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More than 70% of the global economy is still made up of cash and credit card transactions. Only 8% of all payments worldwide are electronic. However, it creates a significant barrier to trade through friction in the form of local currency conversion, the timely availability and accuracy to get paid for goods or services delivered, and high transaction costs.
People will likely challenge governments to provide the right environment for blockchain technology to evolve while addressing security concerns. The current US regulatory status for blockchain technology, for example, is one of uncertain regulatory certainty in the context of money transmission and anti-money laundering.
The FinCEN final guidance on virtual currencies exists to protect consumers from potential fraud or theft when they use virtual currency systems. However, the FinCEN guidance clarifies its position on “virtual currency” by defining a narrow class of functioning currencies.
Here are the challenges government can face while implementing blockchain:
Difficulty in deciding where data can flow:
In the blockchain industry, many participants bring in more data than they can adequately manage and use. These include transaction data from internal systems, external integrations, and data from IoT devices. Unfortunately, many of these data sources are unregulated today, and the current regulatory environment for blockchain technology may restrict their movement to sensitive areas of supply chain operations.
Depending on where data is stored, companies must take security measures to ensure that it cannot be used against the owner or accessed by unauthorized users. As a result, solutions are being developed involving multiple parties to share information in real time while maintaining access restrictions through dynamic security layers.
How to track transactions in real time?
Transactional information must be easily accessible and verified in real time. The difficulty is how to accurately track the movement of these assets from one point to another. There has been a lot of study on this technology, and some enable counterparties to have access in real-time, while others can provide tracking through GPS points. However, much research is still needed because many blockchain projects focus more on supporting the process than creating a security measure for their systems.
Even with all this data, it can be challenging to find out exactly what happened as it was happening or what happened as part of an audit trail. More research and development need to be done by the area’s developers to identify whether any public records that may be of use have been kept. If there is, the search can move on to match data sets to find out if companies can merge them with blockchain data. It will simplify processes and make it easier to iterate on current blockchain systems.
Determining how regulations would affect blockchain technology:
Regulations can also play a role in how technology evolves. In this case, blockchain technology is not exempt from regulatory oversight. The only difference is that it can be a little more challenging to regulate because the technology is decentralized and operates globally. In addition, the regulations may differ because the technology could be different if implemented.
However, these regulations are being written up to support blockchain technology worldwide, and so far, some governments have taken more of a liking to it than others. Blockchain technology has the potential to revolutionize every financial institution, market, company, and organization in the world, but how exactly people will use it or which applications will win out still needs to be clarified.
The need for a diverse set of talent with technical knowledge:
Many developing countries are seeing the potential applications of blockchain technology. In addition, the blockchain industry is still very new, so many skills still need to be developed, and new talent must be established in these fields.
Security and regulation:
Security concerns are also significant regarding how data moves around, what data can be stored by companies, or who can access the information. In many cases, the user has complete control over their information, but it may be outside their power to find out about this data initially. In many cases, specific rules will have to be written up by the blockchain community itself.
There are also concerns about identity management and data protection that have to be addressed. For example, many individuals holding private keys for blockchain accounts need clarification about what personally identifiable information is collected and how it is handled. In addition, it can be challenging to determine whether the developed blockchain solutions will fully comply with all existing data security regulations with the proper permission to access and use such data.
The above mention portion describes some of the challenges government authorities can face while implementing blockchain technology.