Boston Federal Reserve Releases A Whitepaper To Help Regulators With Blockchain Oversight
This Wednesday Boston Federal Reserve a whitepaper that deals with some of the problems the regulators will face around governing blockchain technology. This report is a resource for business professionals and technologists looking to experiment with blockchain.
Blockchain has the potential to impact many industries—including financial services—to the Boston Fed sought to understand its foundational technology with first-hand research. The report goes beyond the basics of distributed ledger technology and tells the story of the Boston Fed’s journey to understand how a blockchain platform could help us perform specific functions within our operations.
Jim Cunha, SVP treasury and financial services at the Boston Fed said:
“We can’t alter the underlying fabric on which critical assets move without watching it for risks to the system or to individual banks related to technical problems, market weaknesses [and] liquidity problems.”
Supervisory Nodes In Blockchain Systems
The most intriguing part of the whitepaper is the introduction of a new use case, a supervisory node. It is to be noted that “supervisory node” is a generic term and can include many roles beyond the Fed’s regulatory supervisor role, such as an auditor, payments network rule-enforcer, or data reporting entity.
But the Fed would obviously have a specific interest in the regulatory capabilities of these nodes. It is believed that they could be critical to making blockchain a transformative technology for regulators if combined with machine learning and artificial intelligence to offer real-time views and insights into institutions and broader markets.
Christopher Giancarlo, the chair of the Commodity Futures Trading Commission(CFTC) thinks that the response to the 2008 financial crisis would have been faster and better-informed if blockchain was around.
In 2018, he had stated:
“What a difference it would have made on the eve of the financial crisis in 2008 if regulators had access to the real-time trading ledgers of large Wall Street banks, rather than trying to assemble piecemeal data to recreate complex, individual trading portfolios.”
Although the use case of a supervisory node is still a complicated business. There are several questions to be answered. How can we ensure supervisory nodes see only what they should see? Do supervisory nodes create a moral hazard just by being on the network? How can third-parties insert themselves onto blockchain networks without disrupting them?
Answering these questions, with some additional ones listed in Boston Fed’s Whitepaper will drive the technical design of supervisory nodes. If you want to read more about it, you can do so here.