#186 Siân Jones: An Enlightened Approach to Blockchain Regulation in Gibraltar

Transcript

[Music] this episode of epicenter is brought to you by Jax Jax is a userfriendly wallet that works across all your devices and handles both Bitcoin and ether go to jx. and embrace the future of cryptocurrency wallets hi welcome to Center the show which talks about the Technologies projects and startups driving decentralization in the global blockchain Revolution my name is Sebastian kuo and my name is Brian Fabian crane uh we're here today with Sean Jones who well many of you will

know she's been on the show quite a few times uh enlightening us about regulation policy and the exciting Ro of Bitcoin and blockchain thanks so much for joining us today Sean well thank you very much for having me back on the show I feel like the Prov all spend Penny you know I just keep coming coming back and coming back and uh the very fact that people want to hear about boring regulations always hugely exciting for me yeah you're officially the Our Guest who has been on the show the most times I think I checked in it was like 11 times now so you're you're you're not you're not falling off that Podium anytime soon uh do do I do I get a medal or some bottle of champagne would be nice well we'll see what what blockchain

present we can we can make you that's a good point yeah and I'm excited back too it's it's been a while fortunately Sebastian Mayer have been covering a lot but I was you know traveling and just super busy with work and uh and now hopefully it's going to get a bit better yeah welcome back Brian how was your vacation yeah it was pretty good I was in uh Florida going around there doing some scuba diving and uh that was fun although ridiculously hot I don't understand how people can live there well let's get started with this topic so Jean you you sent us this um distributed Ledger framework proposal for Gibralter that you've been very involved in writing and and you know

when we were reading through this it was just such a a nice approach to how one could potentially regulate uh blockchain cryptocurrency businesses of course that's um yeah once upon a time we talk a lot about that right we have bit license and I think that was a very uh poor approach and and this seems a much better approach so why don't you give us some background about um Gibralter and what's going on with blockchain there okay so um maybe it's worth just explaining uh where jalter is because for a lot of people they'll be reaching for their their Google Maps trying to figure out where this place is but it's uh it's a little piece of the United

Kingdom that uh sits at the mouth of the Mediterranean the opening of the Mediterranean to the Atlantic uh it sits there um attached to attached to Spain uh and it's technically a British overseas territory um it's it's um it's a it's a town and an an a jurisdiction of its own Allin one it's um it's been uh part of or or or Allied to to to Britain for a very very long time several hundred years and uh it has its own government it has its own

institutions it's part of the European Union by virtue of being a territory of the United Kingdom um uh but it isn't a a member state in its own right it's it's sort of tagged on to to the UK's membership so it's um maybe just helpful to understand where where jalter sits um but as I said it makes its own it makes its own laws it has its own government its own Parliament its own uh chief minister its own Financial regulator the Jala Financial Services Commission and like a lot of small jurisdictions it's looking

for new Niche it's um it's facing um brexit uh as simply by virtue of being connected with the with the UK I was going to ask I mean that kind of an unrelated question but so these British overseas territories in fact do um have to deal with the realities of brexit uh is is that right um yes I I think In fairness um uh jalter is the only one that's impacted in that way so in France in in your home um some of the French Department that are in all sorts

of other places around the world little Islands in oceans and tagged on to to to to to other continents uh technically still part of France and therefore by some Quirk um part of the EU I think the only British overseas territory that's in any way connected with the EU is jalta because it's physically s connected to to to Spain so kind of unique but yes it's um it it's going to have to face up to the reality of brexit and and that's really a um part of what has driven this initiative so it's actually been interested in crypto currencies for I should say about three years now it's

had the the interest in doing something there it's had a couple of local reports and consultations and um I guess the last the previous report came out at the beginning of 200 16 and it was basically saying we'd like to provide a safe regulated environment for at that time just cryptocurrency businesses to be established and that can bring some economic value to the jurisdiction in exchange for which the jurisdiction can give a proper um regulatory base for those businesses that want that want that um I guess in the crypto World

there are businesses that very much want to have the credibility of being um regulated in some way um there are many exchanges for example that are in that are in that situation and there are those businesses that don't and J brus trying to satisfy a need for those businesses that would like to be regulated but struggle to find somewhere in the world that will regulate them well um I think Brian you mentioned a few minutes ago um New York state and its bit license regime uh and for those who are not fully familiar bit license is a very

comprehensive and um burdensome and and and why it's a very broadly scoped piece of uh regulation and as a consequence it it had the effect of only having a small number of businesses that have applied for licenses and even smaller number that have been granted licenses um because it's expensive to comply with the regime uh it's not particularly startup friendly it's not small company friendly and so a lot of the Innovation um has moved out of New York and it's favored just the very large um crypto businesses some view that as not having

been a particularly uh something particularly helpful to the to the blockchain and and virtual currency World um Jal has tried to find a a more balanced approach um and so it's set out with to um to uh come up with a regulatory framework now for more than just cryptocurrency businesses for um businesses in the broader scope uh uh BLT and essentially it's aimed at businesses that either hold or um

transmit um other people's value uh where they use DLT in some way to do that to hold or to transmit and and those businesses if they are based either come to jalter and become based in jalter or may already be operating in Jala those businesses can now be regulated with a regime that is very much fit for purpose it's a regime which is designed specifically for BLT businesses and as far as I know that's not been done anywhere else in the world and um perhaps it give some context and maybe you can fill in on

some details here I mean it's my understanding that chalar has has you know history also of doing what I guess a whole bunch of these countries do which is kind of like you know provide a regulatory Arbitrage an opportunity for regulatory Arbitrage where a company can say okay we're going to you know choose the best jurisdiction the most friendly jurisdiction uh particularly uh gambling sites right have done that a lot with online casinos poker sites and I think jalar is is a major destination for those businesses is that correct yes jto is very much um a jurisdiction that's uh made a niche out of egaming there are two or three such

uh jurisdictions around the world um some of um your listeners and viewers will remember that I've talked before about the AIS of man in previous shows uh and that's certainly one that um had also done a lot with poker sites and e-gaming and made a which now makes a very significant contribution to its economy incidentally um and U jalter is one of the other jurisdictions that that successfully attracted um uh e-gaming businesses so yes I don't know so much about regulatory Arbitrage but what it's tried to do is provide a safe haven for uh for consumers giving them the benefit

of of of of regulating their new new type digital businesses uh well and effectively and therefore give customers confidence uh but in fields where elsewhere in the world they may not have um um shall we say um exploited the opportunity so e gaming 10 12 years ago uh and now is an important part of the economy uh today hopefully it will be uh businesses in in blockchain and uh and virtual currencies can you talk about maybe some other jurisdictions around the world we talked about the New York and bit license and the difference the sort of

radical difference in approach there are are there any other jurisdictions I mean perhaps apart from the aisle of man but that are taking this similar Approach at least having these similar types of proposals um written in in favor of of promoting so this ecosystem where virtual currency companies can establish yeah I think I think there are certainly uh other jurisdictions around the world that have expressed interest it was quite interesting because I was in jalter when the uh the consultation was opened about three weeks ago um for this DLT regulatory framework and uh the day that it

was uh sorry the day before before it was uh it was sort of announced um uh there was a statement from Russia saying it was going to uh provide a um a kind of regulated space for uh for the for blockchain businesses but that was I think I may be wrong here but I think it was announcing that it would do it by 2019 if I remember correctly um other jurisdictions sort of Express an interest well you've got another EU jur jurisdiction um Malta which has also recently said it would like to do something uh and then further a field um you've got a Singapore that is very

interested in in doing things but it's perhaps a little bit more conservative in its approach um Hong Kong is also interested but again um maybe a little bit more conservative in its approach um China generally now is is moving into the more favorable Zone and has um is certainly encouraging blockchainbased businesses within the EU other jurisdictions that have been partially accommodating a places like Luxembourg and in Europe but not in the EU even Switzerland um your uh your home country uh Brian has been quite

Progressive in some respects but in Fairly limited ways and I I don't think there's any other jurisdiction apart from New York that actually come up with a specific regime for um for this space and even New York was very much about virtual currencies rather than wider blockchain so this is this is really the the first out of the Starting Gate and and I would not be surprised if other jurisdictions follow this model you know you need one success story and I think you'll find that that other places around the world will will will follow that would certainly be encouraging uh you know when you look at the broader

scope of things I think New York was probably the first jurisdiction to as you mentioned you know uh Implement uh regulation and and and was just you know really the bad example of how to do it as as you said it has encouraged only the large players to be able to be regulated only a few have gotten the license and most have left uh so that that's perhaps seen by others as an opportunity to do things very differently I think it's one of the downsides of being one of the first to do anything is that uh you if anything you're going to be you're going to come up with a more Draconian style of regime and I think that's what happened with with New York I think other places have taken um more of a a wait and see

approach uh allowed the the the technology to evolve a little and to see how the land lies how what the business models are then think about um uh setting up a regulatory regime and um I think jalter is the first of those to say fine we've waited and we've seen and now we're doing something that's positive so let's talk about the the scope of the report um the report is called the proposals for a DT regulatory framework and what I thought was interesting about this is that it talks about it talks about distribut Technologies quite a bit it it references that term quite a lot uh it

does talk about blockchains as well and and and virtual currencies in in fact the the scope of this framework uh when you look at the some of the use cases here and we can we can you know talk about some of the use cases that are meant to be um within the scope of this framework a lot of them in fact are are more on the virtual currency it feels like the virtual currency and perhaps blockchain Technologies but not so much on the private blockchain stack you know things like trade Finance retail Insurance uh mortgage and loan application Etc I mean I guess you could put some of those in into into private blockchains or coner

blockchains but why why did you feel it was pertinent to describe this as a as a distributed Ledger Technologies and not so much uh blockchains or virtual currencies we we have a real problem don't we in the in in in finding definitions that that that are meaningful and that we can use universally across time so you know I think a year or two ago we probably would all have thought that um distributed Ledger technology and um blockchain was one and the same thing and of course they they have nuances and

though those nuances are now much more widely appreciated um but the the reality is right now we don't so what we've tried to do I think with this regime is come up with something that says if you use distributed Ledger technology which also includes um in which which includes within it blockchains but not necessarily only blockchain so anything that has the properties of of distributed ledgers which which actually are um there is a definition in the cons consultation document for both blockchain and for distributed Ledger but anything that uses this technology to store or transmit other people's money I mean I'm I say it it actually

talks about value but I'm just using sort of common parand so you should expect you it's not unreasonable as a customer to expect that the people who the Integrity uh of the people and the professionalism of the people um the the their risk management um approach and so on so forth that those things are the same whether they're in the analog world or in this digital world and so whether it's a a cryptocurrency uh whether it's some other kind of of coin whether it's in the permissioned all the permissionless world doesn't really matter so far as this regime is concerned and I think in

some of the examples in the consultation paper it it gives Insurance it gives um it gives um both trade and post-trade uh activities a whole range of activities if other people's value is is is being handled by by Third parties they those third parties should be should be trustworthy and professional yes so that was one of the things that stood out to me know because one of a big criticism of B license back then was that there was no real distinction between you know companies that would hold a person's private keys and not and we have that here but what I like even more about this is that again

with with something like the licens I think a lot of regulatory approaches you know very explicit and saying okay you got to do that you got to do that you got to do that and then of course even when they had written it the bit license thing there was all kinds of flaws in it or things that just don't make sense or completely go against the nature of of how some of these businesses are structured right like a lot of business models if you look at something like you know shape shift being one of them it's just impossible to do Under the license regime and and what I really like here is this idea of you know of a sort of principle based approach where you say okay we have these big Ideas this big Concepts that people should follow and

you know we're going to just hold them up to that standard without seeing exactly how they're going to have to do it and you know it will change over time and at some point one thing is going to be appropriate and another Point another and it just feels like a really nice common sense a clear approach and the other thing that also I I loved about this is because if you actually have these different these different criteria or standards right like Risk Management or you talked about integrity of people or protecting the interest of all the stakeholders communicating transparently all of those those things you know a company will be a better company for following those rules right and I think a lot of a lot of blockchain companies

don't do that and you would like you we wish they did I'm I'm pleased you like it um and I think that was I think that has been the challenge across the board that's where a lot of um policy makers and Regulators have struggled um is is in thinking well hang on a minute this this is so new this technology uh the the the use cases are still being discovered and and and new use cases are coming to light it seems almost weakly there are new business models new products new ways of doing old things and holy new things that never existed before how can we find uh a set of rules

how can we Define a set of rules that works for all these things that we don't know I mean what we know today is that don't know all these businesses what they will be what they will look like um in six months 12 months a year you know couple of years time um everything that Regulators normally have to contend with is around what they know you know established business models uh a kind of status quo and so they can say well we know how this works so let's define a set of rules for it most of what's happening in Virtual currencies and the whole um blockchain domain is um is unknown some is known of course now

we've been you know this technology has been running a few years some models are quite well established obviously virtual currency exchanges would be would be a model which is now well understood but there are a lot of new products that are being thought about and new business models and new ways of doing things and and the technology which is evolving virtually daily how do you tackle all of that and the approach that that that jalter has taken is to I say we recognize that we cannot possibly write a set of rules that's going to be valid next week next month next year five years time today we we can't do

that here because it's just too early and it's evolving so quickly so how do we provide a safe haven how can protect consumers um how can we give legitimacy to those businesses that want it uh without knowing um everything there is to know and so you you you've really put your finger on it the approach that they've taken is to say what are the outcomes that we want um and obviously they are customer focused outcomes and then what how do we go about achieving those outcomes when we can't write a lot of detailed rules now it's at that point that a lot of regulators and policy

makers throw their hands up in the air and say don't know but what jalta has done here very progressively boldly I would say is to um identify what the what the principles are uh of running um Financial Services type businesses and then to say well then we will adapt rules from time to time that achieve the outcomes by Meeting those principles and what it takes to meet those principles tomorrow will be different in a year's time perhaps but we will adapt um the rules to meet to keep up

with the technology and the evolving um industries that are in this technology and uh that that's pretty unique in in financial services but actually a lot of fintech should be viewed in that way I think yeah uh I I couldn't I couldn't agree more and I don't know if it makes sense to go too much into detail about some here I I think one I want to point out that I particularly like is uh the principle of kind of acting you know protecting the interest of all the stakeholders uh and I think that's

something that that you know often doesn't happen right because if you have today a lot of these network of these projects you have this distributed ownership and this distributed control but that also means that there's not so much accountability really and I think you know we see that even if something as large as Bitcoin where you know to what extent are the core developers or the the main developers in charge of Bitcoin accountable to be going hold us really not at all right they they do what they think is right uh and and whether it really serves the interest of of the Bitcoin holders there's no there's no

accountability on that uh and and so I think that's that's something really nice and um even just having that as a standard and and having things like transparent communication and an honest communication right without having you know misinformation uh you know those are I think the the Great great things yes I I think it's worth pointing out that there isn't an attempt here to regulate the technology so that that there's no attempt here to to regulate Bitcoin or uh ethereum um uh not the one could because of the way that they're constituted um the the the purpose here is to provide a regulatory framework for

those businesses that hold or transmit other people's value and do so using technology that's the key point I know we always say that this technology one of its features is that it dis intermediates it does away with um third parties but in reality that's not actually what's happened I mean it's absolutely has that capability in the in in in the in the uh decentralized space in the permissionless space but um in a lot of cases you entrust other people um to perform various things with

your with your money with your value um again the simplest example would be a virtual currency exchange uh whether it's only for a short time or a long time in some way shape or form you're entrusting the The Exchange um with um either directly with your money or indirectly with your money H and it's quite right that those businesses should have you you the customers um interests as much at heart as um their own interests and so um that's what we expect of any other in financial institution um we expect out of any other kind of financial

intermediary in fact anybody that we give our money to who then does something with that whether they then give it back to us or invest it or whatever it it doesn't really matter if if they're handling our stuff then um we expect a lot of them and there's been no way of adequately assuring that um in the by a regulatory regime other than in New York state um so here is an opportunity to do that across a broad s of businesses uh if they're looking after your money basically and they're based in jalter let's take a short break to talk

about Jax Jax is your wallet your complete user interface to cover all your blockchain needs I've been using it and I've been loving it now Jack supports a lot of different cryptocurrencies supposed Bitcoin ether Litecoin ethereum classic zcash or rep and they're adding many more keep responding to users needs now with Jack the nice thing is that you can manage all of those coins within a single wallet and you are in control of your own private Keys they're not on their server and there's a single 12 ver seed that you can use to back up your wallet all your coins and sync them across different devices talking about devices they're on pretty much any device that you can think of you can get it on PC Mac Linux you can get it on

smartphones like Android and Apple and iPhone you can get it on tablets or you can there are even browser extensions for Chrome and Firefox and on top of that in Jax you can actually exchange different cryptocurrencies for each other because they've integrated a shape shift and more Partnerships and Integrations are coming down the line in 2017 that are going to make Jax even better so Jax is really making blockchain and cryptocurrencies accessible for the masses easy to use for the masses make sure sure to get your own Jack wallet at ja.io or you can get it from any of the app stores you are using we would like to thank Jack for their support of app Center so Sean one thing that also stood

out to me in this document is that it talks about out of scope um you know use case the sty scope example so it mentions Bitcoin uh being one that you know doesn't fall under this and there should shouldn't be regulated that way I mean even even if one said it it was included one would wonder you know who would be accountable right it it doesn't quite make sense but it said you know decentralized networks are excluded of course where it Chang this changes a little bit is when we talk about something for example like ethereum right where you had the decentralized network but you also had the foundation that raised the money and you know developed it and of course this now is you know Cosmos what I'm working on tasers and so many more projects are

doing a similar thing so do those generally fall outside of the scope of this regulation and this doesn't apply or doesn't yes that that there's there's no attempt here to um regulate any part of the um governance Machinery of uh of um say a virtual currency scheme in other words of the of the underlying technology so yes you're quite right the the consultation paper gives some examples of what um jalter believes will fall in scope uh and some examples that it feels it probably outside scope so a good example of something that's outside

would be a a a merchant who accepts virtual currency in payment for goods or services you wouldn't expect them to be regulated as a as a financial intermediary um similarly people who invest in um coins or virtual currencies um for themselves as distinct for those people who do it on behalf of others so there's th those are the kinds of of distinct itions that are that are made I sense in your question though something that probably we all have in the back of our mind which is you know there's there's all this decentralized stuff going around and yes it it that

there's the mechanism for for effectively voting change uh but there isn't necessarily the governance regimes uh in place to ensure that all stakeholders interests are taken into account I think the one that's often given as an example is that so much of the mining power in in Bitcoin rests in a relative in in the hands of a relatively small number of of players um uh and that is certainly very challenging this particular reg regulatory regime doesn't attempt to address that but there are other initiatives that are starting I think to

address that and so I'm if you'll permit me just to slightly go off topic about Gibralter but there's a there's uh an initiative going on in the standards field right now so many folks have heard of the international standards organization or ISO and and we come across you know ISO numbers for all sorts of different standards for all sorts of things from um you know Parts in cars to messaging for financial services to health and safety to Quality Management a whole raft of stuff and these are agreed standards by standards

bodies across the world who get together in an international body um and agree a set of standards and in distributed Ledger technology there is an initiative that started last year so the international standards organization formed what's known as a technical committee in the Autumn of last year uh and it had its inaugural meeting in Sydney in in April um and I'll declare an interest I I sit on that technical committee and it's looking at a number of areas so initially the standards will be around definitions you know that we actually know across the world what we're talking

about when we talk about distributed Leger technology or what we talk about uh blockchain and that we have a common understanding in um but other work streams that are being looked at include um amongst other things interoperability and governance and governance has a I think a very important part to play in the kind of concerns that I think you're you're talking about uh or hinting at Brian um and so I think in time as these standards emerge and we'll probably see a series of standards they probably will be a set of criteria that you will know whether if those criteria are followed

if those guidelines or whatever they emerge as a followed that that that this particular uh coin system or decentralized um system of some description um if it complies with that that you have confidence that all stakeholders interests will be will be adequately um taken care of I think it'll take some years for those standards to emerge these things are never done overnight um but they will probably be good for the permissionless and the permissioned world of course governance is a super interesting topic and I'm I'm always interested in onchain governance I think it's going to be hugely important but

that wasn't exactly where uh I think I was kind of leading to with this question because you know if you look at today and and maybe we can speak about this also a little bit uh later in the episode um there's a you know huge Trend towards tokenizing products tokenizing applications or networks right so we have of course this is coming with the enormous amounts of money that are being raised like that but so this includes both you know like blockchain networks but also applications right so examples of that would be Golem or um gnosis uh which is incidentally is based in G jalra um

and I'm just wondering whether all of those would be excluded because they don't really have custody of of users funds right that's I mean in a way you know they they receive funds from a user but kind of in return for for tokens more less you know legally I guess sometimes it's not structured like that but that's kind of the mechanics and and and so they don't hold they don't really have custody of a uses fund so is it correct that essentially all of those are wouldn't fall under this regulatory regime so I I I I think you're exactly right I is this um

regulatory regime isn't about um icos but there are existing regulations in MO many jurisdictions and certainly throughout North America and throughout Europe um that govern um how um these kind of um Financial these kind of Investments and I'll use the term loosely Investments um how these kind of Investments are promoted and so yes some some of these icos will be treated like Investments like

Securities um many try to structure them in a way that they're a product rather than an investment so typically access tokens and so on and I think we will see um Regulators starting to take a greater interest in uh in these types of tokens and really start to um deconstruct them to see whether they're really um quazi Investments quasi Securities of some sort or not and if they are investments they'll treat uh that they'll be expected to follow um

existing rules that govern those kind of Investments unfortunately like everything in this space it starts off being a bit like the wild west so um more or less at the moment anything goes some of some of the things I've seen promoted and I'm sure you too have uh have certainly looked like they're in a very gray area um some businesses some promoters um of iOS have spent lots of money getting legal advice to make sure that they don't infringe investment stpe type um rules

um and quite often the answer the advice they get is well on the one hand it could be and on the other hand it might not be um it's a tricky tricky area um personally as you know Regulatory Compliance is my is my thing um I I I think that in time uh the rules will get stricter in much the same way as with crowdfunding generally rules got got stricter it's a trend when Lots of people are throwing lots of money at something then The Regulators well first of all the policy makers and then The Regulators get interested so what I think the situation we have here is actually kind of

analogous with the situation we have with these I mean the situation we have with icos and crowdfunding campaigns is kind of analogous with the situation we had with you know General cryptocurrency uh and blockchain services where you know in in bit license for example you try to to apply this rules of financial services onto this thing and it doesn't really fit right so now we have with in chiala this principle based approach which seems much more reasonable and appropriate to the environment and I think similarly if you just try to sort of put this it's a security comply with existing Securities regulation uh thing onto icos it doesn't really fit cuz there's just fundamental ways in which

it's different so what people have done you know the the most frequent approach so far has been to set up foundations in Switzerland and then those foundations essentially you know do those uh those crowdfunding campaigns they raise the money they develop the network and then you know that network uh essentially indirectly May gives value to this tokens or try to increase the value of the token um or at least deliver on the promise they made to to the people donating and and and you know that it's not absurd right I think there's there's a case to be made that this is kind of sensible but it does feel awkward right

foundations weren't really intended to be used like that and and for that reason I think a principle based approach to regulating icos would be a great opportunity and and a great service and I think if somebody did that and and then companies went through that you may really say okay this is you know this is a legitimate project it has lived up to certain standards uh that you currently don't have and there's also a certain set of accountability that those people have that they currently just often don't have so I hope somebody's actually going to do that I think it it would be an excellent

thing um I I'm I'm sure that uh the rules around um icos will go the way of crowdfunding in other words they'll start to be um narrowed down and um made more appropriate to this this this new uh this new paradigm I I think it has to be approached in a slightly different way because the way that they're promoted is well in some senses it is very similar in other ways it's it's very different from from conventional Securities

um the one thing you we all want to be sure about is that the people who promote it um have the capability of understanding what it is they're promoting and of um giving representations to potential investors that they can properly understand I think one of the really risky areas is today is that um unless you understand well um the underlying code in a particular Ico um You probably don't really understand what it is that you're investing in which means that a very

large proportion of people investing in icos don't actually understand all the risks of that particular uh you know coin that they're investing in um and what you hope is that the people who promote the business who promote that investment that they are responsible in the way that they do it just as they have to be in tra in the traditional investment space so they should be in the I Ico space uh we all know that um when the Dow happened um the Dow incident uh a year or so ago um we all know that the the first thing that was

challenged was well did we understand what we were investing in really understand what we were investing in and did we just take at face value what um people who were promoting it what they were saying could that be relied upon and I think the answer after the the so-called Dow hack was that people didn't necessarily understand what they were investing in and they couldn't necessarily um take at face value everything that had been um told them when they put their money in I think that's right my my my feeling increasingly I mean of course since the Dow there have been there have been a

number of very important crowd sales that have um raised you know several millions of tens of millions of dollars in in in only a few minutes uh and that there's an enormous fear of missing out uh you know when when you talk to people sort of in the space you know you know just people in your office right you start talking about crowd sales like people just get excited oh there's another crowd sale and like there there's a there's inherently like a a a desire to want to invest in these things out of fear of missing out without even considering um the you know the even just the the the the the function of the token or what they're investing in it's just oh this a new crowd sale uh I don't want to miss out like I did on the last one what

what do you think yeah I I mean of course that's absolutely there there's no question and that certainly is driving a lot of decisions and and I have no doubt that people are doing uh are making you know uninformed and irrational decisions yeah uninformed decisions yeah I I don't think that's something a regulator can or should do something about that's just a fact of human nature and human psychology I think there are the but if you look at these these principles you know that that uh were outlined you know for the other I think most of them you could just carry over you know you could say okay you know are the people honest okay

you know do they protect the interest of all stakeholders that's going to be difficult to evaluate in many of those cases right that there will be a lot of gray zones but in some cases probably in in the real uh in the real scams right who aren't just like genuine attempts but didn't work out or you know genuine disagreements but you know clear scams I think it will be very clear so again I think that's something uh that one could apply very nicely you know the money being is is it you know are the uh is it deployed appropriately you know is there um are there sufficient Financial Resources planned for the promises being made you know is there some kind of risk management uh corporate governance I think as well um keeping funds separated

you know if it is even between a sort of foundation where the money is or taken in for a specific purpose uh from other funds that may be around um so I think actually most of those you can carry over and I think that those are good things to follow and they will not prevent irrational exuberance and they will not prevent a massive bubble and prices going through the roof and crashing and I think that those are going to happen but I think what they could vent is or or they could really prevent the scams right the the ones that are just outright schemes and dishonest schemes making you know

false promises uh to get money because it seems easy at this point and I think that's something worth doing there are two kinds of misrepresentation there's um well actually there's probably more than than two kinds but um first of all you've got you've got fraudulent misrepresentation so you know people who which would be typical in scams you know you just make promises without having any real intention of of of carrying them out um just to to get other people to to to to invest in the scheme um you you've got negligent misrepresentation which is

representation where really you're holding yourself out as as as some someone who understands and knows this thing but you haven't really um exercised your responsibilities of checking it all out and making sure that the representations that you make are um accurate and can be relied on and I think um some of the things that happened in the Dow last year would probably fall into into that category and then I suppose you've just got honest misrepresentation um where you know you you you truly believed something was was the case and you had pursued it and it it It Isn't So Much misrepresentation it

just didn't work out um but but these things are the same things that apply in pretty much everything to do with investing and you know you say well you can't protect against U natural exu People's Natural exuberance you can't necessarily protect against the the fear of missing out and of course all markets and pricing is d driven largely by that um but what you can try and do or certainly what Regulators try and do in the investment space is to ensure that products are sold to people um who may have the ability to understand what it

is that they're investing in so you know there are there are different regimes in different jurisdictions but they usually are rules that say that certain kinds of Investments can only be offered to people who um who who are professional investors or who have um significant uh sufficient wealth that they understand about investing and that they're not about to you know that their people of modest means who are about to throw their life savings into something because they you know they believe it's going to be the the next big thing yeah I mean I think that's it's great that you bring that up because it's something

I did want to bring up as well and and I I have huge I think it's would be terrible going down that direction and and we are seeing the first uh example of that at this point right which is filecoin so they have announced and they've set up this new platform called coin list to do their Ico and of course filecoin many of you will be familiar with the project we've had um Juan Benet on before so f is basically the sort of economic uh incentivization system behind ipfs which is a very well-known project a lot of interest around that a lot of enthusiasm about the project uh

very um competent investors in it so what happens when you say and and they are going to restrict their Ico to accredited investors so what happens in that case well first of all um in the US I think it's about 3% of people uh qualify for that so they need to have more than a million dollars uh of net worth I think excluding their house and or $200,000 in salary per year so so you've cut it down right you've eliminated uh most I don't know let's say 80% or 90% or something or maybe even more of people commonly investing into uh in

cryptocurrency systems icos Etc so you cut those out and do this you do this crowdfunding campaign and all the tokens go to those guys but it's I mean it's transferable it's peerto peer I mean the whole point of this technology so it goes on exchanges and and then all the others can also go and buy it in there at probably like a 5x premium or something so that seems just a complete uh disaster going that direction so I'm and and I think also the idea okay if you have a million dollar or if you are this accredit accredited investor I mean actually nobody there's no accreditation it's simply how much money you have so I'm I'm I think it would be

a shame if uh more crowdfunding campaigns going down that rout and it would be very negative for the space I think um I think in a way there'll be a form of before we see any significant regulation in this space we'll see a kind of self-regulation so there are those organizations that uh help iOS get off the ground and and and the ones that I've encountered the vast majority seem to um have their own internal criteria for checking out what the true value is behind the coin what

the technology is what it is that people are investing in because their their reputations depend on it and I think we'll probably see then a scenario where you know that if it's being promoted by this particular organization or that or or or person that you trust that they have um that they've carried out that kind of due diligence because they understand it better than you do and I think um I think in a way uh a lot of the funds management business in the traditional in the analog world Works in that way so you have investment managers who um handle a variety of of of collectivity type of investment um

funds of one sort or another and you end up trusting the investment manager because their past performance is good because their skills are good because they got a great team who do all the due diligence and so on I think we might see more of that emerge in the in the Ico space unfortunately probably only after um some people lose money and others don't I rather Suspect with this exuberance around icos at the moment a lot of people are going to lose some money and a few people are going to make some money um but once the reality hits that not all icos are equal um uh you you will start to see I think

reputations being built on you know who on the pickers the what what would have been the right stock Pickers in in the analog world will be the right Ico Pickers in the in the digital crypto world I I I kind of agree with with Sean's position on this in increasingly I think that a lot of the a lot of the protections also will come from self-regulation I I've I've I I had a discussion recently with someone uh who who who was sort of on the on the side of of Brian um essentially I I would say even even more um that his position was was even more uh I guess um on the free market side uh

where he was saying okay well there's going to be there's going to be a bubble people are going to get hurt and that's okay you know um I think that obviously that's not something that's desirable that we don't want to um um put the breaks on Innovation and I think as you mentioned Brian it would be pretty disastrous for the space if all of a sudden only 3% of people could invest in cryptocurrency projects or icos when in fact you know as you mentioned you know people can just go through exchanges afterwards and probably end up paying a premium on on the other hand I've also met people that you know people not necessarily in the cryptocurrency space or in the blockchain space like I met this one guy recently

and he's like oh you you work in in blockchain well I invested in this like insert scan name blockchain here and he's showing me the app and there's like literally a pyramid with like him somewhere inside this little pyramid with like the people that have referred him to be able to buy into this currency and you know there's there's two ends of the spectrum we have to find ways in which we can on the one hand uh continue to have innovation in the space and and and allow for these projects to be funded but also protect uh people that are are going to get um taken advantage of on one on one side of the spectrum I think

self-regulation um in a lot of ways is is one is one way to do that hopefully that'll happen before some kind of Crisis U maybe the do was the first crisis now we're already starting to see that so I mean actually there I'm I'm self-regulation of course is is is is a desirable thing no question but I I think it's going to be very hard to get appropriate levels of self-regulation cuz just the incentives aren't there like nobody really has uh incentives to to do the kind of thing that uh that would be uh would be good so I actually again I think there some some kind of

principle saying okay you follow certain structure certain framework certain rules so uh you know there's some accountability but afterwards yes I mean people are going to put put money in and they are uh they're going to some of them are going to do it without due delig and some of them are going to do it at the wrong time and sell at the wrong time and they're going to lose money and and and they will be uh uh regretful of that I mean I I've certainly noticed personally that uh just in the last few months there's been a or last two months even a significant number of people outside of this industry who like I me I need I want to you know invest in some of these

projects and uh you know who who don't know much uh you know they don't have Bitcoin you know haven't bought Bitcoin they haven't like used some cryptocurrencies before but you know they see I mean they see this opportunity and uh and of course if this increases more prices would go up more and more people will get interested and at some point it is going to come down uh even even though in the long run it may you know it may go up much more and and and and I think um I think that's in my view it's unfortunate but there's so much Innovation happening and at such a rapid

Pace that it's it with the downsides of of shutting this off even if it's possible which I don't think it is would be um too big in my view yeah I think there's some lwh hanging fruit that you can have in terms of what I would call self-regulation um things like security uh like having proper security protocols that are sort of Frameworks that everybody doing a crowd sale or or a token sale adhere to um specific types of governance mechanisms or governance Frameworks right so whatever whatever those may be um that again you know have

been sort of tried and tested and and um and are recognized by the community at large as viable governance models of course there are things that you can't you know put into these Frameworks but I I think there's some lwh hanging fruit there that you probably of course I haven't thought of this much but you you probably um account for some level of of security and uh Protections in just the way that things are built as a standard of course you know doing multi- and all kinds of things yeah people should do it right they should have like security you know proper security Etc but what does self-regulation mean I mean who who is actually going to

enforce that you know people will try to do it or or not most of them I'm sure will try to do it and they may do a good job with it but that's not regulation right that's just people trying to do something that's common sense and it does there's no accountability there besides things going wrong and then people getting angry at them I think when we start to see um International standards exist um and they will I'm sure cover things such as well we've already talked about governance and um uh and interoperability but but other areas around identity

privacy um um smart contracts and and so on and and work has already started on some of the these um topics I think once there are standards and and they're published that they may not be enforced but um if you are trying to promote um the next big thing you want to be able to say but this thing that I've created complies with you know I serve one two3 four five whatever it's going to be part one or two or three or four or whatever and that has some meaning uh that you then know ah right that has a um um a

satisfactory uh governance um regime or it's been um a certain approach to security has been followed or a certain approach to privacy has been followed and I think these things will start to become valuable Unfortunately they they will take time to emerge I I said this earlier and I I I I think we we need to take a a a reasonable time you know view about the time Horizon but I think these things will emerge and they will lend credibility in areas that you can't necessarily regulate but which become meaningful so you know when certain

kinds of electrical products or children's toys you see a c Mark in in in the European Union or you see a kite Mark in in in Britain or whatever these you know then that you can trust that they've been made or designed or function uh in a certain way to a certain standard and you might then choose to to buy or invest in one uh and not another because you know that it complies with that standard and maybe in time there'll be forms of certification so you'll be able to submit your um GR Ico idea to uh that you claim has been designed to meet this particular

International standard and there will be bodies who will examine it and give you a certificate say yes you do actually comply with that and that will give trust and confidence um to investors and to customers yeah I I like that idea so before you wrap up uh com coming back to the The Proposal can you just walk us through sort of the the the road map um from where the situation stands now with this uh DT framework proposal into taking it to being enacted into law okay so the stage that it's at today so we're recording this at the end of

May it's been open for consultation for around uh 3 weeks now so it has another week or so to run I'm quickly trying to see if I can if I can find the date that the the consultation closes um the the the input uh so feedback has already been coming in to the jalter government and it will consider that feedback in relation to the proposals decide on the basis of that feedback sort of final go noo and what changes if any might be made to the proposals and um then it will proceed into legislation

through uh the summer of uh of of this year 2017 and the idea is that guidance to help prospective um lenses will become available be published in the last quarter of this year uh with the view to um applications being accepted from the 1st of January 2018 uh there will be under these proposals a transitional period so businesses that um base themselves um in jalter and then make an application to um be licensed under this

regime um they can um certainly for the first three months so at least that's the proposal um so if this becomes law on the 1st of January that'll take them up to the end of March so long as they get an application in in that first three months uh they can continue to operate until uh their application has been determined so they won't be doing anything illegal by uh operating uh whilst their application is being considered uh and they won't have to wait um until they get their license before they start their business so it's um that's the timeline and and really as these things go this is pretty fast

that's one great thing about uh jalter is that being uh small and having a a relatively small regulator they're also very agile and very Nimble um and I would say that they have an absolutely fantastic team we've all heard about how the FCA in the UK has its project innovate and it and and there's some great bunch of people but because that's such a large regulator uh there isn't um a very quick if you like cross fertilization of ideas between the Innovation people uh who operate for example things like the sandbox and the people whose everyday job is is uh

authorizing and supervising and enforcing licensed businesses uh in jalter they have a a great what they call their innovate and create create team and most of the members of that team have other day jobs as it were within the regulator so they're all from the various departments and so those ideas um are cross fertilizing and what they've asked is that if you have a business idea and you think that it's um might be uh uh licensable under this regime um give them a call uh arrange a meeting or uh if you're abroad from

jalter they'll set up a conference call and you can discuss your idea without if you like without obligation before you make any application uh and and and they will consider uh your business model and give you feedback on what they believe will be the appropriate uh and proportionate um um rules if you like that you would need to follow because this always the lawyers hate this this that there isn't a hard and fast rule it's the hard and fast piece is around the the principles how you apply the principles varies from business to business from business model product um

technology and uh and they have a great team who actually understand this stuff and we'll talk listen to what you have to uh explain about your business idea and then tell you how they think that that can principles can be met so you can have that in your mind before you put the application in uh and so they'll work with you rather than uh in a kind of adversarial or gatekeeper role they will help you develop your um your your your ideas for your application your license application uh so that you've got a chance of getting it rather than not getting it cool well Sean thanks so much for coming on thanks so much for

the work you doing there I think it's a fantastic work and it's very important work um and yeah we we I'm sure this is a topic will be continue to come back here for many years and and yeah so thanks so much for coming on of course we're going to have uh links to Sean's website maybe some of our previous episodes with her also the the framework uh which is which is a really nice a nice document very readable in the show put the link in the show notes to the um to to where folks can read this uh consultation paper and they can find it exactly we do exactly that so hopefully you know people are interested go a bit deeper can check that out or maybe you

know get in touch with the authorities in jalter or of Sean to to set something up there um so yeah thanks so much and thank you both it's lovely as always to to do this show with you you you two are the are the great uh broadcasters of uh of this industry I mean you you've been uh the epicenter is is at the center still still at the center and you guys keep on going well done to you all yeah thanks so much actually we just passed a million downloads about a month ago or something I wanted to do do some sort of announcement about it but H we're all too busy but yeah so uh we have we have seen some of that same I guess

exponential growth that uh is going in the prices although of course not not quite as dramatic I get an epicenter coin where do I get them from so yeah thanks so much for for our listeners for you know once again tuning in if you want to support the show you can do that by leaving a review for us iTunes or one of the other platforms you listen to that helps new people find the show and it makes us happy uh or you can leave us a tip we have a tip addresses for Bitcoin and ether in the show notes so thanks so much and we look forward to being back next week no

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