A decade after the ascent of Bitcoin and later Ethereum, the technology behind that cryptocurrency—blockchain, a distributed electronic database that records and automates transactions— is still widely misunderstood by the public and even in boardrooms. This is often mixed with the unregulated market of cryptocurrencies, shrouding blockchain in a cloud of mistrust and confusion.

 The idea that blockchains cannot be trusted is both unfortunate and wrong. It is also preventing blockchain from achieving its potential as a technology that can radically improve transparency and security across a wide range of industries, both public and private.

Getting past blockchain's trust issues is critical to unlocking the technology's enormous potential. And the best, fastest way to do that is through regulation and smart policymaking. This may sound like anathema to free-market hawks and cyberlibertarians, but active government involvement need not be the government-dominated, centrally-controlled nightmare they fear. Rather, it is a critical component in unlocking the potential of this emerging technology for innovation and business growth.

Blockchain beyond crypto 

Ironically, blockchain, a technology designed to increase trust in transactions, still faces questions about trust. But it's becoming increasingly clear that many of the trust issues facing blockchain stem from a lack of understanding.

What is important for business leaders and the general public to understand is that blockchain technology completely transforms the concept of trust (for the better). Trust, of course, is an essential part of how economies and markets work. It enables and facilitates transactions that create value. Therefore, through the lens of economic theory, blockchain presents a new way to answer an old question: How can we peacefully, and efficiently build enough trust to enable parties to exchange something of value?

Blockchain is actually a distributed electronic database of transactions, which are individually secured with a mathematical signature (block) and then linked together (chain). As the MIT Technology Review editors put it, "Blockchains distributed across thousands of computers could mechanize trust, opening the door to new ways of organizing 'decentralized' initiatives and institutions." The number of trusted transactions and the potential for increased efficiency and mechanization is enormous. And the more transactions can be verified (trusted) and automated, the more economic opportunities will arise.

Blockchain's ability to enable frictionless transfers of assets is quickly manifesting itself in interesting functions in the private and public sectors. Blockchain applications manage complex shipping and logistics issues at international ports (Maqta Gateway in Abu Dhabi and Antwerp Port in the Netherlands), provide a transparent record of trading activity on the Australian stock market, and secure end-to-end transactions. As part of a pilot program by the UK Land Registry.

These functions should at least be seen as indicators of the potential of blockchains like Bitcoin. But instead, the combination of technology with cryptocurrency has created a relationship with volatile markets, perceived risk, and unsavory dark-web actors—and not a mathematical structure that relies on decentralized nodes to record and store data for greater transparency, audibility, and security. . .

Governments, policymakers, and regulators are positioned to give blockchain trust and legitimacy—and unlock its transformative economic potential—by promoting its adoption and developing best-use cases. To do this effectively, they need to invest in human capital, subject matter expertise, a clear permission policy framework, and governance. They must educate not only themselves but also their citizens in the application of blockchain technology.

How Governments Can Expand Blockchain Applications 

The Internet's usefulness and value are not limited to any single industry—it is a general-purpose technology that has supported an explosion of economic activity and opportunity in every industry in the world. Similarly, we are starting to see countless applications of blockchain outside of the financial sector.

Blockchain has the potential to radically upend traditional business models in several areas: supply chain logistics, fair trade practices, property transactions, personal identity management and government, to name a few. Supply chain issues, where blockchain made its first forays outside of the financial sector, involve a complex flow of transactions that run through multiple parties and transactions, each with its own contractual and fulfillment conditions. Blockchain enables parties to automatically fulfill and verify conditions at each step and instantly send and record payments.

Cybersecurity presents another powerful opportunity for blockchain technology. The amount of data that individuals and organizations are generating – much of it related to sensitive personally identifiable information, tamper-prone financial transactions or national security infrastructure such as water or energy – is pushing existing systems into disarray. Security breaches are the norm. False records and identity theft are on the rise. Meanwhile, businesses spend endlessly on privacy and security measures - only to be one step ahead (or soon will be) to find hackers.

As blockchain applications protect personally identifiable information and sensitive transactions, digital records will become more secure The mathematically generated signature on each record is nearly impossible to forge, hack, or tamper with—providing greater security and transparency to interactions between governments, businesses, and citizens. Think of all the situations where transactions depend on verifying personal information: salary certificates, vehicle registrations, property leaseholds, titles, and birth certificates, etc. With blockchain, you can put all these personal assets in a virtual “locker”—stamped, recorded, secured—and provide controlled access to any entity or business with your personal data.

Providing legitimacy and credibility 

And just as the internet's pan-industry impact previews blockchain's potential, its checkered history serves as a cautionary tale for blockchain's development. As policymakers and regulators scramble to take action to address Internet security and privacy flaws, they would be well-advised to anticipate the possibility that equally troubling issues may arise in the blockchain. By investing in the development of blockchain expertise, readiness, and proprietary technology, policymakers and regulators have the opportunity to actively lead and shape the future.

Government involvement sends signals to the market that provide legitimacy and credibility. This tells entrepreneurs and investors that the technology is worth exploring for business opportunities. This will pave the way for blockchain integration in more sectors and increase the number of trusted transactions in many areas of daily life.

So how can regulators signal to the market that blockchain is open for business? It starts with creating awareness about judicial skills and technology. We see a handful of governments leading the way.

Among the many relevant examples of government policy action, here are a few projects worth highlighting:

·        The UAE aims to build an international reputation as a leader in the blockchain sector. As part of plans to make Abu Dhabi the capital, a prime jurisdiction for blockchain innovation—and to attract the best and brightest—UAE officials are creating top-down policies that embrace innovation, entrepreneurship and experimentation. From creating economic zones and digital sandboxes with more permissive regulations to the use of blockchain, such as the Makta Gateway shipping hub, the UAE government is moving proactively, strategically and with the intent to learn and grow quickly. BRG professionals helped advise the government on the project. 

·        The European Union's governing body, the European Commission, is also taking a leadership role in blockchain, but in a different way. While the UAE focuses on calculated implementation and entrepreneurial pilots, the European Commission has adopted a rather long-tailed, policy-first approach. The EU has invested a lot of funds, staff, and energy in policy and regulatory innovation. Member-state Malta was the first out of the gate to pass comprehensive legislation to regulate blockchain technology, and other states are not far behind. Additionally, the EU sees blockchain as a comprehensive identity management solution that creates a secure, uncompromised interface for citizens to interact with government agencies in a variety of ways (health, education, utilities, and other government services). With an eye on long-term success and an understanding that this technology can promote aspects of the public- and private-sector activity, the EU has been systematic in its approach: supporting pilot projects, investing in high-level tech talent, and giving regulators a seat at the entrepreneurial table. to ensure that there are seats. 

·        In Malta, a member state of the European Union, Parliament recently passed a series of three bills designed to strengthen blockchain innovation with legal certainty. "When we started to look at what was needed to develop the blockchain industry, we initially realized that serious operators wanted legal certainty," said Malta, Junior Minister for Financial Services, Digital Economy and Innovation. “So far, operators have been operating in jurisdictions of legal uncertainty. Operators fear that one day a government in that particular jurisdiction will tell them they are not within the law - even though there are very few laws at present." 

Unintended business consequences of government inaction 

If governments around the world don't seize this moment and instead let the invisible hand of the market do the heavy lifting, the result could be real damage to the innovation economy. Strict reactive regulation may come from confused and potentially fearful populations that, if not persuaded by trusted authorities, may ultimately take their techno-distrust to the ballot box. Innovation, as well as human progress and quality of life, may suffer as a result.

Regulation and innovation are often characterized as opposing forces, but in practical terms, this is not a simple dichotomy. Innovation requires regulation to truly improve and benefit all. Blockchain has the potential to make transactions more secure, information more transparent, and lives more empowered. But first, it needs a make-over and should be seen as a transformative enabling platform, not a dubious crypto concept. So the role of government and regulators is important. We hope they rise to the occasion and become architects, not victims, of the future.