Why technology assurances are a must for crafting EU crypto regulation

When Malta set out to provide a regulatory framework for the cryptocurrency sector, policymakers and advisers recognized how blockchain, distributed ledger technology and smart contracts, as well as related technologies, imposed new challenges to providing consumer protection and to fitting within existing legal structures.

Minimal effort has gone into ensuring that there are adequate levels of due diligence regarding the technology.

If the sector wants to achieve mass adoption and not just entice the technology-inclined to use such technology, should we really expect such non-tech-savvy users to understand code - and the intricate types of bugs that often exist within?

My gut feeling is that most users out there would also prefer that assurances have been undertaken with the code rather than on the business and financial side.

In 2018, exchange Coincheck was hacked; small South Korean exchange Coinrail and crypto exchange Bithumb were hacked; decentralized crypto platform Bancor was hacked; and 27 hacks of decentralized applications on the EOS blockchain occurred during five months.

Now, one school of thought is that regulatory frameworks and licensed activities can help bring about mass adoption, especially for those who do not understand the technology.

If such frameworks do not provide assurances with respect to the technology being used, and bugs that result in large losses do happen, will it only be a matter of time until a licensed activity suffers this fate? This would undoubtedly be detrimental to the licensed activity, the jurisdiction and the sector, and it would induce doubt among investors and stakeholders, ultimately creating more hurdles in the way of mass adoption.

Further details are presented in the paper "Regulating Blockchain, DLT and Smart Contracts: a technology regulator's perspective."

I feel that such technology assurances have been overlooked by most crypto regulators, and therefore, I have written an open letter highlighting these issues and inviting regulators to discuss them in the aim of creating a regulatory framework that has the adequate levels of technology assurances and provides the required levels of consumer protection that the industry needs to bring about mass adoption.

The MDIA provides a regulatory framework for instilling higher levels of technology assurances into innovative technology arrangements including blockchain, DLT and smart contracts.