On January 24, a group of ten individuals met to discuss the problematic definition of blockchain in recently introduced bills SB/1870 and HB/1391, aimed at creating a Financial Technology Sandbox program in our state. Florida has joined the other trail-blazing states in recognizing the importance of supporting innovation for financial services and the challenges presented for startups regarding compliance. The objective was to develop non-technical language that is sufficiently broad to cover existing and future blockchain technologies while still being limited enough differentiate blockchain from other distributed ledger technologies and data management tools.
The goal of this program allows small-scale , live-testing of new financial products using actual customers. During this time regulatory supervision is provided, regulatory licensure and associated compliance is limited for the duration of one’s participation in the program. In particular, the FCA sandbox model of financial innovation has enjoyed remarkable success, with 90% of participating companies going on to market. As a result, implementation of a sandbox program in Florida is expected to likewise lead to the promotion of business innovation and association of economic growth.
In hopes that a program applicant provide an “innovative financial product or service available”, the bills include the following definition of “blockchain”:
“Blockchain” means a digital record of online transactions that are stored chronologically and obtained through consensus and that are decentralized and mathematically verified in nature.
The Florida Blockchain Business Association has organized a working group to thoroughly explore, consider and make recommendations regarding the proposed definition of “blockchain” at use in the draft bills. Of further concern to the working group is how the definition may be later integrated into future legislation, or how to definitions may restrict the future development of blockchain as a technology and its implementation across industries. As explained by SEC Commissioner Hester Peirce,
“Because the market is always changing, we must always keep in mind that a rule that once made sense may have outlived its usefulness…Outdated rules can impose significant costs on market participants. These costs are why I oppose mandating specific technologies in our rules. To the extent that we do issue such specific mandates, we have an affirmative obligation to revisit these requirements periodically.”
With a nod towards the sound advice of SEC Commissioner Hester Peirce, due to the rapidly change pace of technology and the impossibility of anticipating future advances, iterations of how the technology may be used, is the group’s recommendation that:
- The legislature should not include the definition of “blockchain” in any legislation, or
- In the alternative that a definition of “blockchain” is required, then we recommend:
“Blockchain means a type of distributed ledger, or peer-to-peer database spread across a network, that digitally records transactions in theoretically unchangeable blocks of encrypted data. Each block is timestamped and includes a reference to the previous block, linking the blocks together in an append-only chronologically ordered chain. Blockchains use varying consensus rules to verify information before a block may be recorded to the chain, and may utilize a token as a network incentive or for other purposes.
For the group to come to a unanimous group decision in support of the above proposal, the group initially considered multiple definitions issued by other industry giants, and also the different definitions that have been included in the statuses of other states. Acknowledging certain crucial details that distinguish blockchain from the different kinds of distributed ledger technologies, and from other kinds of data management systems. The FBBA evaluated a core list of descriptive identifiers based on their chances to evolve together with this technology, and the chances to misunderstand or misconceive to the harm of industry growth.
The FBBA has certainly undergone a due diligence process when developing the working definition of blockchain that is broad enough to ensure this technology can develop and flourish without interference. In an upcoming blog, we will cover more in-depth the terms and the technical aspects of this Blockchain Business Bill. If you would like a more hands-on experience of this emerging technology, please sign-up for our industry-exclusive blockchain strategy sessions taking place at BlockSpaces’s Blockchain Pavillion, Space 104 at Synapse Summit on February 12.