Fintech continues to dominate conversations in business and finance. The number of billion‑dollar fintech companies has surged, investment rounds are growing larger, and terms such as blockchain have become part of everyday discussion.
Yet the excitement surrounding new technology often brings confusion. Investors can be misled, markets can overreact, and regulators are left trying to catch up.
One example came in 2017 when Long Island Iced Tea changed its name to Long Blockchain Corp. The company’s share price jumped by two hundred per cent despite having only begun the earliest stages of exploring blockchain investment.
Within months the plan collapsed, the company fell below the Nasdaq’s minimum valuation threshold, and the exchange launched an investigation into whether investors had been misled.
Despite such hype, fintech firms continue to reshape financial services. Sixteen companies achieved unicorn status in 2018, and global investment reached twenty‑four point nine billion dollars. The more these firms disrupt traditional systems, the more regulators must respond.
This article explains what blockchain is, how it can be used and how regulators are beginning to build a legal framework around it.
What Blockchain Is
Blockchain is a method of recording information without relying on a central authority.
It operates through a chain of blocks, each containing verified data about transactions. Verification is carried out by a network of computers. Once verified, a block receives a unique code known as a hash.
The blocks are arranged chronologically, which makes tampering extremely difficult. Changing one block would cause a mismatch with every other block, meaning a hacker would need to alter the entire chain.
A further risk arises if a single group gains control of more than half of the network’s computing power.
This would allow fraudulent activity such as double spending. At one point, the group Bitfury controlled forty per cent of the Bitcoin network’s power but publicly committed never to exceed that threshold because it would undermine confidence in the currency.
Advantages
No central authority is required, which reduces costs and makes hacking extremely difficult. The system is transparent. Computer‑based verification reduces human error.
Disadvantages
Transaction speeds are slow. Verification requires significant computing power and electricity. Blockchain has been used for illegal activity.
What Blockchain Can Be Used For
Cryptocurrencies
Blockchain enables digital currencies that do not rely on banks or governments.
Transactions are verified by computers rather than by financial intermediaries that charge fees. Some governments have experimented with blockchain to address currency crises.
Venezuela launched the petro in 2018, although it lasted only a few months. Other countries are moving toward cashless systems, making cryptocurrencies more attractive.
Attitudes vary widely. China and Russia have restricted Bitcoin. The United Kingdom and Canada favour regulated use. Blockchain has also entered traditional capital markets. In 2017, the fintech firm Nivaura supported the world’s first cryptocurrency bond issuance.
Cryptocurrencies are not immune to theft. In 2019, BITPoint in Japan lost twenty‑eight million dollars, Bitrue in Singapore lost four million dollars, and Binance and GateHub suffered losses of forty million and ten million dollars. In 2018, hackers stole one point seven billion dollars in cryptocurrency.
Smart Contracts
Blockchain allows contracts to operate without intermediaries. Smart contracts use conditional code that verifies and executes agreements automatically. They are self‑verifying, self‑executing and tamper-resistant. They improve transparency, reduce intermediaries and lower transaction costs.
Smart contracts can be used in government, healthcare, music rights management, real estate, tenancy agreements, digital voting and supply‑chain monitoring.
Identity
Blockchain can store passports, birth certificates and personal identification securely. With rising concern about data breaches, a single digital identity could protect individuals from fraud and reduce reliance on physical documents.
In summary, blockchain’s uses focus on managing data more securely and efficiently. Whether through cheaper transactions, faster contract negotiation or safer voting systems, blockchain encourages new approaches to data management.
How Regulation Is Developing
Fintech innovation brings greater scrutiny. A new field known as Regtech has emerged to help regulators manage complex digital financial systems.
In 2019, the United Kingdom’s Financial Conduct Authority took several steps to clarify the legal position of cryptoassets and blockchain.
January 2019
The FCA issued draft guidance on cryptoasset regulation. Cryptoassets were divided into security tokens, exchange tokens and utility tokens. Definitions of electronic money were updated.
Unauthorised regulated activity became punishable by two years’ imprisonment. European regulators acknowledged the need for further oversight.
February 2019
The FCA proposed extending its principles to electronic‑money firms. Rules on communication and marketing were strengthened to prevent misleading information.
March 2019
The EU Blockchain Observatory examined scalability, interoperability and sustainability. It recommended reducing decentralisation to improve scalability, creating off‑chain entities to support interoperability and adopting proof‑of‑stake systems to reduce electricity consumption.
April 2019
A directory of regulatory authorities for cryptoassets was published.
June 2019
The Bank of England’s Future of Finance report highlighted the need for investment in Regtech. The report questioned the impact of cryptocurrency on banking stability and raised concerns about cross‑border payments. Facebook announced Project Libra.
July 2019
The FCA announced plans to ban retail consumers from purchasing crypto‑derivatives due to volatility and limited research.
Summary
Regulators aim to protect consumers from poor investments while allowing blockchain technology to grow.
Project Libra accelerated political interest in blockchain and raised questions about monetary policy, accountability, data privacy and competition.
Governments must now decide how strongly to regulate or support blockchain. Their decisions will determine whether blockchain transforms financial services or faces significant restrictions.
Whatever the outcome, blockchain forces regulators to confront new and important questions about the future of money, data and digital infrastructure.
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