Blockchain Technology Regulations: What US Can Learn From Singapore

Hundreds of entrepreneurs, venture capitalists, bitcoin collectors and blockchain aficionados crowded into the New York University auditorium last week for the first Token Summit. Outside, the world was damp, smothered by low-hanging clouds. Behind the sweeping glass doors, the halls buzzed with enthusiasm as blockchain legal expert, Emma Channing, Argon Group's general counsel, told the crowd Singapore is the best place for a blockchain startup to set up shop and launch an initial coin offering.

From the chatter in the halls to the panel discussions on stage, the general consensus was the United States still has a lot to learn about regulation. "This is a space built by startups," Silicon Valley veteran Daniel Zakrisson said during a panel talk about "blockchain governance." His opinion reflected the broader sentiment that most business leaders and lawmakers aren't moving fast enough to help build the future of blockchain.

Read: Fundraising With Initial Coin Offerings Hot New Trend Among Blockchain Startups

Wired reported the past 14 months saw around 60 startups and projects raise more than $250 million through ICOs. But this type of tokenized fundraising, along with a slew of other blockchain trends, are still shackled by outdated regulatory systems. Despite enthusiasm from Wall Street to Silicon Valley, blockchain regulation is particularly tricky in the U.S.

Token Summit co-organizer William Mougayar wrapped up afternoon panels on Thursday by asking the audience if they should have another conference abroad. “Should we do one in Singapore or Hong Kong?” he asked. “Singapore!” the crowd responded.

Startup research firm Oddup said Singapore is home to more than 2,000 startups, with finance companies making up 22 percent of the top five startup sectors. Many fintech companies are moving to Singapore, drawn in part by the island nation’s uniquely flexible regulation.

“While Singapore has faced stiff competition from New York, Hong Kong and London to become the world’s banking hub,” former Singapore resident Eli Schwartz wrote for Due.com, “fintech is an area where it can leave the pack behind and become the leader.”

Even beyond fintech, diverse blockchain innovators are also hopping on the Singapore train. Jan Isakovic, co-founder of a Swedish networking startup for the blockchain community called Cofound.it, told International Business Times his team worked for almost a year before deciding to launch an initial coin offering next week in Singapore.

“There is much more clarity in Singapore than there is in the U.S.,” he said. Blockchain technology is moving too fast for regulators to keep up. So startups are “stuck trying to minimize the risk” of legal issues, Isakovic said, rather than focusing on their building product and their user base.

It can often take several years for new regulatory frameworks to go from idea to law. For example, New York drafted the BitLicense regulation for virtual currency businesses in 2014, signed it into law by 2015 and only awarded the first two licenses in the summer of 2016. “It’s created a pipeline issue for companies applying for the license,” Perkins Coie attorney Joshua Boehm told IBT. NYCstartups lists 38 bitcoin companies in New York City alone, not to mention other startups now working with Ethereum and similar cryptocurrencies. “There’s a lag between getting a new law on the books and seeing it in practice,” fellow Perkins Coie attorney Sarah Hody added.

Hody said it took one of her clients a year to get a guidance letter from local regulators to help the business operate while waiting for the painstakingly slow legislative process. Isakovic ran into this same problem with his company’s ICO. American law currently views ICO tokens as a security, a traditional financial asset, unlike more recent regulations in Singapore. That distinction changes the function and value the tokens have, who can buy them and how the fundraising campaign can be advertised.

“The problem with New York is the current security framework is very open-ended. A lot of things can be a security,” Isakovic said. “You’ll try to do something, then realize you did it wrong because it’s not clear. It can actually be a criminal offense.”

Short of streamlining the entire legislative process, Hody and Boehm noticed a few constructive workarounds for regulators who want to make a hospitable environment for tech startups. “The ideas of a sandbox are really helpful,” Hody said. “If the U.S. was able to create different sandboxes and say: As long as you’re within this scope, don’t be scared that you’re going to end up in jail, but stay on our radar.”

Both Singapore and London have specific legal “sandboxes ” for fintech and blockchain startups. The Financial Times defined the United Kingdom’s sandbox as a way for companies to experiment under an umbrella of temporary regulatory approval. This system requires startups to register with authorities and provide updates. Routine contact with regulators is mutually beneficial and can lead to better laws. “The more engagement we have between regulators and the business world, the better,” Boehm said.

Another step regulators can take in the meantime is to publish guidelines and answers on government websites. Texas is currently seen as one of the most bitcoin-friendly states among blockchain developers, and not just because of the pending amendment to protect virtual currency trading. Hody said a few legal websites in Texas also have simple papers or question and answer sections to help startups navigate the evolving regulatory landscape.

Whatever solutions American lawmakers prefer, they’ll have to work fast if they want to stay relevant. Over the past year, numerous blockchain currencies have demonstrated growing value and prevalence. “It’s important for institutions to see the areas of creativity and experimentation and let us try,” Isakovic said. “The worst scenario is the way we have it right now.”

Read: Bitcoin Prices Surge, Here's Why Cryptocurrency Is Skyrocketing