Over the last few years, we have seen the dramatic emergence of Blockchain, AI and IoT technologies which have taken center-stage in fostering innovative solutions to real-world problems. In the context of blockchain, we have seen several tangible use cases which span beyond the obvious focus on financial instruments cryptocurrency).
In India, incubators, technology companies, developer garages and government-led policy institutes have been studying the intricacies of blockchain technology and its potential applications across various sectors. However, we now face an urgent need to move beyond the evaluation phase and operationalize a blockchain sandbox under the current Indian regulatory framework, which has a laser focus on agile review, outcome-based assessment and shared knowledge of the impact of use-cases across different sectors.
In the past couple of years, an unhindered bull-run of cryptocurrency driven by anonymous speculators created an entrenched regulatory scepticism towards blockchain. This eclipsed the fact that it can be a transformative technology capable of assisting government delivery mechanisms and enabling efficient commercial transactions. Expectedly, Indian regulatory agencies took a cue from their counterparts across the world and conducted their own assessment of the prospects of blockchain technology. However, the implementations are far and few.
There needs to be a definitive regulatory response from financial, security and government agencies to go all out. The development around the ban on the use of cryptocurrency in India, should not hamper the deployment of blockchain technology for far more efficacious purposes. There are many examples wherein the state governments are aggressively looking at adoption of blockchain and regulatory authorities like TRAI urging the telecom sector to use blockchain to control the flow of commercial communication on their networks.
While work has started, there is an imminent need to institute a sandbox environment in India to encourage evaluation of blockchain applications and hasten the roll-out of practical solutions. Let’s take the example of the Financial Conduct Authority in the United Kingdom, which initiated the idea of a regulatory ‘sandbox’ for testing blockchain solutions. Subsequently to the announcement of this initiative by the FCA, regulators around the world have set up their own regulatory sandbox, in countries such as, Singapore, UAE (Dubai), Canada, Malaysia and Australia.
A sandbox in the technology world manifests an environment where software development undergoes testing and iterations in a simulated environment - a sort of on-going dipstick test of codes until the solution meets its technical objectives, or falls away as an unviable solution without any tangible impact on the real-world economy or its participants.
In India, an ideal regulatory sandbox would enable participants to deploy innovative blockchain solutions and test them extensively in near–real-world scenarios, while liberating them from myriad licensing and operational requirements. At the same time, regulators should ensure that the sandbox insulates consumers and beneficiaries from technology that is only at a prototype stage and avoid any consequential risk to the system or economy.
For instance, deployment of a blockchain solution for processing insurance claims by banks will necessarily find itself at the crossroads of regulation by the banking and insurance sector, as well as the applicable legal regime that offers recourse to consumers of insurance products. Each government agency would therefore need to contribute towards an integrated view on whether such a blockchain solution is permissible in the real-world for real consumers.
We should avoid initiating a top-down approach to creating a regulatory sandbox, and not vacillate indefinitely on its vision, mission, organization set-up, and eligibility criteria, or draw up elaborate requirements for documentation submission and review. Instead, the testing of blockchain-based applications requires an enabling glasshouse of sorts, which is devoid of bureaucracy, excessive regulation, multiplicity of authorities and siloed assessment of its feasibility.
Additionally, the sandbox would bring forth a collective view of various stakeholders, including government authorities, policy-makers, industry players across sectors, and the academia on blockchain technology use-cases. This will enable solutions which speak to the concerns of the entire ecosystem that it seeks to operate in. In conclusion, a sandbox permits not only perfect solutions; rather it must admit imperfect ones and then provide a simulated environment for testing these solutions to assess their impact and suitability for the purpose it seeks to achieve.
Saurabh Awasthi is Senior Counsel, IBM India & Asia Pacific.
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