A regulated blockchain is a distributed network of nodes with an authority at its top. Elsewhere in technology, these nodes could be devices, individuals and/or organizations. But by setting up a series of rules and allowing them to be executed, the authority is able to regulate the relationships between each of 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 has a central authority that manages permissions and the roles of the participant. In this sense, it is politically centralized. But since it is built on a distributed structure, the core engineering solution behind blockchain decentralization, it is therefore architecturally decentralized.
A regulated blockchain enjoys all the benefits of decentralization:
The two terms are very close in meaning. However, they are not quite the same thing.
A permissioned blockchain operates on a permission basis and unlike public blockchains (such as Bitcoin and Ethereum), it doesn’t let in any unauthorized users. A top authority regulates the permissions in a regulated blockchain.
A regulated blockchain provides its superseding or controlling power with full authority over the system. Apart from managing permissions, the authority can create new entities, rules and regulations.
What makes L3COS unique is that it solves the dilemma of being able to regulate a decentralized system.
L3COS organises 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 having to go through intermediaries and have their own system of permissions and hierarchies. It is therefore government that sets fundamental rules for the relationships between the different- and same-level participants. In turn, level 3 participants can regulate the government through democratic elections.
Although blockchain technology has some wonderful advantages, it comes with a number of caveats.
For many, blockchain is strongly associated with cryptocurrencies. The reputation of these digital coins doesn’t shine the way it should. Since Bitcoin’s debut in 2009, cryptocurrencies have been known to finance terrorism and cybercrime, for blackmail, money laundering and a host of other illegal activities. All this has been possible because of the unregulated nature of blockchain.
Another concern is the more recent emergence of stablecoins.
The stablecoin, such as Libra by Facebook, is a new form of blockchain-based currency that is backed by a real-life value (such as notes and coins or fiat money). It’s less volatile and can be used just as if it were fiat money.
However, stablecoins pose a threat to national financial stability for the following reasons:
A Central bank digital currency (CBDC) however 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, a nation’s financial authority is able to create their own CBDC which comes with all the relevant and required digital infrastructure.
There are many types of blockchains out there. The introduction of a regulated blockchain will however not automatically make all other blockchains obsolete.
Yet introducing a regulated blockchain currency may well make free-flowing cryptocurrencies less popular or needed in the future. Financial institutions worldwide are increasingly pushing towards the creation of robust regulatory mechanisms for digital coins. Once in place, many of the perceived benefits of public blockchains and stable coins will likely 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
L3COS provides specific benefits to participants at each of the three levels.