Commonwealth legislation should not only be published in words but in machine-readable code, which would allow it to be read not only by lawyers but also computers, a move CSIRO suggests will boost the adoption of new regulatory technology across the economy, improving compliance while reducing costs.
CSIRO detailed its vision for “rules as code” in a submission to the Senate select committee on financial and regulatory technology, calling for the government to think more about ‘legal informatics’, or ‘computational law’, to allow computers to help automate compliance. This would “reduce the cost of red tape and improve the quality of risk management in society,” the science agency said.
“The goal is that computer-assisted reasoning using these logics should give the same answers as judges and lawyers doing legal reasoning about the black-letter law,” CSIRO said. “When legal texts can be represented in this way, it enables the potential to build digital tools to help people to interact with the law.”
The banking industry – which has faced soaring compliance costs in the wake of the Hayne royal commission – has been wary about adopting new technologies in compliance. This has been due to the complexity of regulation, a reluctance by regulators to endorse a specific technological approach, and heavy sanctions for failures. This was evidenced by AUSTRAC’s legal actions for anti-money laundering failures at Commonwealth Bank and Westpac, which both related to failures in technology systems.
The big banks want Treasury to encourage the financial sector regulators ASIC, APRA and the Reserve Bank, “to make regtech a viable proposition in the financial services sector”.
Many start-ups, along with more established technology vendors, are developing new systems to help banks meet legal duties, including establishing the identity and background of customers, ensuring legal compliance, verification of income and expenses, and data privacy. Juniper Research expects global spending on regtech to rise from $US25 billion ($37 billion) 2019 to $US127 billion by 2024.
‘Rules as code’
CSIRO, which operates a digital innovation arm known as Data61, has detailed to the committee how a “rules as code” approach could lift compliance with various laws.
It is working with PwC on a joint venture called PaidRight to check employees’ entitlements under enterprise bargaining agreements against what they have actually been paid.
The banking industry and CSIRO are working on a project to develop a digital approach to organising climate change disclosure, which CSIRO said could be “a first step towards a nationally coordinated framework for delivery of climate information”.
The agency is also working with the building and construction industry to automatically check Computer Aided Design (CAD) models of buildings against the many building and construction regulations from the federal and state governments.
Publishing machine-interpretable rules alongside the text of legislation would “provide critical support for the regtech industry and potentially significant productivity benefits for regulated industries in Australia,” CSIRO said.
The Australian Banking Association called on the committee, which is being chaired by Liberal Senator Andrew Bragg, to recommend that Treasury “be explicitly tasked with responsibility for a growth strategy for regtech”.
Design box thinking
The RegTech Association, which represents 110 start-ups and corporates, suggested the committee call for the creation of a COAG-style forum to introduce government departments to regtech, and is encouraging government to become an “influencer, buyer, beneficiary and investor” in the space.
In its submission, the association suggests a percentage of regulatory fines paid by banks could be invested in a new ‘patient capital’ investment fund to invest in the sector, modelled on the Australian Medical Research Future Fund. It also reckons a safe harbour, or relief program, could be created to provide reporting entities attempting to deploy regtech with more confidence to adopt changes, via amendments to ASIC’s regulatory guidance.
The association also wants government to create “design box” or “sandbox” programs to accelerate testing of new technologies. It pointed to the APIX Platform, part of the ASEAN Financial Innovation Network and backed by the Monetary Authority of Singapore, which has created a marketplace for financial institutions to exchange ideas with fintechs on better ways of doing things.
“Australia could easily replicate this idea of a digital marketplace or partner to introduce a similar platform,” the association said.
“It could allow buyers and sellers to come together to experiment more easily, allow greater visibility over regtech solutions, help regtechs understand the current problem statements of their potential clients, and allow a ‘design box’ where negative assurance could be provided by regulators as observers. Over time the digital marketplace could also be a portal for talent and skill recruitment.”
Separately, CSIRO responded to an accusation in the submission by FinTech Australia to the inquiry which criticised Data61 for “competing directly with private enterprise for government and non-government work”. In a statement, CSIRO said it “does not seek to compete with the private sector or start-ups and where possible aims to partner with Australian organisations, to support their growth.
“Like many of CSIRO’s business units, projects for Data61, the digital innovation arm of CSIRO, are typically identified as a result of discussions with, or approaches from government, industry or academic partners, where an opportunity has been identified for our research to be applied to solve problems and create benefits for Australia.”
But unregulated markets for goods have been shown not to work; and it turns out that unregulated markets for ideas don’t either.
Global digital platforms are conquering the world and rely critically on digital infrastructures to function, yet little research has explored the fundamental interrelationship between the two. This working paper argues that understanding centralization and decentralization in digital networks as asymmetry and symmetry in mutual interdependencies between the constitutive elements of a digital network can help us understand the platform-infrastructure relationship more fundamentally (and vice versa). To this end, the paper proposes, as a starting point, the in-depth analytical and literature study of blockchain networks as a particularly revealing type of digital platform/infrastructure duality. The paper proposes an analytical model for characterizing de/centralization in digital networks and maps this onto blockchain networks. Based on this, the paper explores the de/centralization of blockchain, arguing that the extant blockchain literature largely has failed in providing a comprehensive understanding of de/centralization by not considering the complex second-order interdependencies between the different constitutive dimensions of a blockchain: the symbolic, technological and political dimension. Based on this, the paper provides an analysis of the meaning of de/centralization in blockchain networks by studying the interdependencies between its constitutive elements of coin, network technology, and social community.
Bitcoin and its users employ a variety of obfuscation techniques to increase their financial privacy. We visualize a representative selection of these techniques in Figure 1 based on their time of invention/creation and our assessment of their similarity to obfuscation vs. cryptography. We make several observations. First, techniques used in Bitcoin predominantly fall into obfuscation, with stronger techniques being used exclusively in alternative cryptocurrencies (altcoins). Second, there is a trend towards stronger techniques over time, perhaps due to a growing interest in privacy and to the greater difficulty of developing cryptographic techniques. Third, obfuscation techniques proposed at later points in time are seeing less adoption, arguably a result of their increased complexity and need for coordination among participants (Möser & Böhme 2017).
First, the third quarter saw growing awareness of perhaps the biggest clampdown on virtual asset transactions to ever impact crypto exchanges as well as banks and other financial institutions. After months to absorb its implications, these businesses are coming to grips with the fact that in just seven months they will need to comply with the so-called FATF funds Travel Rule. In a major challenge to business models and user privacy, among other changes this rule requires virtual asset service providers (VASPs) to securely transmit (and store) sender and receiver information whenever cryptocurrency moves. At the same time, US regulators emphasized that a similar Travel Rule which has long applied to fiat funds transfers—also applies to cryptocurrency transactions. This has left firms struggling to find a technical solution in time to avoid potentially severe penalties or blacklisting. It will no doubt have implications as regulators seek to have KYC information shared globally.The Blockchain Security Company
- Earning interest on crypto asset holdings has become easier than ever, thanks to the Compound protocol and DApps like Dharma and Celsius.
- Converting your ETH to other Ethereum tokens can be done securely and privately decentralized exchanges such as Uniswap or IDEX.
- Hedging your cryptographic asset portfolio is now possible thanks to decentralized derivatives trading platforms, such as dYdX.
- Insuring yourself against the failure of smart contracts has become possible thanks to Nexus Mutual.
- Betting on the outcome of elections, sporting events or whether John McAfee’s bitcoin price prediction will come true can be done on prediction markets platforms, such as Augur.
- Storing funds in crypto-backed stablecoins during times of extreme market volatility is now as easy as buying DAI.
Discussions of cryptocurrencies and other blockchain technologies are bedeviled by a nearly universal assumption that attributes that are possible to achieve in theory are guaranteed to be realized in practice. Examples include decentralization and anonymity.Back in June David Gerard asked: How good a business is running a Lightning Network node? LNBig provides 49.6% ($3.7 million in bitcoins) of the Lightning Network’s total channel liquidity funding — that just sits there, locked in the channels until they’re closed. They see 300 transactions a day, for total earnings on that $3.7 million of … $20 a month. They also spent $1000 in channel-opening fees.Even if the Lightning Network worked (which it doesn’t), and were decentralized (which it isn’t), Gerard’s point was that the transaction fees were woefully inadequate to cover the costs of running a node. Now, A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network by the Hungarian team of Ferenc Béres, István A. Seres, and András A. Benczúr supports Gerard’s conclusion with a detailed analysis.
To protect its hosts, Airbnb is now using an AI-powered tool to scan the internet for clues that a guest might not be a reliable customer. According to patent documents reviewed by the Evening Standard, the tool takes into account everything from a user’s criminal record to their social media posts to rate their likelihood of exhibiting “untrustworthy” traits — including narcissism, Machiavellianism, and even psychopathy. The background check tool is the work of Trooly, a startup Airbnb acquired in 2017. When the Evening Standard asked Airbnb to comment on the extent to which it uses Trooly’s tool, it declined. However, Airbnb’s website does note the company’s use of AI to rate potential guests: “Every Airbnb reservation is scored for risk before it’s confirmed. We use predictive analytics and machine learning to instantly evaluate hundreds of signals that help us flag and investigate suspicious activity before it happens.”
The supposed disruptive and transformational potential of blockchain or distributed ledger technology (DLT) has received widespread attention in the media, from legislators, as well as from academics across disciplines, including law, over the past few years. While much of this attention revolved around the cryptocurrency Bitcoin (and its numerous cryptocurrency offshoots), many see the real promise of blockchain technology in its potential use for organising transactions in real assets, including shares and other securities, as well as for facilitating self-executing “smart contracts”, which replace vague and imprecise natural language with precise and unambiguous computer code.
Focussing mainly on non-currency applications of blockchain technology, I present a simple legal argument that seeks to demonstrate the impossibility of a meaningful blockchain-based economic system. I argue that features present in all major legal systems mean that real assets cannot be traded on blockchain-based systems, unless design choices are made which necessarily remove all advantages the technology offers over existing solutions. The same argument is shown to apply to so-called smart contracts.
The paper further argues that there is no reason to expect legislators to change current legal principles in sufficiently dramatic fashion so as to carve out a space in which (non-currency) applications of blockchain technology can usefully be implemented, since the oft-promised potential efficiency gains supposedly stemming from the adoption of the blockchain technology are based on a flawed analysis of costs and benefits. Legal and practical obstacles therefore mean that, outside its original and circumscribed realm of cryptocurrency, blockchain technology is highly unlikely to transform economic interactions in the real world. Instead, it is argued that – depending on the specific implementation – blockchain technology is either pointless or useless for transactions in traditional assets.
Keywords: Blockchain, distributed ledger technology, smart contracts, crypto assets, cryptoassets, Ethereum, Bitcoin, DLT
Uber faced a blow on Monday when London regulators refused to renew the ride-hailing company’s operating permit because of safety concerns. The biggest issue lawmakers cited was drivers using false identities as they ferried unsuspecting passengers.At least 14,000 trips were made by unauthorized drivers, according to city regulator Transport for London. The way it worked is this: A number of drivers would share one account, and whenever one of them went out to drive, they’d upload their own photo to fool passengers. The unauthorized drivers were able to pose as vetted, licensed and insured, when often they weren’t.