Decentralised blockchain can and should be regulated by governments

Most of the enthusiasm that has built up about blockchain focuses on the decentralised nature of the technology and the capability that this gives us to operate without having to rely on a central controlling body.

Without doubt, this is a powerful feature. It not only makes blockchain networks attack resistant but also enables individual entities within them to exchange value in a peer-to-peer manner, disintermediating a whole range of middlemen who add costs to a transaction.

However, this leaves us with an unanswered question. What happens when you actually need a central authority to regulate a blockchain system?

Some might balk at the mere idea that you need a central authority but it is my belief that this issue is at the heart of why blockchain technology hasn’t reached its full potential and hasn’t been adopted en masse. The fact is that existing decentralised blockchains cannot answer this question and that is why a new regulated, decentralised blockchain is required.

Why decentralised blockchain must change

The power of blockchain technology to automate processes, disintermediate middlemen and eliminate layers of bureaucracy is clear to see. These are the great benefits that existing decentralised blockchain systems have brought to our attention. It is for these reasons that we see 40% of S&P 500 companies using it already.

However, this transformational technology clearly hasn’t taken hold in the way many suggested it should have over the last decade or so. It doesn’t underpin the most well known and widely used applications on the internet and the vast majority of people do not understand it. Undoubtedly, this has something to do with the counterculture beliefs that the blockchain community has embraced.

They have rejected centralised control in all forms, even though the average person recognises that governments play an important role in our lives. As citizens, we understand that the people we elect to represent us are responsible for overseeing society in order to keep us safe, secure and able to prosper. This involves regulating certain areas of industry and ensuring that individual entities in our economy have been verified and can be trusted to engage with.

Existing blockchain systems reject this idea entirely. They choose to be outside the remit of the government. Furthermore, the radically ‘public’ nature of some of the most well known decentralised networks mean that entities do not have to identify themselves when taking part. These networks advocate for anonymity above all else, even though we know it is human nature to want to trust and understand who we are dealing with.

Permissioned blockchain doesn’t go far enough

Some would argue that the situation I have described is why permissioned blockchains have emerged, to provide a solution for institutions that cannot operate in such an open and anonymous way.

This was certainly the idea when these existing permissioned blockchain were conceived but they have clearly failed to achieve their aims. They are mostly provided by legacy technology vendors, using components of old technology that have been pulled together to make a refurbished system. As a result, they have not been designed from the ground up with the needs of a blockchain-enabled society in mind.

Instead, what is needed is a new regulated, decentralised and permissioned blockchain that can underpin a whole range of global digital economies. This is what L3COS has been designed to do. It is a blockchain consensus operating system that enables the digitalisation of society’s transactions, with sovereign states taking a central role in the regulation of digital economies.

The L3COS system achieves this via a triple layer consensus mechanism, with sovereign states operating in the top layer, corporations and other organisations in the second layer, and individuals and social groups in the third layer. While the corporation and individual layers are totally decentralised, the 195 sovereign states of the world regulate them using an unique Proof of Government consensus mechanism in the top layer.

This means that governments can communicate and reach consensus on all manner of important information, via smart contracts operating at speeds of at least 1.5 million transactions per second. This sort of regulated blockchain infrastructure enables them to run Central Bank Digital Currencies (CBDCs) for their own digital economies, while settling transactions between one another using L3COS’s instantaneous Real Time Gross Settlement system.

Decentralised but regulated digital economies

Each government super node would also be responsible for registering and onboarding new entities onto the system. So, at the second layer, corporations could be onboarded and then act as pillars of the economy, just as they do today. They could use their position to onboard other entities, such as individual citizens, or to run the CBDC through the banking system, via a delegated Proof of Stake mechanism that allows super nodes to pass on their authority.

Furthermore, companies could use the single blockchain operating system to interact with companies in other countries, placing orders without fretting about taxes, tariffs and other regulations that had already been negotiated and built into the system by governments.

This inbuilt compliance, taxation and accounting would also benefit consumers, who would no longer pay for regulatory bloat in taxes, fees and the cost of goods. Taxes would no longer need to be filed individually and even immigration documents could be processed and verified in a blockchain ecosystem, reducing friction at borders and consulates.

Because all of these transactions would be enabled via smart contracts, they would close instantaneously rather than taking days and bouncing between third-party entities. As such, the system would allow day-to-day activities to take place in a totally decentralised way. Citizens would be able to interact with government, corporations and other individuals seamlessly and securely, as the Proof of Storage mechanism in place at this layer would mean no personal data had to be shared.

Decentralisation on its own can only take us so far and the next stage of blockchain’s development must reflect the societal structures and human nature we all recognise and respect. Once this change has occurred, the benefits of decentralisation coupled with the regulation of digital economies will be clear to see and blockchain will have changed forever.

Author Bio

Dr Zurab Ashvil is the founder of L3COS (Level 3 Consensus Operating System), an operating system based on a permissioned blockchain.