Why regulators are adopting Blockchain technology globally

Popularised by the advent of cryptocurrencies, blockchain is becoming valuable in other industries from logistics, to healthcare and even governance and regulators worldwide are gradually adopting the technology for its efficiency and immutability.

Their interest in the technology stems from its ability to become a solution to several challenges faced by regulators and some of the key solutions blockchain provides are security, transparency and efficiency. This distributed ledger system allows for transactions to be recorded securely while ensuring 100 per cent transparency. This is why many industries and governments are turning their attention to blockchain, especially in regulatory processes. While current systems are also quite valuable, blockchain helps regulators to monitor, enforce compliance and ensure fairness.

According to a report on the challenges of regulating crypto assets, regulators are struggling with upgrading their systems to keep up with modern financial and data transactions. One key advantage blockchain brings is the transparency it offers. Because every transaction is logged in real-time and can be traced back to its origin, it becomes easier for regulators to track fraud or money laundry.

In the financial sector, for instance, the U.S. Securities and Exchange Commission (SEC) is already exploring blockchain to enhance transparency in securities transactions. This would make it harder for individuals or organisations to change records without detection. This in return reduces the risk of tampering and alteration.

In Nigeria, blockchain technology is gradually coming within the purview of regulators. In 2021, the Central Bank of Nigeria created a permissioned blockchain upon which the central bank digital currency, eNaira was built. While it hasn’t gained much prominence in the country, its launch remains a watershed moment when it comes to blockchain adoption among regulators. It has led to further adoption such as the recent real-estate tokenisation plan by the Lagos State government and the licensing of blockchain payments company, Zone by the CBN.

In fact, Zone is gradually becoming a major payment infrastructure not just because it has some of Nigeria’s largest banks in its network, but because an affiliate to the CBN like the Nigeria Inter-Bank Settlement System (NIBSS) is a participant of its network, using it for real-time monitoring of PoS terminals and transactions. Another reason regulators are adopting blockchain is its ability to improve data security. Data breaches are a major concern for regulatory bodies and the centralised nature of traditional storage systems are a major vulnerability that aide such breaches

Estonia, for example uses blockchain to store health, judicial and legislative records while the Australian Securities Exchange (ASX) is using blockchain to record shareholdings and manage the clearing and settlement of equity transactions.

Blockchain also allows for real-time monitoring, which gives regulators a unique advantage. If regulators can monitor financial transactions in real-time for example, they can easily track and thwart illegal transactions.

Real-time monitoring is also crucial in sectors like healthcare and security. It can significantly help reduce the response time to potential threats. Despite the clear advantages, the blockchain adoption is not without challenges. One of the main challenges is the difficulty of integrating blockchain into existing regulatory systems. Many systems are not built to work with blockchain, and the process of upgrading them can be both time-consuming and expensive. Legal and jurisdictional issues are another major concern.

From the US, to UK, and even Nigeria, different countries have different laws when it comes to blockchain and digital assets. This makes it difficult for regulators to adopt a worldwide approach. Privacy and data protection concerns also need to be addressed to ensure that blockchain systems comply with existing regulations, especially when it comes to sensitive personal data. Standardisation and interoperability are also critical issues. For blockchain to work across different systems and industries, basic standards need to be put in place. This would allow these systems to communicate and function effectively with various stakeholders. Right now, there is still a lack of standardised protocols in the blockchain space, which is a significant barrier to widespread adoption.

Looking ahead, the future of blockchain in regulation is promising. Many experts believe that as blockchain technology continues to evolve, it will become even more integrated into regulatory frameworks, especially with the rise of digital currencies and decentralised finance. There is also the potential for increased international collaboration, as regulators across in other countries work together to decide on regulations and adopt blockchain innovations. This could lead to more consistent and effective regulation, benefiting industries like finance, healthcare and supply chains. Blockchain technology is transforming the way regulators operate, offering increased transparency, security and efficiency. While there are challenges to overcome, the potential benefits are clear.

It’s no secret that we are likely to see more regulators adopting blockchain in the near future. As more industries begin to use blockchain, the need for updated regulatory policies will only grow. The future is without any doubt- bright for blockchain in the regulatory world.