The impact of blindly following a regulatory framework created decades ago to deal with problems observed years before then. The amorphous term "regulation" disaggregated into a simple taxonomy to facilitate analysis and communication. The enormous gap between today's regulation and the challenges posed by open blockchain technology. The challenges and opportunities of self-sovereign identity. Financial KYC's spaghetti problem and how to solve it. The opportunity to leverage the design features and crypto economics attributes of open blockchains for self-regulation. The leading thought leaders in regulation for the blockchain age.

1. BLOCKCHAIN
REVOLUTION
IN REGULATION
S A F B C , J o h a n n e s b u r g , A u g u s t 2 3 , 2 0 1 7
@JuanLlanos

4. “ UN EXPIRED
G OV ERN MEN T - ISSUED
PHOTO
ID ”

5. REGULATION
market failure prevention?
catalyst for progress?
instrument of power?
© 2017 Juan Llanos

6. PRUDENTIAL
LAW
ENFORCEMENT
POLICY
• National Security
• Crime Fighting
• Consumer/Investor Protection
• Safety & Soundness
• Systemic Risk
• Job growth & wealth creation
• Development & sustainability
• Taxation
• Trade
• Monetary
POLICYMAKER
( S T I M U L A T I V E ) ( P R E V E N T A T I V E )
( P U N I T I V E )
REGULATOR
LAW ENFORCER
policy
supervision enforcement
© 2017 Juan Llanos

7. RISK AREAS
• operational
• credit
• money laundering
• terrorist financing
• information loss
• counterparty
• fraud
• identity theft
STAKEHOLDERS
• federal agencies
• state agencies
• investors
• consumers
• employees
• society
GOALS
• safety
• soundness
• security
• privacy
• crime prevention
• health
• integrity
R e g u l a t i o n à Inevitable, yet valid
Risks & Stakeholders
C o m p l i a n c e à Onerous, yet valuable
© 2017 Juan Llanos

8. R e g u l a t i o n à Inevitable, yet valid
today…but
not necessarily tomorrow
C o m p l i a n c e à Onerous, yet valuable
© 2017 Juan Llanos

9. t o d a y v s t o m o r r o w
l a w e n f o r c e m e n t v s c i v i l l i b e r t i e s
p r i v a t e v s p u b l i c
c e n t r a l i z e d v s d e c e n t r a l i z e d
a u t h o r i t y - d e p e n d e n t v s s e l f - s o v e r e i g n
c o n s e r v a t i v e v s p r o g r e s s i v e
l e t t e r v s s p i r i t
n e a r v s f a r
CONTRASTS
© 2017 Juan Llanos

10. r eg/ t ec h
mismat c h

11. PRODUCT-FOCUSED
ACTIVITY-BASED
INDUSTRY-SPECIFIC
JURISDICTION-DEPENDENT
INTERMEDIARY-ENFORCED

12. © 2017 Juan Llanos
permissionless-/limitless-ness
borderless-/jurisdictionless-ness
(pseudo) anonymity
peer-to-peer
(in)flexibility
radical transparency/translucence
probabilistic finality
DECENTRALIZED PARADIGM

13. © 2017 Juan Llanos

14. © 2017 Juan Llanos
Quorum is an enterprise-
focused version of
Ethereum ideal for any
application requiring high
speed and high throughput
processing of private
transactions within a
permissioned group of
known participants.

15. permissioning +
privacy +
performance +
configurable Consensus +
settlement finality +
© 2017 Juan Llanos

16. today…but
not necessarily tomorrow
© 2017 Juan Llanos

17. N O C E N T R A L A U T H O R I T Y
O P E N + P R O G R A M M A B L E
D I S T R I B U T E D C O N S E N S U S
N O D O U B L E - S P E N D
T R A N S F E R W I T H O U T I D E N T I T Y
B L O C K C H A I N R E V O L U T I O N
© 2017 Juan Llanos
T R A N S PA R E N T L E D G E R

18. © 2017 Juan Llanos
anonymity =
anathema

19. • Anonymous identification
• No value limits
• Anonymous funding
• No transaction records
• Wide geographical use
• No usage limits
Cash features
F AT F R e p o r t o n N e w P a y m e n t M e t h o d s ( 2 0 0 6 )
© 2017 Juan Llanos

20. F AT F R e p o r t o n N e w P a y m e n t M e t h o d s ( 2 0 1 3 )

21. F AT F R e p o r t o n V i r t u a l C u r r e n c i e s ( 2 0 1 4 )

22. © 2017 Juan Llanos

23. A M L / C F T
TODAY
- national security and crime deterrence are top public policy priorities
- unintended consequence → strict identification standards facilitate
fiscal surveillance but create financial exclusion of underprivileged
- stick over carrot (heavy hand)
TOMORROW
- carrot over stick (lighter hand)
- measure proportion and results
- layered, zero-knowledge-based, identity systems could meet both law
enforcement and civil liberties goals
© 2017 Juan Llanos

24. I D E N T I T Y
TODAY
- Countries have the monopoly over a person’s identity (mostly, for
fiscal and law enforcement reasons)
- Not all countries have reliable identification systems
- Government-issued IDs are not necessarily effective in deterring
crime/unmistakably identifying humans
TOMORROW
- Alternative identity systems that transcend borders and facilitate
identification of previously disenfranchised persons
- Identity systems that balance both transparency and privacy and
are controlled by the user (self-sovereign)
© 2017 Juan Llanos

25. WHAT IF…?
WHY NOT…?
© 2017 Juan Llanos

26. Source: ID2020

27. Source: ID2020

28. © 2017 ConsenSys

29. KYC Challenges
K Y C i s s l o w, r e p e t i t i v e , a n d e x p e n s i v e
A M L i s p r e d o m i n a n t l y r e a c t i v e , o n l y i d e n t i f y i n g d a m a g e a f t e r t h e f a c t
Client challenges
● Repeat onboarding
● Processing delay
● Lack of portability and control
● Varying verification levels
Service Provider challenges
● Customer acquisition costs
● Compliance / due diligence risks
● Data cleansing and integrity
● Watch lists and monitoring
Security & Privacy challenges
● Data privacy requirements
● Cyber-attacks and identity theft
● Personnel permissions
● Customer consent
Slow ReactiveExpensiveRepetitive Error-prone
© 2017 ConsenSys

30. `
© 2017 ConsenSys

31. • Regulator y/LE expectations promote the
replication of identities (1-to-1 between
regulated entity & regulator)
• Regulators should allow for shared
platforms (‘clearing houses’) (logically
centralized but functionally decentralized
solutions)
© 2017 Juan Llanos

32. RETHINK
REDEFINE
REINVENT
© 2017 Juan Llanos

33. (SELF-)REGULATION BY
design feature
crypto-economics
© 2017 Juan Llanos

34. DISTRIBUTED LEDGER
SMART CONTRACTS
CRYPTO TOKENS
© 2017 Juan Llanos

35. L AW M A K I N G
R U L E M A K I N G
B U S I N E S S C R E AT I O N
VA L U E C R E AT I O N
M A R K E T C R E AT I O N
B L O C K C H A I N D E M O C R A T I Z E S
© 2017 Juan Llanos

36. PRUDENTIAL REGULATION
PRE-BLOCKCHAIN
PRUDENTIAL REGULATION
POST-BLOCKCHAIN
a) Paper-based rulemaking
b) Ex-post-facto monitoring and
auditing
c) Analog enforcement
d) No feedback on impact or
proportion
e) Over-regulation
f) Us vs Them
a) Digital rulemaking
b) Real-time monitoring and auditing
c) Algorithmic enforcement
d) Feedback on impact or proportion
e) Optimized regulation
f) Private-public collaboration

37. FINANCIAL CRIMEFIGHTING
PRE-BLOCKCHAIN
FINANCIAL CRIMEFIGHTING
POST-BLOCKCHAIN
a) Intra-company analysis only (silos)
b) De jure (analog) Information
sharing
c) thick (upfront) KYC
d) anonymity = anathema
e) deputized financial institutions
(lopsided allocation of liability)
f) subjectivity
a) inter-company analysis (network)
b) (digital) information sharing by
default
c) thin KYC (just the proofs)
d) pseudonymity/privacy = standard
e) distributed allocation of liability
f) objectivity (minimized subjectivity)

38. V I N A Y G U P T A
Te c h n i c a l c a p i t a l i s m ( ” Te c h C a p ” ) à v a s t
d e c i s i o n s m a d e b y s o f t w a r e . I n 1 5 y e a r s ,
s o f t w a r e c o u l d h a v e c o d i f i e d t h e e n t i r e U C C a n d
h u m a n s ( l a w y e r s ) o n l y m a n a g e t h e e x c e p t i o n s .
P r e c o g n i t i v e c o m p l i a n c e à c h e c k s t h a t e v e r y
a c t i o n i s l e g a l b e f o r e e x e c u t i n g i t ; p r e d i c t s
o u t c o m e s a n d p r e v e n t s m a j o r i t y o f t r a n s a c t i o n s
f r o m e n d i n g i n c o u r t . ”
“automate away the cost of running civilization”
mechanize rules & compliance
remove the need to remember the law
provide freelance governance-as-a-ser vice
produce smar t statutes / digital law
create software definitions of law
© 2017 Juan Llanos

39. N I C K S Z A B O
S o c i a l s c a l a b i l i t y : h u m a n b r a i n s à f l a t o v e r
h i s t o r y. N o t c o m p u t e r s : t h e y k e e p g r o w i n g .
We ’ r e b e i n g a s u r p l u s o f r e s o u r c e s , b u t w e ’ r e
s t i l l d o i n g t h i n g s w i t h h u m a n b r a i n s . C a n w e
t a k e a d v a n t a g e o f t h i s g r e a t s u r p l u s ? ! A r e t h e r e
w a y s t o m a k e t h e m a c h i n e l e s s e f f i c i e n t , b u t
a l l o w i t t o p r o v i d e a c a p a b i l i t y t h a t s o l v e s a b i g
h u m a n p r o b l e m ( e f f e c t i v e l y u p g r a d i n g t h e h u m a n
b r a i n ) ? à Tr a d i n g c o m p u t a t i o n a l s c a l a b i l i t y f o r
s o c i a l s c a l a b i l i t y.
“lower our vulnerability to the whims of strangers”
" w e t c o d e , " i n t e r p r e t e d b y t h e b r a i n v s .
" d r y c o d e , " i n t e r p r e t e d b y c o m p u t e r s
” ’ S m a r t c o n t r a c t s ’ a r e a b o u t v e r i f y i n g a p e r f o r m a n c e , a n d t h e n
a u t o m a t i n g i t . T h e n t h e r e ’s t h e c o n d i t i o n s i n t h e m i d d l e . ”
© 2017 Juan Llanos

40. SPIRIT OVER LETTER
o u tco me s a nd p o l icy g o a l s firs t
SUBSTANCE OVER FORM
stre ng the n p ro d u ct a nd o rg a niz a tio n fro m within
ENGINEERS OVER LAWYERS
to cre a te a l g o rithmic o ve rs ig ht s y ste ms

42. © 2017 Juan Llanos
@JuanLlanos