The BoE has said blockchain technology isn’t yet a critical infrastructure in the financial system. But it holds open the possibility that some blockchains may become so.
In a post on its website published on Wednesday (Dec. 21), the Bank of England (BoE) writes that “Blockchains do not constitute critical financial infrastructure (yet). But they could conceivably become so in the future if crypto asset activity and its interconnectedness with the wider financial system continue to develop.”
Commenting on September’s Ethereum Merge, the BoE raised unanswered questions about the governance of permissionless blockchains.
It said the event posed a number of operational and technological risks. As such, it asked “what if it had gone wrong? Who would have been responsible for, and had the authority to, coordinate a timely solution? [And] who would have been accountable/liable for any financial losses incurred by others as a result?”
With these questions in mind, the BoE said that should blockchains like Ethereum become further entrenched in the financial system to the point where they do count as critical infrastructure, appropriate regulatory oversight would have to be arranged.
The latest post chimes with comments made in October by Carolyn Wilkins of the BoE’s Financial Policy Committee.
Speaking to an audience at the University College London (UCL) Centre for Blockchain Technologies, Wilkins warned about what she called “serious deficiencies in governance in the crypto ecosystem.”
Pointing out that many crypto projects allow for anonymous voting and adhere to governance models in which larger shareholders have the most weight, she said that accountability and transparency in the way blockchains are governed fall short of the more regulated standards applied elsewhere.
As a potential way out of the predicament that doesn’t excessively warp the decentralized nature of existing decision-making models in the cryptosphere, Wilkins pointed to the way otherwise broadly decentralized governance systems applied by Polkadot and MakerDAO retain emergency powers held by assigned technical committees.
As well as addressing the challenge of finding consensus among a distributed swarm of token owners, delegating certain powers to specific committees solves some of the accountability problems that the BoE raises.
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