Proposal for Standardisation of Blockchain and Electronic Distributed Ledger Technologies

International
standard setting is a complex area, with a multi-step process applying to the
formulation of standards. The rise of the financial technology or FinTech
sector has given rise to substantial opportunities for businesses supplying
FinTech solutions, substantial benefits for consumer and business users of
Fintech solutions and consequential concern among regulatory authorities and
legislators as to how to deal with this new and booming sector. At present, and
for the immediate future, the area is largely not subject to specific rule-setting
or law. That may change in the medium to long term and we have recently seen
the EU Commission launch an internal task force to review and recommend
Commission approach and initiatives in the area.[1]

Standards Australia Proposal

As part of
this general focus on FinTech, we have recently seen the first initiative at
the international standard-setting level. Standards Australia (SA), the national
standards authority, put forward in April 2016 a proposal addressed to
the International Organisation for Standardisation (ISO)
for the standardisation of blockchain and distributed ledger technologies.[2]
As explained in the SA press release “this
follows consultation with stakeholders which uncovered that interoperability
between different protocols is the key to unlocking the potential of
blockchain”. The proposal scope is to support interoperability and data
interchange among users, applications and systems, both nationally and
internationally. The SA proposal was approved by the ISO Technical Management
Board, in September 2016. The Technical Management Board approved the establishment
of a new technical committee on blockchain and distributed ledger technologies
and allocated the secretariat to SA. Thus, SA will manage the subsequently
established international body, to be known as the Secretariat of the
International Technical Committee for Blockchain Standards (ISO/TC 307).

There are
currently 16 other participating countries involved with the proposal,
including the UK, the USA, Canada, China and Germany, as well 17 observing
countries, including Ireland, Argentina, Spain, Switzerland and South Africa. It
is likely that a number of the observers will move to participant status, which
is a common procedural step in the standard-setting world. We understand that the
National Standards Authority of Ireland (NSAI) are working to gain support to
move Ireland from observer to participant country status so as to ensure
Ireland has a role in shaping emerging international standards in this
technology. 

What is
Blockchain Technology?

For those
still confused by references to blockchain, blockchain is (in crude summary) a
digital platform that records and verifies transactions in a public and secure
manner. This decentralised, cryptography based, solution offers the prospect
for sharing financial, legal, physical or electronic information more readily than
previously possible, across multiple sites and across the full range of public
service, business and personal dealings, whether government to business,
government to consumer, business to business, business to consumer or consumer
to consumer, with the overall potential to redefine transactions in terms of
simplicity and removal of potentially multiple steps, all of which involve
participants or middlemen. Whilst the technology is still an emerging one
(especially with reference to use case), its applications can be readily foreseen
across a wide array of sectors, including, by way of example, government,
consumer products and services, health, financial services, real estate and
business in general.

Purpose of Proposal

The SA proposal
called for an International Technical Committee for Blockchain Standards
(ISO/TC 307) to be established. That Committee would be responsible for
development of a range of deliverables, including a series of ISO/IEC JTC 1
Standards and technical specifications to assist in the development, deployment,
use and growth of this key enabling technology platform.

Current
governance of blockchain technology is unstandardised, with no single
blockchain standard or protocol in place. The technical committee will consider
key protocol elements, including permission models (private and public), smart
contracts (contracts whose terms are recorded in computer language rather than traditional
legal language), application programming interfaces and other elements.

The technical
committee work program priority will be the development of specific standards to
address critical areas, such as terminology, process and methods, trust and
interoperability, privacy and security and authentication. In addition to these
priority aspects of standard development, the proposed work of the technical
committee will include:

·                 
defining the standard

·                 
creating the mechanism to be a
gateway to multiple blockchains

·                 
creating a governance framework

·                 
ensuring interoperability and
compatibility with existing financial standards

·                 
providing legal and regulatory
compliance with each transaction across blockchains and

·                 
working towards a regulatory
framework that provides a mix of legal and technical rules.

Benefits of Proposal

The SA proposal
states that ISO leadership in developing standards for blockchain as a new
field of technical activity will significantly benefit other ISO and ISO/IEC
JTC 1[3] workstreams, as well as having
significant advantages for the private sector, government transactions and the Australian
tax and banking system, according to the expectations of the Australian
Treasury. In the private sector, for example, blockchain can support
transactions and reduce process management issues related to lengthy supply
chains. It can reduce the need for duplication and reconciliation between
parties and reduces market friction, making it easier for medium-sized
enterprises to interact with local and national authorities. The blockchain technology
can assist in a wide range of economic sectors including consumer products and
services, health, minerals and precious stones, banking, real estate, transport
and automobiles, and small and medium-sized enterprises.

Justifications of Proposal

As part of
the standard-setting process proposal, justifications were required for
consideration by the ISO, and SA supplied the following justifications:

·                 
establishing blockchain
standards will position ISO as a leading contributor to the development of global
solutions to facilitate data movement and information flows, thus enabling more
efficient and timely transactions

·                 
there is no one blockchain
standard or protocol currently in use international standards will allow for
interoperability and implementation and use of multiple blockchain-related
protocols

·                 
the development of blockchain
and electronic ledger standards through ISO will assist this new emerging
technology to be rolled out and deployed with greater clarity, certainty and market
confidence

·                 
the widespread adoption and use
of international blockchain standards could facilitate a new wave of
innovation, productivity, employment and industry opportunities

·                 
the possibility of contributing
to making the provision of public and private services more cost-effective and
efficient

·                 
the growing burden of KYC (Know
Your Customer) compliance could be significantly reduced through the
development of international blockchain standards which utilise shared
database(s) for undertaking business and transacting payments

·                 
blockchain has the potential to
create significant benefits for developing countries by unlocking banking and
other applications – eg real-time transfers of remittances can deliver
financial independence for individuals in developing economies and blockchain
can document land titles and owner registrations

·                 
the development of
international standards to support smart contracts has the potential to decrease
contracting, compliance and enforcement provision costs

·                 
the development of
international blockchain standards will reduce transaction costs for SMEs when
dealing with government and businesses.

Conclusion

It is
important that possible stakeholders in Ireland and across a range of both
participating and observer countries are made aware of the proposal made by SA
to the ISO so stakeholders can play a part in the creation of international
standards on blockchain and digital ledger technology. Blockchain technology,
including any international standards adopted by the ISO, will undoubtedly play
a vital role in the development of many business and industry sectors, the most
currently obvious of which is the FinTech sector. If Ireland and other
non-participant countries wish to keep up with developments on the blockchain
globally they need to get actively involved in the early development of
international standards for this ground-breaking and vitally important
technology.

Pearse Ryan is a partner in the Technology &
Innovation Group of Arthur Cox, specialising in technology projects and
technology innovation.

Robert Cain is a partner in the Finance Group of
Arthur Cox, specialising in financial regulation. 

The authors wish to
thank Chloe Hawker, 1st year UCD BCL student and work-experience intern with
Arthur Cox, for her valuable contribution.