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Why Countries Blocking Blockchain Experience a “Brain Drain”

October 22, 2018


Why Countries Blocking Blockchain Experience a “Brain Drain”

Positive or negative, regulations leave a deep and lasting impact on a country’s economic momentum.

While it’s generally accepted that fewer regulations also mean fewer restrictions, some regulations are necessary to protect the rights and safety of individuals and to underpin the market. Not only do they create jobs, they inevitably protect a country’s citizens from bad actors. It’s therefore no wonder why blockchain and cryptocurrencies have been so heavily regulated across the globe.

Blockchain and cryptocurrency are still relatively young, but they’ve already managed to pique the interest of enterprising companies and entrepreneurs in virtually every major industry and country.

Blockchain offers the ability to harness greater efficiencies, build more equitable services, and circumvent institutional finance. This represents a risk for governments and their central banks and unintentionally threatens the economic sanctity of even the most major nations.

One of the biggest issues that governments and central banks face is how to balance blockchain’s benefits with its threat to the status quo.

This is a fine line to walk. There are risks inherent in being too lax, but there are also serious consequences for placing too many restrictions on blockchain–and emerging technologies in general.

Countries around the world have tackled the problem creatively, announcing regulations that help to guide how blockchain can grow within their borders. One of the biggest reasons to take care with regulation is the tidal wave of retail and entrepreneurial interest in blockchain. It is in the government’s best interest to provide a safe, yet favorable environment for these technologies to thrive. Neglecting to do so risks an exodus of talent and money on a grand scale.

How Asia is coping with blockchain mania

The potential risks and rewards inherent in blockchain adoption are a source of contention around the world, particularly in Asia. China, for example, has a lot to gain from blockchain, but also a lot to lose as a technological powerhouse. The country understands that a society embracing decentralized services has a leg up on those that are slow to welcome blockchain, which matches its ambitions to compete with the West to remain at the top.

Chinese municipalities like Shenzhen, for example, have already allocated millions of dollars to make their local economies more efficient. Establishing blockchain-based services first likely means a permanent position on the cutting-edge and an influx of talent from countries which have taken a more obstructive stance towards the new technology.

That being said, China is also sensitive to the risks of a blockchain phenomenon allowed to grow without constraint.

The sheer newness of blockchain means that there are lots of bad actors, unfortunately.

Regulations need to make it hard for deceitful ICOs and blockchain projects to proliferate, but even ICOs with pure intentions are dangerous propositions, especially for a country like China that is wary of capital flight.

Not only do ICOs enable massive outflows from the Chinese Yuan to cryptocurrency; they also do not impose any kind of liability for the company raising capital.

There is no accountability and no consolation for investors who lose their money because coins do not represent real equity rights currently.

The same concerns are prominent in countries like India, which has taken a harsher stance towards blockchain, and is now confronting the consequences of their punitive platform. The Reserve Bank of India’s recent decision to sever ties with any blockchain-adjacent firm was a wake-up call to the country’s enthusiastic developers and entrepreneurs, who are now leaving India in droves to follow their passions abroad.

If the countries don’t find a middle-way between regulation and a trustless system, they could experience dire consequences of the “brain-drain.”

The great blockchain balancing act

The events transpiring in India are commonly referred to as ‘brain drain’, and occurs when a country makes it difficult for certain ideas or technologies to flourish. Accordingly, to avoid an exodus of talented entrepreneurs, countries must balance this risk with the rewards of blockchain development, which entails building creative regulations from scratch.

India’s unwillingness to allow companies using blockchain to join their financial system is arguably too strict. It precludes the establishment of most blockchain ideas in the country, which could ultimately be a mistake for their economy.

Other governments have responded in more balanced ways.

China’s regulations are some of the most successful legislation because they limit retail investor participation in blockchain, but still allow for blockchain solutions to exist. Government money is flowing into blockchains that will not be used for speculation, but rather to improve public services and make the country more economically competitive. Retail investment in the few cryptocurrencies available (bitcoin) are heavily taxed, which suppresses capital flight and speculation.

This strategy still preserves the favorable environment for blockchains that are private, self-funded, and centralized—or those entirely backed by the government.

Countries like the United States have allowed blockchain to blossom largely untouched. Their hands-off methodology works for now, but probably wouldn’t have been as effective had the cryptocurrency market not crashed late last year. Decreasing speculative interest, and the creation of newer, more transparent VC funding methods for blockchain have meant that American regulators haven’t been forced to take blanket action against the entire industry, but rather evaluate suspicious projects on a case-by-case basis.

This approach means that for now, the US remains a destination for those individuals and companies with an ambition to build on the blockchain.

Striking a good compromise for the future of blockchain

Blockchain’s birth was the work of individual enthusiasts, investors, and entrepreneurs, but it’s in no government’s best interests to literally give “the power to the people.”

However, the government cannot exactly kill the birth of an idea. Blockchain has been born. And governments are challenged with how exactly they are going to strike a balance in giving their people the power to find new ways to boost the economy while keeping the bad actors at bay.

This means that blockchain will probably need to settle for a government paycheck rather than remaining self-employed and living off of tokens. Blockchain will likely survive and expand with government support, but not as we know it currently. Regulations will inevitably play a part in this sea of change.

Crypto havens like Estonia, Japan, and Singapore are prime examples of how a country’s support can thrust blockchain forward. Thus its very likely that their “blockchain brains” will stay put.

Bottom line: If countries don’t find a way to support evolving technologies while mitigating the potential threats, they risk an exodus of talent. And countries who welcome the nascent technology will take them with open arms.

Claire Polansky is the managing editor of Blockanics. She ate, slept, and breathed Friedrich Nietzsche's anti-establishment theories while working on her multidisciplinary Ph.D in religion, philosophy, and environmental ethics. She believes that Nietzsche would have absolutely loved the decentralized mission behind crypto. When Claire is not editing or quoting Nietzsche, you can almost be certain that she is rescuing strange animals.