- Standards are the key to ensuring blockchain's progress.
- They are the baseline for consumer protection and performance.
- Here are six key lessons to ensuring effective blockchain standards.
Cryptocurrencies are rallying to near-term highs following announcements from large players including PayPal and Square. Governments, including Bermuda and China, are rolling out digital currencies. Industries from mobility to mining are collaborating in unprecedented ways to explore and implement blockchain technology.
These are positive signs for a technology that was once riddled with hype and, in some cases, fraudulent behavior. However, something seemingly mundane may stand in the way of the technology’s progress: standards.
With emerging technologies, coalescence around technical and regulatory standards has marked a turning point. They provide a baseline for interoperable systems – think about the ability to send email between Gmail and Outlook – and for businesses to operate smoothly in a cross-jurisdiction manner. For users of the technology, these standards are often the baseline for consumer protection and setting performance expectations.
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Industry leaders across verticals, from financial services to supply chains, frequently point to interoperability and regulatory fragmentation as being among their chief concerns. In fact, “replacing or adapting existing legacy systems,” “regulatory uncertainty,” and “burdensome regulatory environment” – each rooted in standards – were among the top barriers to great investment in blockchain technology, according to 1,488 respondents in Deloitte’s 2020 Blockchain Survey.
There has been a recent proliferation of standardization activity around blockchain and digital assets, but little work done to catalogue and evaluate the current bedrock of standards and guidance upon which the ecosystem can build. Understanding what this landscape looks like is critical to outlining the path to scale, adoption, and long-term business models for blockchain technology – and creating a set of standards that work for producers and consumers alike.
To fill this gap, the World Economic Forum and Global Blockchain Business Council partnered with industry leaders to map the state of blockchain standards globally. Analysis of more than 30 technical standard-setting entities, 185 jurisdictions, and nearly 400 industry consortia groups found the following trends in the blockchain standards-setting landscape.
Education is key to thoughtful standardization.
Relevant standards have the potential to shape the future of the technology. It is critical for regulators to understand the attributes of this new technology if they are to treat it thoughtfully. The effectiveness of standards will ultimately come down to how stakeholders are understood and implemented.
A lack of coordination has led to fragmentation and information siloes.
The fragmentation of approaches, both worldwide and within certain jurisdictions, is simultaneously indisputable and unsurprising. Existing efforts to coordinate across jurisdictions have been piecemeal at best and chaotic at worst. Much existing fragmentation adds unnecessary confusion and complexity. Breaking through traditionally siloed bodies of information, industries and geographic barriers will facilitate more functional frameworks.
As global actors construct new solutions to address society’s toughest challenges, shared standards are needed to facilitate responsible innovation. There are both gaps and overlaps in the current landscape of blockchain and distributed-ledger-technology-related standards. This may be alleviated through increased cross-entity collaborations.
Some standards may be premature or unnecessary.
There may be aspects of distributed ledger technology that are not yet mature enough for standardization. Moving towards standardization too early may stifle innovation or lead to skewed or adverse incentives. As such, the time frame in which standards are developed is critical. It is important to carefully scope what these aspects might be and identify a projected timeline for revisiting the topics.
Terminology remains inconsistent.
There is still debate about terminology and technical design choices within the distributed ledger technology ecosystem. It is important to ensure that standards articulate their intended audience and intentions as clearly as possible – for example identifying the relevant layer in the technology stack or, where appropriate, which protocols or verticals are being addressed in a particular standardization effort.
For instance, analysis found that organizations setting technical standards, such as the IEEE and ITU-T, were operating from slightly different definitions. Given that standards build upon each other, theses differences can have compounding effects long-term.
Standards for blockchain technology should take a flexible approach.
Much existing regulation and standardization focus specifically on digital assets, as opposed to blockchain or distributed ledger technology more broadly. As new uses for the technology are ever-emerging, dynamic or principles-based guidance will be paramount.
For instance, seven central banks in collaboration with the Bank for International Settlements recently released foundational principles for the creation of central bank digital currencies that countries can adapt based on their needs.
What is the World Economic Forum doing about blockchain?
Blockchain is an early-stage technology that enables the decentralized and secure storage and transfer of information and value. Though the most well-known use case is cryptocurrencies such as bitcoin, which enable the electronic transfer of funds without banking networks, blockchain can be applied to a wider range of purposes. It has potential to be a powerful tool for tracking goods, data, documentation and transactions. The applications are seemingly limitless; it could cut out intermediaries, potentially reduce corruption, increase trust and empower users. In this way, blockchain could be relevant to numerous industries.
That said, blockchain also entails significant trade-offs with respect to efficiency and scalability, and numerous risks that are increasingly coming to the attention of policy-makers. These include the use of cryptocurrency in ransomware attacks, fraud and illicit activity, and the energy consumption and environmental footprint of some blockchain networks. Consumer protection is also an important and often overlooked issue, with cryptocurrency, so-called “stablecoins” and decentralized applications operating on blockchain technology posing risks to end-users of lost funds and also risks to broader financial stability depending on adoption levels.
Read more about the work we have launched on blockchain and distributed ledger technologies – to ensure the technology is deployed responsibly and for the benefit of all. We’re working on accelerating the most impactful blockchain use cases, ranging from making supply chains more inclusive to making governments more transparent, as well as supporting central banks in exploring digital currencies.
Organizations should proactively determine strategies for standards creation and implementation.
There are several mechanisms for contributing to or commenting on standards development. Entities should proactively determine their strategy for participating (or not) in these activities. This could include, but is not limited to, identifying desired topics or areas of influence, joining specific industry action groups or appointing technical experts to working groups in the early stages.
Because of the differences in technical and governance architecture across distributed ledger technology, implementation of standards will vary greatly from entity to entity. Organizations should proactively scan and understand the activity taking place within the standards landscape in order to plan and manage the desired implementation.
Standards have the potential to help level the playing field in the development of blockchain, but only if they are designed and implemented thoughtfully. Without careful, proactive attention to how standards are created and who is creating them, it is possible that they will be shaped according to specific interests and orientations – negating the potential to democratize the industries blockchain promises to open and instead reinforcing unexamined legacy systems.