In just one year’s time, it appears that global policymakers and regulators have woken up to blockchain in a serious way. Caroline Malcolm, new in her role as Head of OECD Blockchain Policy Center, shares key highlights from this second global blockchain policy forum held by OECD in Paris, Sept. 12-13, 2019. In this candid conversation, Malcolm shares how the hype and fear around cryptocurrencies is fading and now evolving into serious discussions about policy and its impact on innovation. From gov tech, stablecoin, central bank-backed currency, to global adoption, policy responses, and best practices — governments, industry leaders, academics and regulators gathered to discuss what we may see implemented next year.
Key Highlights
- Libra has ramped up discussions around stablecoin. As policymakers feel an urgent need to address the issue of stablecoins and mass adoption, they will be pushing regulations in next 6 to 12 months. Libra is also pushing the debate around central bank digital currencies.
- Governments are exploring blockchain as a tool for gov tech and cross-border collaboration. OECD is seeing more nations putting blockchain projects into practice beyond proof-of-concept.
- Many are realizing regulatory policy framework must be in place for blockchain growth and longevity in the field. Increasingly, more are starting to reject short-term, quick-money projects which don’t have a strong foundation and don’t have those sort of broader values of community in mind.
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Full Transcript
Angie Lau: Welcome to this special edition from Paris. We’re here at the OECD Global Blockchain Policy Forum. I’m Forkast.News Editor-in-Chief Angie Lau, and I am here with the woman of the past 48 hours; many, many hours. And certainly this has been hard work from you and your team. This is Caroline Malcolm, and she is Head of OECD Blockchain Policy Center. And this was really a project conference that came from a recognition of what?
Caroline Malcolm: So maybe you step back a little bit to the Blockchain Policy Center itself. So the Policy Center is a fairly new creation theory. It’s only been in existence for about nine months. But it reflects, in fact, about five, or almost six years, of work now that the OECD has been doing in this space. And as we began to see the development of the technology and increasing adoption of the technology, there was a recognition from our members that they really needed to make sure they understood the technology better.
And so they took a decision at the end of last year, fresh off the back with the first issue of this forum to establish the Blockchain Policy Center. So when we thought about doing another forum and creating another conversation around the last two days, what we really wanted to do was to take a step forward. Last year was very much about, you know, what is blockchain; very, very basic level.
Caroline Malcolm: As is often the case, you know, the technology industry moved very far ahead. Public sector is left in a response/reaction situation. And so we wanted to say, firstly, we all discovered what blockchain was. It was a learning experience for all of us. And now, second year in, we want to see, well, what are the industry developments, obviously, of the last 12 months? But then to take the next part of that question, which is, so what are the policy implications of that? Does our current policy framework work to achieve the objectives that our communities expect from governments?
And that really has two sides. It’s obviously not just about policy and regulation and making sure that there’s a minimization of the risks involved with certain types of innovation. But it’s also about saying, well, what is the role in helping foster that right kind of innovation? And I think in creating the conversations we’ve heard in the last two days, suddenly we’re very, very mindful of having that balance.
Angie Lau: It’s a critical question that [you] must ask yourself if you’re a regulator or a policymaker. Because at the end of the day, you want to preserve the mandates of your community, of your government, of your nation, but at the same time, be flexible enough to foster innovation. That flexibility must live alongside enforcement. Regulation.
Caroline Malcolm: Yes. Exactly. And ensuring that there’s a level playing field. You know, new entrants to a field, obviously, because you often have that lag time, sometimes, you know, they’re able to move ahead quite quickly before there’s a recognition that in fact, this technology brings benefits, but it also brings some risks. And we have to think about, you know, protecting the community from that, but not to the extent that we stamp out innovation.
Angie Lau: Where are we in the cycle of that? I mean, I feel like when it was the ICO phase, a lot of regulators were absolutely caught off guard. And so as we meet once again in this environment, where do you think, is there more assimilation, is there more synchronicity when it comes to what blockchain innovation and projects and teams are doing alongside regulators starting to understand not only the technology, but the implications of it?
Caroline Malcolm: You know, I think there’s definitely been a progression in the maturity of the discussion. You know, a year ago, I was still explaining what is blockchain. We think today I will go into meetings with policymakers, regulators and, you know, immediately the occasional, “why are you talking about blockchain? Isn’t this distributed ledger technology?” So they start to understand the nuances of what’s happening in the industry, start to get a grasp on the language, although as we’ve heard in the last two days, there’s still quite a lot of problems with the language.
We do have a need to be specific if we want to actually address the issues which are problematic and foster those which aren’t. So I’d say there’s certainly been a progression. I also think that reflects understanding of policymakers, but also maturity of the industry. So those good actors, if I can use that phrase in the field, realize that they need a regulatory policy framework if there is to be longevity in the field, and they also realize the risks of short term, quick-money projects which don’t have a strong foundation and don’t have those sort of broader values of our community in mind.
Angie Lau: Top takeaways from this conference in your mind. Day one. Bruno Le Maire kicks things off and causes a firestorm. Do you think that that’s as specific when he said that we must not allow a Libra project to proceed? Or was there a nuance in that?
Caroline Malcolm: I think, look, I think there’s a lot more nuance than we first heard in the reporting of his remarks. I mean, it’s very clear, and I think a number of policymakers, not just France, recognize that although we’ve seen stablecoin projects before, the reach that, you know, a project which is associated with Facebook has, the potential for mass adoption, is what is really shifting the landscape. So the stablecoin concept is not particularly new, but the mass adoption that Libra represents is, and that’s really pushing that discussion forward. So obviously, you know, there’s always that balance between what’s important and what’s urgent.
So from what we’ve heard, you know, we see an urgent need to address the issue of stablecoins – mass adoption. And it’s really pushing forward the debate around central bank digital currencies. Are they something that governments should pursue? What are the risks of pursuing those? Risks not just in terms of macroeconomic risk, which clearly evident, but also in terms of competition risks, tax issues, consumer protection, investor education… There is a lot in there that we need to make sure that we consider as part of the discussion. And yet at the same time, I think we’ve heard this a lot in the last two days, that the innovation is happening.
So it’s very difficult to say, stop. It’s not going to happen. Innovation… and even if there are such decisions, it’s going to push innovation in separate directions. And that can have counterproductive effects as well.
Caroline Malcolm: So I think that issue around stablecoin, central bank digital currency is an urgent one in terms of what’s going to happen on the policy front in the next 6 to 12 months. And then we have some very important issues around things like digital identity, for example, governance of decentralized systems more generally, that we’ve started to hear come out with the forum, which I guess is a little bit more holistic. They cut across many of the different applications of the technology. We’re beginning to understand, I see amongst policymakers, linking a supply chain application to – okay, but there’s this digital identity question which needs to be answered regardless of the particular application. So we we need to be thinking about these fundamentals as well. I think that’s one of the important things. Doesn’t feel urgent, but I think extremely important.
Angie Lau: Well, it is, you know, in terms of end user. And if you think about the role of governments, this is potentially technology that could create efficiencies to administrate the nature of business of governments. So let’s talk about gov tech. That was one of the key panels here, working panels. What came out of it? What do you think is going to be driving the thinking around watching technology and gov tech?
Caroline Malcolm: I think what we really like to see in the gov tech’s face is understanding that, well, first of all, blockchain is just a tool like any other. It’s not an end in itself. And it’s very, very important. You know, these are expensive technologies to develop. And so what we don’t want to see is everybody either creating their own near-identical project. We’d like to see that sharing, that international cooperation, so that we can all not reinvent the wheel, but learn from each other and actually progress in that way, whether it be from sharing knowledge of our own individual projects or even collaborating on projects because a lot of cross-border issues…
So I think in the gov tech space, we’re also starting to see things move more into actually practice rather than simply the proof-of-concept stage. And what’s very interesting in conversation earlier today was, you know, in some ways we have seen this in practice in government, you know, in a country like Estonia for 15 years now. The question is how to make other policymakers comfortable with taking that leap from the theoretical into the practical and actually having a working-level system in place which is based around DOT technology.
Angie Lau: Well, I think one of the things that was, you know, controversial where it depends on which part of the issue that you stand on, is the Financial Action Task Force and the FATF regulatory guidance that came down. It’s been adopted by all the different nations. It’s that collaborative effort on KYC and AML very specifically. How did that dynamic kind of gain ground as a working dynamic for governments and regulators? And do you think that we’re going to start seeing more of one centralized collaborative point that will start issuing policy on other aspects of blockchain technology?
Caroline Malcolm: I mean, you know, a standard setter like the ATF, you know, they are working at, you know, a collaborative international level. And I think that’s obviously got a lot of benefits when you’re thinking about a technology which knows no borders. I mean, you can create a token in one jurisdiction and use it in another to transfer to a third jurisdiction. It’s very difficult to control that process. And what you can’t control is the rules around here. And that’s exactly what you’ve seen happen in the ATF case. And I think perhaps the strength of the way they developed that work was really in the very intense amount of industry consultation that took place over a significant amount of time.
Obviously, you know, understand the realities of the technology, what is possible, what is not possible, understand where the industry is at today, but also recognize that, you know, the role of governments is to act in the interest of the general population, not one particular sector or the other. And so in doing that, shaping a regulatory response which tried to to balance those different issues, there was no no question, obviously, that the rules will see changes, the new recommendation will see changes take place in the industry.
But I think those changes are necessary and part of the maturity of the industry, to say there is this need, you know, we’ve supported innovation, but it has to be innovation which is in pursuit of the common good. And that’s really what those rules are about trying to achieve.
Angie Lau: And so if you are a startup founder right now and you’re in the blockchain community and you’re trying to figure out, you know, your own business value proposition, how should you be thinking about these conversations that are taking place right here at the OECD in Paris? These past two days, what kind of guidance or kind of thinking from this part of the landscape directly affects doing business?
Caroline Malcolm: Absolutely. And, you know, it’s kind of challenging and it’s something we tried to achieve with this forum, to bring in more startups. We know that’s a challenge because they’re very busy building their product, which is very understandable. They’re very busy raising money to make sure you can keep the doors open. But there’s two reasons why we wanted the startup community to get more involved.
One is that we wanted for them to have an understanding of the policy issues and to see where the debate is going. So they’re not in a situation that they develop a product while at the same time the policy discussion is maturing, and a decision is made that will affect the environment in which they’re expected to operate. And suddenly their product may not have the relevance that it might have anymore. That was one reason.
The second reason was, we wanted to understand better what are the specific policy issues that are facing startups, whether it be specific to blockchain or more generally relating to tech companies, where governments can support the industry more effectively? You have a couple of projects underway at the moment looking at those very issues because, you know, I think it was said very well this morning in the Next Big Thing panel, that governments are not against innovation and development of business opportunities and commercialization. But it does need to be within certain rails. I think they are learning to try and understand where those rails should be, sort of traditional values but in this environment of new technology. And so understanding of what particular issues a startup might face is extremely important for them to navigate effectively.
Angie Lau: So if, you know, on behalf of everyone who might be watching from that point of view, what are the policy themes and issues that people in the community who are building right now should be aware of from the regulator’s point of view?
Caroline Malcolm: It’s a great question, because one of the things that we will pick up after the forum is the development of a framework of policy principles. It’s something we’ve been discussing with our members for a number of months now. It reflects also some work that was done at the OECD in the artificial intelligence space. The idea is really to give governments some guidance on, you know, if you’re developing a national strategy on blockchain or something more specific, regulation on a particular area that will affect blockchain implementation…
These are the issues that you need to have in mind and that’s essentially something which we have in mind to develop over the coming twelve months. I really hope that when we’re back here next year for the forum, which would be 30th September, 1st October, to take the opportunity to mention it for those of you who want it in your diaries already, that we will actually, I hope, be in a position to be announcing the outcome of that work.
Angie Lau: Well, it’s important work. It’s the work that definitely the industry also wants to be collaborators on. So it is interesting to hear how these conversations have evolved. Once upon a time, this Policy Blockchain Center did not exist in the OECD. Your role did not exist. Certainly a lot of the subjects that people are talking about did not even exist.
So as we talk about the what’s next in the coming months… so we’re going to be expecting more policy guidance from OPEC. And how do you regard, also, the geopolitical kind of environment in which we speak to? There’s a lot of finance and trade tensions that exist. How is that also affecting any policy? Is that starting to intrude into business, into even technology?
Caroline Malcolm: Yeah, I mean, there’s these different tensions between countries, it’s something we do with the OECD all of the day. I mean, yes, we’re in a particular moment and particular issues, you know, where we might see heightened tensions that we haven’t seen in more recent history. But, you know, this is the core business of the OECD actually working between countries with different positions to find common ground.
So it’s actually very much at the core of what we do. We will continue the process that we have applied successfully in the past, which is lots and lots of conversations. And that includes conversations not just with governments, but with members of industry, civil society, academia, to make sure we get those different stakeholders actually engaged in the process of helping to develop the end product.
Caroline Malcolm: At the Blockchain Policy Center, our goal here is not to promote blockchain technology. It’s to help governments understand what are the upsides of this technology, what are the downsides, when is it appropriate to use blockchain, when is it not appropriate to use blockchain, and help them understand if they do apply it in a particular area or they are looking to create a particular policy around it, what are the things they need to have in mind? And that’s a process which is very much collaborative.
That’s why we tried to bring so many people here for the forum. The forum for us is, it’s not you know, it’s not a be all and end all. It’s not the event in itself. It’s an opportunity to hear from industry, feed the work we have ongoing and also see new work to understand, okay, what’s coming up? What do we need to be thinking about to make sure we’re not left behind, you know, over the next 12, 18 months?
Caroline Malcolm: So that’s an extremely important role for us at the forum.
Angie Lau: And certainly not leaving anyone in a position to be horrified by the technology that races before us, because it is a team effort.
Caroline Malcolm: Oh, yes. Yeah, absolutely. And it’s fast moving. I mean, it’s extremely fast moving. And, you know, the goal is not to slow that down, but for us to improve our way of understanding.
Angie Lau: Thank you for your work and thank you for these past few days.
Caroline Malcolm: It’s a pleasure, Angie. Really. Thank you.
Angie Lau: Thank you for continuing this conversation at a global scale and in every scale. Thank you.