A regulated blockchain is a distributed network of nodes with an authority at its top. These nodes, in different contexts, could be devices, individuals and/or organizations. By setting and executing rules, the authority regulates relationships between the nodes.
Regulated by a financial authority which could be a government or a central bank
Regulated by no organization or person
Regulated by a government
No. A regulated blockchain does have a central authority that manages permissions and participant roles. In this sense, it is politically centralized. But it is still built on a distributed structure, the core engineering solution behind blockchain decentralization. In other words, it is architecturally decentralized.
A regulated blockchain enjoys all the benefits of decentralization:
The two terms are very close in meaning. However, they are not the same thing.
A permissioned blockchain operates on a permission basis. Unlike public blockchains (e.g. Bitcoin and Ethereum), it doesn’t let in unauthorized users. A top authority regulates permissions in such a blockchain.
A regulated blockchain provides its superseding authority with more power over the system. Apart from managing permissions, the authority can create new entities, rules and regulations.
What makes L3COS unique is that it solves this dilemma.
It does that by organizing the distributed network of participants into three levels: government, business and society (individuals). At each of these levels, a respective consensus mechanism logically unifies the participants. These mechanisms are proof of government (PoGvt), Delegated Proof of Stake (DLPoS) and Proof of Storage (PoST).
Participants at each level can communicate with each other without intermediaries and have their system of permissions and hierarchies. It is the government that sets fundamental rules for the relationships between the different- and same-level participants. In turn, level 3 participants regulate the government.
Although blockchain technology has some fantastic advantages, it comes with caveats.
Blockchain is strongly associated with cryptocurrencies. The reputation of these digital coins hasn’t been shiny, to say the least. Since Bitcoin’s debut in 2009, cryptocurrencies have been used to finance terrorism and cybercrime, for blackmail, to launder money, and for other illegal activities. All this has been possible due to the unregulated nature of blockchain.
Another concern is the emergence of stablecoins.
The stablecoin (e.g. Libra by Facebook) is a new form of blockchain-based currency that is backed by a real-life value (e.g. fiat money or commodity). It’s less volatile and can be used very much like fiat money.
However, stablecoins pose a threat to national financial stability for the following reasons:
Central bank digital currency (CBDC) is a viable alternative. The only way in which it differs from fiat money is that it’s a digital, not physical, asset. With L3COS, national financial authorities are able to create their CBDC and all relevant digital infrastructure.
There are many types of blockchains out there. The introduction of a regulated blockchain will not automatically make all other blockchains obsolete.
Yet regulation is likely to make free-flowing cryptocurrencies less popular in the future. Financial institutions worldwide are increasingly pushing towards the creation of robust regulatory mechanisms for digital coins. With those in place, the benefits of public blockchains might decrease.
“I believe that [the regulation of cryptocurrencies] is inevitable. We have had an entity-based regulation over the course of the last ten years, after the financial crisis. We clearly need to move into an activity-based regulation. Forget about the entities, work on the activities themselves, and who does what, and who is licensed to do what, and who is properly regulated and supervised.”
Christine Lagarde, President of the European Central Banks
Source: CNN Business
“In order to create a regulatory framework quickly and with minimal risk, governments should collaborate with innovators, implement mechanisms such as regulatory sandboxes, and consider international approaches – particularly to work together on use cases.”
2019 OECD Global Blockchain Policy Forum Summary Report
As for L3COS, it provides specific benefits to participants at each of the three levels.