The future of smart contracts and their regulation / Mikuláš Peksa

Transcript

foreign and happy to see you all uh and uh have have this opportunity I mean just to introduce myself I'm a member of the European Parliament elected for a forech pirate party and currently serving in the economic and monetary Affairs committee so if you have expected any sort of like technical debate uh I would rather go way more political because I think despite the fact that I've started like in the technical field now I'm involved in the policies and I would like to little bit more talk about the policies because uh or the way how they are created

the current situation I mean like I guess most of the people uh You observe that is that actually uh uh both let's say cryptocurrencies blockchain smart contracts or technologies that are appearing and we came to the point that let's say the traditional politicians the traditional politics realize there is something new here and we shall somehow approach it and of course there are like various various debates about how to regulate those Technologies or how to uh I mean like uh tailor it for the for the word that the people were used before I mean like I'm talking about regulations but

that's sort of like natural I mean like politicians are used to provide uh things like consumer protection or uh security of services and so on so uh they do expect to actually apply those Concepts that they have learned in the other fields to be applied here as well I mean uh for example I mean like we have very nice legislations regarding uh to to fight the terrorism fight money uh money laundering and so on uh which is I would say natural and kind of like understandable idea that we have such a legislation I mean like now nobody likes terrorists of course uh but the problem

is when we try to apply it here in this new field I mean like uh we are supposed or like every single bank is supposed to know its customer I mean like when you are coming to the bank uh you are supposed to show your ID and tell who am I uh when kind of like putting the money on the account the problem of the traditional politicians is that when they are kind of like talking about uh about those Concepts they imagine things like for example Bitcoin wallet to be sort of like an account in a bank okay if they understand it that way then naturally for them the natural expectation is well you shall follow the same rules I mean like everybody tells you the market shall have the same

conditions for every single participant I mean like the conditions shall be equal so if they say conditions shall be equal and we understand the Bitcoin wallet as a sort of like an account in a bank then naturally they demand that there is the same level of checking of the customers uh as it is in the Traditional Bank that means they try to identify every single person having a wallet with Bitcoins well I mean like technically speaking this is not possible we do know how the blockchain works how the uh how cryptocurrencies works and this is technically not possible and it's complicated like killing the whole

purpose of cryptocurrencies as they are I mean like they are supposed to provide like independent way of independent payment system and I mean like you can't really like uh you can't really like uh do it if you expect that there will be some banking Authority kind of like checking everybody who is creating just the wallet in in own computer so this is this this has been an issue but still we are fighting a lot of big like let's say barrier of misunderstanding with the traditional politicians because I mean they do expect that they will apply the rules and uh they would like to they would like to do so also in this field I mean over the last four years of the

this current Mandate of the European Parliament we have had a couple of reports uh talking about the uh about the cryptocurrencies Assets in general uh two months two months ago there was uh there was a vote on so-called Mika regulation that defines defines the market the problem is that following this logic uh the uh the regulation was adopted without really like understanding the specific needs of cryptocurrencies and blockchain and yet already some people in the European commissions are talking uh whether there should be something like Mika 2 because I mean like currently uh the cryptocurrencies are in a way

covered the problem is that there could be some sort of like a covering for the Photo smart contracts as well well this is this is very much double-edged uh I mean on one hand we can be afraid that the smart contracts would be uh same case as we have seen for for cryptocurrencies uh same like blind applying of the old principles on the other hand we should think about like possible advantages of this of this approach I mean uh we are talking currently when when we are talking about smart contracts Market we are talking about some 180 millions of US Dollars uh

just for 2022. expected that the market shall grow until 2030 to some 1 billion or 1.2 billion of US dollars I mean may sound a lot but in practice if you think about it just the budget that is being every year used by city council of Prague like of this city is twice a bigger I mean like this city this this one city has trials bigger uh budget compared to the whole Market of decentralized finances or smart contracts in 2013.

well that's then we are not really like progressing that fast as we would like to again the problem is that decentralized finances are sort of like isolated legally from the let's say traditional finances from the uh from the traditional big banks will host like Market is is way way bigger compared to what we see here and again we are of course we see the same same type of of issues I mean like they could possibly consider like investing into startups investing into the new companies the the only problem is uh they always face the the legal regulations I mean like you are supposed not to invest in anything which could be used by whatsoever terrorists uh money

laundering and so on well then you are kind of like restricted from investing into the new Innovative Innovative sectors so this is a problem and we need to find a way find a workaround how to give the opportunity for let's say the traditional Financial in Industry to actually invest into the decentralized finances and that will be tricky I mean as we have seen in case for example the the cryptocurrencies the problem with uh understanding of what the wallet is is here there when we are talking about the decentralized finances we are talking about smart contracts and if you look uh on the lawyers they will ask you so the

smart contract is something like a contract so it should follow the traditional like legal expectations I have for for contracts so for example when a court says I want to cancel this contract we decided because of the law then the contract shall be canceled yeah isn't that natural I mean like that's what we are used to uh from the from the traditional traditional law okay the problem is that actually you can't do that because I mean like the smart contract is cryptographically secured so I mean like this particular like demand doesn't make sense in that context so what we need to do is actually to find a way how to include the smart contracts as let's say contracts but same time respecting their specific

technical features they have so that they are accepted by the by the traditional let's say legal and financial industry honestly I think this this is going to be a shoe this is going to be very much a political issue because uh as I must say I'm fine with pirate party Czech party European party German pirate party I mean like we are more on the same page when I see the traditional parties uh that are being like active in the in the field there is no understanding for this concept so from that point of view I see uh or I really feel the need to to talk to you and to ask you please help us

politically because what we need to you to do is actually to help us to build a bridge from let's say the traditional politics to this new field so that the traditional politics can adapt to it we are no longer considered to be some crazy Geeks Who are like doing some something weird but really are being involved and uh could be like like uh it could could become part of the system in a way I mean like what I would like to see at the end of the day of the of this game would be my pension fund that is investing in smart contracts Market and so far it's not really like possible so that's what I would like to achieve and I would like to ask you to actually

help us to Lobby this to spread the word and to participate wherever where you can so so far from the me I've talked a lot I guess I should give some some space for the questions if someone uh interested I'm really happy to answer yeah how about now okay

okay is it okay so thank you for this uh my name is Viera I'm part of the European crypto initiative so basically we work on topics that you described and uh what we have been working on for the past many months is the data act that actually has a definition like the first definition of smart contracts and as far as we've been following the current Trail lock it's not going great for the industry and for your future pension fund so can you elaborate how are you are you in any way involved in that work and what are your kind of position if you can share any regarding the data Act and the way that it's going because there are also kind of um attempts to

um especially in the parliament version to basically equate smart contracts to Legal contracts uh those that are a bit tourism so yeah if you can elaborate on that act uh it would be interesting as well well uh yes data Act is one of the pieces of the legislation that are currently going through my committee actually more included the other one like the industrial one because uh there there is there is more focus on that uh I mean there is there is precisely this this political debate uh as you have described around it most uh or like like the the mostly involved among Among Us I think is marcelia uh my my pirate colleague in the in the European

Parliament who was uh in his committee uh if I'm not mistaken a shadow reporter uh precisely the problem is that the the data act kind of like expects you to easily like change the the change the the content of the data to to be able to kind of like delete them this is not that easy for blockchain and whatsoever technology which is kind of like based on decentralized decentralization and uh and cryptography so I mean like uh we have this problem here uh the problem uh as uh if I'm if I'm not mistaken what is actually now the the the the the current voting uh there is a negotiation between the uh between the European Parliament and and the council effectively always

it works that way that uh like for those who have not not that much followed European Union Works effectively that way that you have European commission which is something like the government uh and then there is European Parliament which is something like a parliament and then there is uh Council which is effectively like like a grouping of the member states and whatever your law you want to pass it has to be proposed by the commission like the government and it has to be passed by both both Chambers which mean the Parliament and the council and it has to be passed in the same form which means there is always a process on going uh which is called trial log and it is effectively trying to to kind of like match uh the the the parliament position and the

council position so they have the same one and they can uh vote on on the same one and past uh past the same same uh proposal So currently we are in the process of of uh trialogue uh where there is where there is parliamentary position and a council position if I'm not mistaken the Parliamentary position is a bit better and the member states are currently like not really not not really great in this in this particular field correct me if I'm mistaken yeah and the way that we see it the parliament position is actually not that great there is a new proposal for a definition that will basically Encompass everything imaginable under the scope of a smart contract without that okay we'll follow

is that basically now there are going to be strict requirements for uh how a con smart contract should be developed and when the scope is so broad it just brings a lot of uncertainty so what we are trying to achieve is to make it only for permission both China and smart contracts that are basically not going to affect the permissionless and um so but we can discuss that later if you want but from our understanding actually the parliament isn't going in a great Direction okay okay okay well then uh please let let me know the precise details and I mean like I will try to to

speak to the colleagues who are responsible because I mean like this is this is a big change I mean like usually it works that way that the parliament is kind of like more reasonable than the council but in this particular field apparently it's not the case thank you for that hi I'm Chris um so you mentioned um smart contracts as a end game in regard of Regulation are there some low-hanging fruits like thinking about um stable currents or something to get the waste straight so we can later on regulate smart contracts

do you can come up with something that or some yeah some easy steps we can make before um uh I think generally the the biggest let's say influence uh on the political process is actually the way how it is talked about yeah if you say cryptocurrency is currency people are way more like you can understand it as a cash uh when you say smart contract is a contract people tend to understand it as a contract so the question is whether it wouldn't be actually in a way smarter to talk about it uh in a let's say uh by by using let's say a different word that

would actually refer to the same thing but would not create problematic Association but to be honest I'm not interested to tell you I have this or that word in my mind that would actually rephrase or reorganize uh the the whole discussion uh when we are talking about stable coins in fact I think there is a general problem that people who hear about it they expected it to be something like very safe and uh stable naturally and that naturally feel or brings them to the idea that there should be like us let's say high level of consumer protection provided

and as they try to to apply this this consumer protection on stable uh stable coins uh sooner or later they realize okay it works bit differently and then they moved towards like a way of thinking like let's ban it at all and this is not really what you want yeah so I would say uh it's very much a question of how you name the things and how you talk about them not only about the technical implementation all right thank you hi uh this is on uh hi I'm Jake I'm legal counsel at brain board a web 3 Venture Builder and um I've also thought

about this problem with the smart contracts naming and I just wanted to point out that uh vitalik actually in 2018 um also expressed this regret uh having called this the system smart contracts and he suggested that they maybe should be called persistent scripts and um I think that that is a good way to look at it and I want to encourage um yeah D5 Builders maybe to think about um if there are Arrangements should actually not um look like contracts so do it in a way that not two parties are interacting which is with each other through the smart contract but rather

yeah do it in a different way so if you look at decentralized exchanges for example you have order books and you have amms so I think we should favor the amm side in from that point of view uh yeah I just wanted to know your thoughts about this uh if I may ask you maybe I mean like uh just to just to send you uh send me the reference to to this to this uh proposal I would be interested to to read it all right so thank you thank you very much thank

you appreciate it rounded Applause [Music]