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G20 Discussion

Transcript By: Bryan Bishop

Tags: Research, Regulation

Category: Workshop

Why do we need a multi-stakeholder discussion in a blockchain world? A report from G20 discussions.

Shinichiro Matsuo

https://bsafe.network

Introduction

I am the cofounder of the bsafe.network which focuses on blockchain research. I was a program co-chair for Scaling Bitcoin at Keio University last year. I also work with IEEE, ACM conferences, Ledger Journal, and more. My background is engagement with Bank of Japan NTT internet cash in 1998-2000.

Several huge incidents

From a regulatory point of view, there are many big events that have occurred: MtGox, the DAO attack, coincheck, monacoin, and Zaif. Some of these are that consumer protection and anti-money laundering law. These are one examples of where we need regulation. Most of these happened in Japan, unfortunately.

Immaturity: too many mega-incidents

There’s a long list of incidents I can point to. Mtgox, bitfinex, QuadrigaCX, etc…

Regulation is the matter, again

In 2015, NYDFS started to roll out the Bitlicense regulatory requirement. In 2016, there were many ICO scam projects appearing. In 2018, “cryptocurrency” switched to “cryptoasset”. Big tech and digital currency is the theme of 2019. Now is the time to revisit what the original bitcoin claims. I think this is a good time to revisit the relationship of this technology and what it’s doing.

What is a cryptocurrency exchange?

What’s the meaning of “cryptocurrency exchange” companies? From a regulatory side, there’s a different understanding. As far as I know, there’s no uniform definition of the word.

Revisiting what Satoshi proposed

Bitcoin was proposed as a solution to the double-spending problem for a payment system where money is transacted from one user to another. These are the two sentences from the abstract explaining what the bitcoin protocol is.

Mind the gap between payment and settlement

The paper said it was a payment system. Let’s mind the gap. What are the borders around Satoshi’s system? There’s a payment system, and a settlement system. A cryptocurrency exchange combines both payment and settlement with a trusted party. Bitcoin was able to prevent double spending without a trusted third-party, though.

When we make a payment over bitcoin, you need a settlement system. Other applications like exchange with other assets is really outside the network’s borders. That’s something that third parties tend to implement.

Bitcoin doesn’t solve the problem of exchanging between assets.

Gaps between Satoshi’s paper and real world

In the Satoshi paper, there is no “exchange” for getting currency and trading it around. There is no exchange to fiat currency other than perhaps proof-of-work and energy. Everything is closed inside the bitcoin ecosystem. All participants have equal access, given computational power. There’s also a lack of consideration of governance of the protocol or the system.

Governance and regulation issues

Bitcoin is like a new economical nation. The mathematics of bitcoin are like the constitution of the nation, at least in an economic sense. The current chaos of bitcoin governance is coming from the lack of procedure for amending the constitution in my opinion. When forks of bitcoin are made, that’s like declaring independence with a new constitution.

How do we think about the new economical nation? We often talk about decentralized virtual currency (in the name of greater innovation), versus stable virtual currencies.

Technological immaturity

There’s unproven technologies in the areas of security, scalability and trust models. There’s also community risk and quality assurance problems. We need a healthy community and ecosystem. There’s a lack of evaluation criteria toward technological due diligence. In other words, we need standardization.

There’s a gap between what the original Satoshi paper proposes and popular expectations about blockchain technology and its applications.

Security, economics and game theory

I will skip this slide.

How can we deal with the chaos from bitcoin among stakeholders?

In the case of the internet, there was research at universities and then implementation was commercially motivated and then there was standardization and finally long-term monopolies or businesses. “BSD” licensing and open-source facilitated that innovation.

With bitcoin, innovation was by iteration. Satoshi released a whitepaper as well as an implementation. Satoshi’s paper was published in 2008 and the source code was first published in 2009. There was no standardization or academic involvement at this time. This is one of the sources of the chaos of this technology and its governance.

NSFNet for the Internet

After ARPANET and CSNet, there was NSFNET which was a non-profit research network focused around the internet. This was based on the Berkeley Software Distribution (BSD) from 1977 to 1995. This is largely responsible for the maturization of the internet technology.

bsafe.network

This is my project. It’s a neutral, stable and sustainable research test network for blockchain technology by international universities around the world. The idea is to provide a source of neutral knowledge by academia. It was founded by myself and Pindar Wong in March 2016. Each university runs a blockchain node and contributes to the network and its research.

At this time, we have 32 universities from 14 nations that have already joined.

G20 conference

This is a picture of the individuals at the G20 conference. This conference started in 1997. Cypherpunks are one of the sources of the bitcoin culture. Before bitcoin, the main people who created law and order in the financial system was the government. After bitcoin, they are now a part of the creation of the financial system. This is a huge difference before bitcoin and after bitcoin.

Permissionless innovation

Permissionless innovation is important. Both engineers and government want permissionless innovation. It empowers all edge to create new innovations and ecosystem. It increases the number of potential innovators, and it’s a great solution to the innovation dilemma.

Stakeholders and the current situation

There are open-source style engineers, regulators, businesses, and consumers. These are the four types of stakeholders in this ecosystem. Regulators and the engineers usually have no common language and they are very hard to regulate. They also operate at different speeds.

Regulators want to have communication with open-source style engineers, but unfortunately there’s few connections between regulators and those developers. The other problem is that they operate at different time frames. They also have different opinions that sometimes clash. It’s not easy and it’s very hard to regulate open-source software, of course. Also, some open-source style engineers just don’t want to deal with regulators. This is a huge gap among stakeholders.

Internet as an example of permissionless innovation

The internet unbundles ownership of communication channel and right of multi-lateral communication. This is a decentralized architecture with routing and BGP. There’s layering of technology on top of it, like TCP/IP. It’s just a “stupid network”. The unbundling facilitates producing new services, businesses and economy from the grassroots.

Before the internet, we had dedicated networks in each country. They did not communicate with each other, and they used different standards. There used to be Minitel in France and CAPTAIN in Japan. But later we got Cisco, Netscape, Yahoo and Google, and then later on things like Airbnb and Bitcoin.

How internet affects governance in communications, commerce and data

The internet created a “global” space, although not international. So the internet developers established a new form of governance. There was a change of targets to regulate, there were privacy issues, cybersecurity issues, tax issues, IPR and GDPR.

We need not only law, but also market, architecture creators, and norms. There needs to be an entire ecosystem for the internet. Lawrence Lessig’s “pathetic dot theory”.

Internet governance as an ecosystem

Internet is a global thing, but government is a national or international issue. So the global part has societies like the INternet Society and ICANN and IETF. At the international level there’s IGF like the Internet Governance Forum.

Stakeholder discussion

We need to start multi-stakeholder discussions between regulators and engineers. It’s a new challenge for all stakeholders to build a new governance style for blockchain. Facilitating discussions between regulators and developers, at minimum, would be quite helpful.

Though we cannot imagine the future potential, we need to start now, because it is difficult to construct a governance structure after widespread deployment of this technology.

As an example, security is not well considered in the early Internet architecture. We need to avoid the same failure in the future.

Collaboration between multi-stakeholders is stability.

Better conversation to grassroot and agile-innovation friendly governance

We need to have better incentive designs among stakeholders. We need a common place, with a common language, and harmonized incentives. We need to facilitate discussions and keep this goin. We also need to take lessons from ISOC, IETF, ICANN, etc. Also, ISO standardization and technical reports on security for digital asset custodians is important.

G20 discussion again

As part of the G20 event, there was a high-level siminar on financial innovation called “Our future in the digital age: Multi-stakeholder governance for a decentralized financial system”. We had Jun Murai, Klaas Knot, Adam Back, myself, and Brad Carr.

There was also recently a report by the Financial Stability Board (FSB) published June 6 2019. They assess the benefits and risks of this technology, and they underscore the importance of multi-stakeholder dialogue. They discuss financial stability, regulatory and governance implications of distributed ledger technologies and p2p technologies.

  • Needs of dialogues by multi-stakeholders

  • Regulatory goals need to be defined

  • Future discussion area; financial inclusion

  • How technology is an excellent tool for achieving regulatory goals, as Adam Back explained.

  • Future directions toward multi-stakeholder governance

https://www.coindesk.com/bridging-the-gap-between-bitcoin-and-global-regulators

G20 published an interesting summary saying… “We also welcome the FSB report on decentralized financial technologies, and the possible implications for financial stability, regulation and governance, and how regulators can henance the dialogue with a wider group of stakeholders”.

Conclusion

We look forward to working on permissionless inonvation from decentralized financial technologies. Permissionless insnovation facilitates huge number of financial innovations, amkes change of governance style though. Let’s do by-design thinking.