Page 160 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

5.6 Speed of processing

Speed of transactions is still an issue though: Some DLTs currently have substantially slower transaction speeds
due to POW or POS or other requirements. Even so, for DLTs to scale to compete with, for example, existing
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payment processing platforms, changes to processing techniques must be implemented.
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This may also involve implementing systems providing short-term ‘float’ insurance for (slow) transactions.

6 Policy, regulatory, and legal issues relating to DLTs

6.1 Overview

Just as the emergence of the Internet upended laws, regulations, policies, and internal rules of the time, DLTs
may provide an impetus for new sets of laws, regulations, policies, and internal rules.

As was shown with the emergence of the Bitcoin cryptocurrency, regulators were unable to quickly respond
to the Bitcoin phenomenon as it gained traction in many markets. As such, in a more visceral reaction than
a considered policy approach, some countries placed restrictions or bans on the use of Bitcoin and/or the
trading thereof.

Of course, DLTs are not Bitcoin, and although innovation and application of new technologies continues
generally and use of DLTs continues unabated, there is still concern within enterprises as to the impact DLTs
may have on general compliance. A 2016 survey by consulting group Accenture indicated that regulatory and
compliance concerns are delaying application of DLTs by many entities. 110
Besides the policy issues – that is, how far (if at all) can DLTs be implemented in specific sectors ‒ there are
also open legal issues to consider. 111

6.2 Regulatory and policy responses to DLT

DLTs have prompted varying responses by regulators. Bitcoin, the first DLT, was met with a mixed response by
many regulators. This speaks to the fact that many regulators are still attempting to develop the capacity to
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understand DLTs so as to develop proper responses to the multitude of legal, regulatory, policy, financial, and
security issues DLTs precipitate. 113
Responses thus far have been more strategic, with some financial regulators embracing the concept of a
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‘regulatory sandbox’ that may allow beta testing of DLTs – and other FinTech – applications.

108 In comparative processing statistics quoted by Kiayias & Panagiotakos, the current rate for Bitcoin processing is seven transac-
tions per second (tps), compared to payment service provider Paypal which handles an average of 115 tps. The VISA network has
a peak capacity of 47,000 tps. See Kiayias & Panagiotakos (2015) ibid. SafeCash claims though to handle up to 25,000 tps. See
Market Wired (2016) Safe Cash Speeds up Blockchain to 25,000 Transactions Per Second, available at https:// goo. gl/ yEJVjm .
109 As with legacy systems, DLT-based systems may also be slowed due regulations and compliance requirements. Although high
latencies due to technology design may also cause slowdowns, there are initiatives trying to improve DLT transaction speeds.
110 Accenture (2016) ibid
111 Some of these issues are described below in Section 6.
112 See IMF (2016) Virtual Currencies and Beyond: Initial Considerations, available at https:// www. imf. org/ external/ pubs/ ft/ sdn/
2016/ sdn1603. pdf.

113 For example, see China’s central bank, which is hiring blockchain experts.QZ (2016) China’s Central Bank Is Hiring Blockchain
Experts to Help It Kill off Cash, available at https:// goo. gl/ QTaOyt.
114 For example, see the US Securities and Exchange Commission, which has created a DLT Working Group to consider the uses,
effects and regulations of DLTs. Coindesk (2016) Blockchain Won't Just Change Regulation, it Could Reshape the SEC, available at
http:// bit. ly/ 2eWQQQv.

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