In recent days we are witnessing many countries announcing that they are coming up with regulations for cryptocurrency transactions citing the increasing interest of investors in digital assets. Blockchain technology is becoming a well-established hot topic, as the fabric of decentralized finance (DeFi) is based on blockchain technology and Web3. The changes in the financial industry across the globe will make it essential to use cryptocurrencies for transactions. Hence, having a secured process of making smart contracts for crypto transactions is of utmost priority for DeFi industry as well as for the governing authorities in each country. Many countries are coming up with regulatory policies about cryptocurrency and adaptations of digital assets into their economies.
Blockchain technology may be of great value, but when it comes to the compliance part, it is an endless debate. Let's look at a few of the regulatory challenges this technology faces.
Blockchain is a decentralized ledger and each node of a blockchain can spread from several locations across the world. For example, if a crypto transaction is done in the United States, it will have to abide by NIST (National Institute of Standards and Technology). NIST has recently released ‘New Guidance On Software Security And Cybersecurity Consumer Labeling Programs’. These guidelines were drafted in accordance with President Biden's Order 14028, which aims to implement new practices to improve Nation's cybersecurity. The main objective of these guidelines is to help software developers to elevate the risk of vulnerabilities and published Secure Software Development Framework (SSDF). In addition, NIST also released recommendations for Cybersecurity labeling programs Internet of Things(IoT) and Consumer Software. Clearly the USA is paying attention to channelize new regulations, which is a good sign.
Likewise, other countries will also set the rules and regulations pertaining to crypto transactions and investor protection in their countries. Countries like the United Kingdom, Singapore, El Salvador, Dubai are already in the process of establishing a compliance system to protect and regularize this emerging trend of investments in digital assets, like cryptocurrencies, NFTs, and other digital assets.
Despite the cyberthreats and cyberattacks of the past, the growth of this industry is not hampered by these risks. The future of DeFi looks promising and more secure with the advancements in blockchain-based crypto platforms like Ethereum and web3 technology.
Clarity around government policies and regulations for supporting DeFi, is still unclear in many countries. The crypto investors are still not sure if cryptocurrency transactions are allowed or banned in these countries and what the tax implications are for these transactions. The peer-to-peer transaction without any centralized body makes it totally transparent for anyone to transact from anywhere in this system. Differences in compliance with different laws and regulations of every country may pose a challenge for blockchain technology to comply with all applicable regulatory and legal requirements in multiple countries.
While people refer to this technology as highly secure and tamperproof, cyber attacks are still commonplace. Studies show that a large number of attacks have taken place in recent times where the attackers gain access to a backdoor and take entire control of data entry points. Attackers can easily change payout details and wallet destinations; they can even redirect payments to their accounts in an untraceable manner, making it look like the money has reached the destination wallet.
In the past, we have seen many major cyberattacks like Brute Force, Sybil, 51% attack, Eclipse, and Denial of service due to vulnerabilities in blockchain / smart contracts. Sometimes there are possibilities that a software developer could be held responsible for improper coding, causing losses to a client due to hacking. One such attack occurred in 2016 when a hacker aimed at a smart contract made a run on blockchain and transferred about $50 million of funds to his account. A $50 Million Hack.
The blockchain system is a decentralized configuration and there is no answer to the question of who will be liable for a violation of the law. This gives rise to several legal issues for this technology.
Each jurisdiction follows a set of financial laws and regulations. An agent or custodian of a financial product is liable to any financial law, but when it comes to blockchain technology, which is completely a decentralized system and has a non-custodial layout, it creates an ambiguity in complying with laws. There may be separate tax rules in each jurisdiction. For example, the Union Budget by the Finance Minister of India recently announced that every digital asset transfer will be taxed at 30 percent.
Vulnerability management automation applications such as the BlockChainSentry VMS can help in complying with these regulations as well as assist in ruling out all vulnerabilities in smart contracts before the deployment.
As they say "Nothing Great Comes Without A Risk" and so is this technology. However, we have encountered similar challenges in the past, when the internet came into existence no one believed it was going to be the future and today no one is without the internet.
Proper guidelines will channel the legal framework of this technology. Decentralized Autonomous Organizations (DAO) which are into blockchain development for Crypto Platforms must comply with and accommodate these government-led regulations during the smart contract development, apart from managing vulnerabilities and their remediations. Vulnerability management automation applications such as the BlockCahinSentry VMS can help in complying with these regulations as well as assist in ruling out all vulnerabilities in smart contracts before the deployment.
@DAOs must connect with BlockChainSentry to implement automation for smart contracts vulnerability management and make the crypto transactions completely secure on the crypto trading platforms.