ConsenSys, a prominent development studio focused on Ethereum, has submitted a recommendation to UK authorities, urging them to prioritize regulating applications built on blockchain protocols. This suggestion comes in response to an ongoing investigation into the rapidly expanding realm of decentralized finance (DeFi) and related cryptocurrency activities in the UK.
In a letter released Tuesday, the firm outlined its stance, advocating for a more nuanced and targeted approach to regulating public-facing blockchain applications. The goal is to mitigate potential risks without hindering the core infrastructure of the blockchain. ConsenSys believes such an approach aligns with the existing regulatory framework for the second generation of the internet, commonly called Web2.
ConsenSys argues that regulation should focus on specific activities and services rather than imposing broad limitations on the entire blockchain infrastructure. They emphasize that the open-source code, which is inherently neutral in its purpose, should not be the primary target of regulation. Instead, the main focus should be the products or services that pose potential risks.
The Brooklyn-based firm highlights the importance of scrutinizing the level of control exerted by certain individuals or groups over DeFi applications. They caution against situations where parties can manipulate smart contracts or have access to private keys, as these areas present potential risks. Therefore, regulations should address these issues while fostering innovation and promoting a gradual shift toward decentralization.
Furthermore, ConsenSys draws attention to maintaining data integrity outside the blockchain. They note that while blockchain data can be audited and verified, the same level of trustworthiness is not extended to real-world data or data introduced through oracles. Consequently, any regulatory framework should consider these concerns to ensure a comprehensive approach to blockchain regulation.