Abstract : Abstract: The“Blockchain Closed Round-Table”will be hosted by the FSA of Japan once a year in the future. The impending meeting will focus on a number of issues including how supervision organs, technical practitioners, academia and industry practitioners cooperate, the exploration of the potential of blockchain and token economy.
Recently, the Financial Services Agency of Japan published on its official website the details of its Blockchain Round-Table (BCRT), hosted from May 27 to 28. The JFSA stated that the meeting was not a public one and only experts from the supervision organs, the industry and academia were invited on a voluntary participation basis. In order to encourage the participants to speak their minds freely, the meeting was organized in the format of a closed forum. After the meeting, the JFSA selected some content of the meeting to share with the public, with the unanimous agreement by all the participants.
Besides international financial supervision organs, central banks of different countries, research institutes and higher education institutes, the meeting also invited domestic and international experts of security and encryption, and blockchain engineers.
Japan is the host of this years G20 Summit. This year's Summit of G20 Finance Ministers and Central Bank Governors will discuss technological innovation in the financial area, which is an important component of this year's G20 Summit's agenda. The JFSA believes that besides risk mitigation of crypto-assets, decentralization technologies will also play an active role in a well-deployed environment, such as blockchain technologies that support technologies of crypto-assets.
Needless to say, the global cooperation between supervision organs is important to effectively bolster innovation in financial institutions. At the same time, cooperation among other stakeholders such as technological companies is equally pressing. Since 2017, the JFSA has hosted the annual “multilateral joint research project”and this year's BCRT is part of that project.
The round-table spread over two days. On the first day, the participants focused on the discussion of the main issues of the G20 Summit and issues such as “governing of multiple stakeholders in financial ecosystems based on blockchains”, “privacy and traceability of blockchain financial transactions”, “latest development of token economies” and “measures of blockchain jurisdictions.”
The issues discussed on the second day of the meeting include: “supervision environment and current effort”, “technological development”, “financial services based on blockchains—potential applications”, “simulation of multiple stakeholders-freedom or control?”
ChainDD has sorted out the main issues of the meeting, which include:
- How can effective cooperation be carried out so that all stakeholders (including supervision organs, engineering and technical staff, enterprises, users, investors and academia) are all able to benefit from it and at the same time, effectively mitigate the risk brought about by blockchain's distributed financial systems.
How can supervision organs cope with the current rapid technological progress. Some participants pointed out clearly that supervision organs may face the potential dilemma between the procrastination principle and the technical debt principle.
Note by the JFSA: The“procrastination principle”refers to an attitude which believes that any problem faced by a new technology will be solved in the future by someone else. Following this principle, supervision organs should avoid premature supervision on new technologies.
“Technical debt”usually refers to the situation that as soon as a technology is developed and adopted extensively, it's really difficult to change the basics. Following this principle, supervision organs should regulate new technologies as early as possible.
Additional notes by ChainDD: Technical debt is a metaphor in coding and software engineering, referring to compromises made by developers in order to accelerate software development when the best solutions should be adopted, in favor of short-term solutions that will speed up the development. The consequence is extra development burden in the future. This is a technical choice, and it is just like a debt, which may bring short-term benefits but must be repaid in the future.
- In order to fully explore blockchain's potential and mitigate relevant risks at the same time, all stakeholders in the ecosystem must share with each other fully and define clearly the social benefits and value that they can provide. Only then, all parties will be able to better deepen their mutual understanding and foster cooperation so that a common language can be formed and a place of multilateral communications can be established.
- Due to possible risks by blockchain to distributed financial systems, the participants also discussed issues of privacy and traceability of financial transactions on public chains. In general, blockchain engineering and technological communities are trying to develop anonymous technologies and government departments may need better insights into the impact of blockchain on financial activities.
- Participants emphasized that technologies to strengthen privacy may make people more susceptible to criminal attacks such as money laundering. However, the intention behind the development of these technologies is benevolent, e.g., technologies for better substitutability and expansibility.
On the other hand, engineering and technological practitioners can also provide technical solutions for supervision organs. In this process, engineering and technical practitioners, and supervision organs should engage in bilateral and appropriate monitoring and observation.
- The participants expressed their opinion that financial supervision organs may have to consider the possibility that financial institutions under their supervision will be allowed to only use auditable blockchains.
- The engineering and technical participants of the meeting shared with the others the latest technological development and progresses, such as the new development of technologies related to pubic chains (e.g. BitCoin) expandability, security, confidentiality and substitutability.
- The participants also discussed the latest development of the blockchain ecosystem and also the challenges it is facing, such as regulatory updates in and comparisons between different jurisdictions, and potential applications of blockchain technologies and their practical use cases, including token economies, trade and financing, central bank digital currency and crypto asset trading markets.