You may have heard of the blockchain platform Ethereum.
Like Bitcoin it allows people to exchange cryptocurrency, called ether. But more than that, it allows programmers to quickly develop decentralised applications, like smart contracts.
On 30 April 2016, the DAO, a self-governing structure created through a smart contract operating on Ethereum, launched a funding round. In the largest crowdfunding to date, the DAO raised more than US$150 million worth of ether from 11,000 members. Participants were excited by the prospect of voting on proposals in a system that would self-execute the winning proposals. Then the DAO got hacked, with the attacker moving 3.6 million ether (worth about US$47 million at the time).
While new technologies bring exciting new opportunities, some of the teething problems they go through can be severe, especially when there are no defined standards or rules around foundational issues like terminology, security, privacy and interoperability.
The best invention since sliced bread … or the internet
It’s no secret that blockchain technology has far-reaching implications — for clearance and settlement, land title registry, tax collection and e-voting, to name a few examples.
“What the internet has done for information, blockchain will do for value,” Nitin Gaur, the global director of IBM Blockchain Labs, recently proclaimed. But as with any new technology of significance, people are grappling with what blockchain is, and what it means for the future.
While governments, and many in the private sector, were slow to face up to the implications of the internet, they are eager to be on the front foot in exploring blockchain technology. For example, Treasury and CSIRO’s Data61, with support from other agencies, are exploring blockchain.
Standards Australia leading international developments
Australia is well-positioned to be at the vanguard of developing the blockchain ecosystem. As CEO of Standards Australia Dr Bronwyn Evans stated, in Australia “we have a tendency to be bold and open to new ideas and ways of working.”
Standards Australia has been busy working towards blockchain standards for over a year now. As part of its appointment in managing the secretariat of the International Blockchain Standards Committee (called ISO TC 307), Standards Australia hosted ISO TC 307’s inaugural meeting in Sydney earlier this month. Following the three day meeting involving 85 experts from 17 countries, Standards Australia hosted an international blockchain conference, aiming to allow the public to hear about the latest and greatest in blockchain from European, Australian, American and Asian experts.
But developing pragmatic regulation that is flexible enough to ensure technological innovation can thrive is no easy feat — especially considering that many people are still struggling to understand what blockchain actually is (this World Economic Forum clip provides a good basic summary, if you too are wondering).
The roadmap to blockchain standards
As part of its larger body of work, Standards Australia has been consulting heavily with stakeholders to help answer how to prioritise standard development. According to Dr Evans:
“Alongside regulation, standards have a role to play in establishing market confidence to support the roll out of blockchain technology. Standards can support blockchain applications by strengthening privacy, security, governance and interoperability of systems.”
The organisation released a roadmap of work in March, building from a steering committee, workshop and industry survey of over 100 government, industry and academic voices. The roadmap identifies technical issues and use-cases, prioritised standard development work and considered the role of blockchain in future regulation. Terminology topped the list of priorities to be standardised, followed by privacy, security and identity issues, with interoperability amongst blockchain systems an overarching objective. A reference architecture standard was also flagged for future development. Financial services followed by government and supply chain management were pegged as top priority use-cases.
Potential pitfalls of standards
There’s no doubt that standards are important. However, some question the role standards will play, wary of constrains to innovation. One industry insider made the point that “at its raw level, blockchain transfers information in new ways, so by trying to standardise it, it’s like saying ‘let’s standardise email'”.
At this point, it’s probably useful to distinguish standards affecting what blockchain is compared to how it’s used. Regarding the former, work by Standards Australia to standardise foundational elements like terminology should prove important as blockchain becomes increasingly prevalent.
However, there should also be enough flexibility to allow technology to evolve organically. As Grantly Mailes, former ICT lead in Victorian and South Australian governments, stated, “the power of blockchain is that it is done by consensus; this allows a diversity of opinion”. For example, standards around HTML were made very loose, which led to an explosion in webpage creation. Also, as blockchain is an open source protocol, market forces end up defining what standards will be used (so if someone creates a superior protocol, it will naturally supplant existing rules).
Standards (or regulations) affecting how blockchain applies in specific contexts faces its own issues. International currency exchange by traditional banks using blockchain would benefit from standards around things like interoperability. A boutique company developing bespoke solutions from clients may not. And whether standards are industry or government-led is another question to consider.
Generally, Australia is taking an enlightened approach, with Dr Evans saying “the freedom for blockchain developers to be innovative and for vendors to be competitive is critical”. In another example, ASIC developed a “regulatory sandbox” to allow eligible Fintech companies to test their business models without requiring a financial services licence for 12 months. This mirrors other, international developments, with the European Parliament calling for a “proportionate regulatory approach at EU level so as not to stifle innovation or add superfluous costs to it at this early stage.”
One day the novelty surrounding blockchain will fade into normality. Like the telephone, people will stop focusing on how it works, and just know that it makes their lives better. But in the meantime, a lot of work needs to be done.