ team who have grasp over banking and legal fields are taking initial steps for creating a framework of blockchain regulations for Australia and New Zealand.
At present, crypto-currencies tread on unstable and speculative grounds, as they circle the economic fringes alone. However, given the rapid growth of technology, one can safely assume that crypto-currencies are going to hit mainstream sooner or later; while the disruptive nature of these crypto-currencies is the attribute which allows businesses and people alike to “transact value directly from payer to payee” irrespective of their physical distances. During this process, blockchains bypass banks and “other traditional third parties”.
A team from the University of Auckland has the task of “developing the Trans-Tasman framework”, for which Law Foundation has granted an amount of “$50,000 “, whereby the associate professor of the University of Auckland as well as the leader of the team,  Alex Sims, said:
“We’re on the cusp of radical and disruptive change, and this poses challenges for lawmakers and regulators around the world”.
“With major companies such as Microsoft now accepting virtual currency payments, it’s feasible that blockchain technology will become ubiquitous within the next decade.
“Currently, there is no law regulating cryptocurrencies in New Zealand, however people have had their bank accounts closed because their bank suspected them of dealing in cryptocurrencies”.
The birth of Bitcoin, in the year of 2008, also created the core element of digital currencies that strongly rely on cryptography – the blockchain; the latter is a list recording transactions that are stored in “secure ‘blocks’”. A chain binds each block to the next one with a “cryptographic signature”. These transaction provide confidentiality as the party names do not appear during a blockchain transaction, as “public keys” replace the same.
The University of Auckland informs:
“Copies of blockchains are stored across thousands of computers within a network. This makes them more secure than conventional bank accounts, as a hacker would have to hack into thousands of computers at the same time to change more than 50 percent of the copies, and anomalous transactions not replicated throughout the majority of the network would be ignored or effectively rejected”.
Furthermore, blockchain’s “smart contracts” facility can prove to be a game-changer in many “areas of life”. Associate Professor Sims, however, adds:
“If cryptocurrencies become widespread, it could slash banks’ profits. Banks are trying to use the new technology between themselves because the benefits are massive, but they are going to try to limit how others use it. There is a real danger that if the banks get their way, the benefits of cryptocurrencies may be reduced or even lost”.
“There are, though, risks associated with cryptocurrencies, some not yet known, which is why this work is important. Currently, cryptocurrency transactions cannot be reversed and most new transaction technology relates to small sums. What happens when a consumer’s life savings are sent to the wrong person by accident or a person’s private key is compromised? Then there are issues of privacy. How are a person’s financial details kept private when the information is accessible by those that have access to a particular blockchain?”
Associate Professor Sims has in her team, the Business School’s “Banking and Finance” professor, David Mayes, and “Griffith University Business School” of Australia, Dr Kanchana Kariyawasam. The said team of researchers are trying to strike the “best balance” possible that takes into consideration the interest of the regulators as well as of the “blockchain stakeholders”. While, Sims informs:
“The danger is if you regulate too much, you won’t get the full benefits, but if you regulate too lightly, you could see problems such as money laundering”.
In the words of the Executive Director of the Law Foundation, Lynda Hagen:
“Digital currencies are likely to revolutionise the finance world and beyond, creating significant challenges for law and regulation. This important new research is the first work approved under our Information Law and Policy Project that will better prepare New Zealand for the challenges ahead and help build New Zealand’s future digital competence.”
For associate professor Sims:
“This is a critical first step towards streamlining the regulatory framework in the Asia-Pacific region, as well as globally.”
Here is a list of the areas, the researchers will be looking into under this blockchain research project:
• “how blockchain technology emerged, and the issues, risks and opportunities it brings
• “how much blockchain technology falls within existing regulation and how outmoded law will be reformed to benefit this promising technology sector
• “Examples from other countries such as the United States, the United Kingdom and Estonia, who are further down the track in exploring new policy models for the blockchain age”