How to Make Public Blockchains Safe for Enterprise Use

At the beginning of this year, I wrote a column predicting that companies would find the allure of public blockchains irresistible.

While a world of private blockchains provides many enterprises, regulators and central banks with the comfort that there are accountable, centralized entities involved, these permissioned networks will never match the innovation or network effects that public, permissionless networks offer.

First, regulators must provide a clear set of rules around how tokens, assets and smart contracts that exist on public blockchains will be assessed.

One gap that we regard as particularly important going forward is how tokenized fiat currency will be regulated: If you have a $1 token on a public blockchain, and that is backed by one U.S. dollar in an escrow account, will that be a security or a currency and what rules might apply? So far, no regulator has specifically addressed this emerging category of blockchain tokens.

In particular, it's important that while the blockchain as a whole may be decentralized, a central bank should be able to issue and cancel its own currency on a blockchain and companies should be able to manage their own assets when they are tokenized.

To illustrate how important this is, let's come back to the question of how companies will do business with each other on public blockchain networks: The exchange of product or asset tokens for money tokens.

Combined with exchange controls and other checks, it will be possible to control how and when tokens are used on public blockchains without resorting to the centralization of the blockchain as a whole.

There are, no doubt, many who will mourn the end of public blockchains as systems wholly outside of regulatory control.

For blockchains to deliver on their promise, this is inevitable, but how this happens matters a great deal.

An opt-in model based on voluntary agreement to smart contracts means that companies can use blockchains for business without embracing undue risk.