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Web3 Foundation Calls for Regulatory Clarity But Warn Rules Should Address Behaviours Not Technology

It is no secret that the Web3 space continues to grow rapidly, but as the sector evolves there has been increasing levels of legal uncertainty regarding existing regulations. With fears that these regulations are slowing innovation, what do experts believe is the solution? 

The global Web3 blockchain market size was $1.73billion in 2022 and is expected to expand at a CAGR of 47.1 per cent from 2023 to 2030. The growing usage of Web3 technology by businesses in the likes of smart contracts, digital identity and documentation is expected to further drive growth in this space.

However, as has been seen many times in various tech sectors in the past – the regulators haven’t successfully kept pace with the speed of development.

In light of this, Web3 Foundation, a tech organisation funding research and development teams in the Web3 space, held an expert panel at Polkadot Decoded on the current state of Web3 regulation in the EU.

Panellists discussed the benefits of Web3 blockchain technology that could help solve current Web2 challenges such as internet privacy, security and the use of intellectual property. Panellists agreed that web3 technology needs tailored regulations that reflect the uses of blockchain technology and should focus on behaviours rather than technology.

The discussion outlined the importance of legal clarity for Web3 entrepreneurs and why jurisdictions such as the EU are surpassing slow jurisdictions, which appear stuck in definitional and jurisdictional uncertainty.

Regulating digital assets in the US

The panel followed Daniel Schoenberger, chief legal officer of the Web3 Foundation and his testimony before the US Congress on regulating digital assets. Schoenberger argued that the current regulatory approach has ultimately slowed innovation in the Web3 space.

Daniel Schoenberger, Web3 Foundation
Daniel Schoenberger, chief legal officer of the Web3 Foundation

Regulators across the globe are approaching regulation in different ways from the regulatory enforcement actions by the United States’ Securities and Exchange Commission to the EU’s most recent legislation, the Market in Crypto-Assets (MiCA) Regulation coming into force this month.

During the panel, Schoenberger said: “The Web3 Foundation sees its role as helping regulators to understand blockchain technology. Companies should be regulated for what they are, and what they do. We are encouraged by how some jurisdictions have tailored their regulations to the reality of the technology.

“A good example of this deep understanding is, the EU’s MiCA regulation, which has included its own class of utility token, a crucial step to recognising the different classes of tokens based on their functionalities.”

‘Blockchain is a societal revolution’

Joachim Schwerin, principal economist of the digital transformation of industry unit within the directorate-general internal market, industry, entrepreneurship and SEMs of the European Commission, also outlined his view of blockchain technology during the panel. Schwerin said: “Blockchain is a societal revolution. Blockchain is something that puts decentralisation and empowerment bottom-up first, and we have demonstrated that already, when we declared that blockchain is an innovation priority for Europe for the next decades to come in every policy field.

“That is the first time ever in the history of the European Union that we have made such a statement about a technology so shortly after it had emerged.”

Paige Collings, senior speech and privacy activist at Electronic Frontier Foundation, explained Web3’s role in protecting privacy risks: “It is important that any regulation should be addressing behaviors rather than technologies. Just because something is decentralised doesn’t mean we don’t have bad actors. We need to make sure the same considerations of the centralised web are being applied in the decentralised world as well, and that we are not just taking this as an opportunity to innovate without any consideration of people’s speech and privacy, but we are putting that at the forefront of any new developments.”

Author

  • Tom joined The Fintech Times in 2022 as part of the operations team; later joining the editorial team as a journalist.

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