03 March 2017

Putting Australia on the blockchain map - Standards Australia releases Roadmap for Blockchain Standards

This article was written by Scott Farrell, Claire Warren, Max Allan and Henry Wells.

Yesterday, Standards Australia released its Roadmap for Blockchain Standards. The Roadmap marks the commencement of its role at the forefront of the international standards and sets the blueprint for Australia’s leadership.

In Australia, the Roadmap is an important step in developing a collective Australian position on the priorities for blockchain standards and contributing to the establishment of industry, consumer and market confidence in the use and application of blockchain technologies, most notably in financial services, government and supply chain management (particularly in agriculture). Beyond Australia, the Roadmap contributes to the construction of the international standards to facilitate the use of the new technology across borders and across industries and sectors. It has come just in time. Australia will host the first international blockchain standards meeting in April 2017.

If you are involved in blockchain or distributed ledger technology, want to be or just want to understand what it is all about, this Roadmap is a critical part of navigating a rapidly developing landscape. In this Alert we give you a snapshot of what the Roadmap reveals and what it means.

A copy of Standards Australia’s Roadmap for Blockchain Standards can be found here and a copy of Standards Australia's media release can be found here. If you are new to blockchain, our explainer can be found here and some of our further analysis on the use of the technology can be found here.

Why is Australia leading blockchain standards?

Australia is emerging as one of the global leaders in blockchain development.

Important work in the the private sector, such as the exploration of blockchain to replace Australia’s primary sharemarket settlement system by the ASX and Digital Asset (see here for more detail on this), contributes significantly to this. Research in the public sector, such as that being conducted by the Australian Government’s leading data science body (Data 61, part of the CSIRO) on a strategic foresight study and use cases for the technology is also important (see here for more detail, the interim report is due shortly). Australia is “strongly pursuing” work in the technology as noted by the Australian Treasurer in his recent speech to the G20.

In this context, the leading role of Standards Australia in the international blockchain standards is understandable. In April 2016, Standards Australia proposed that there be a new international technical committee of the International Organization for Standardization (ISO) to create standards for blockchain and electronic distributed ledger technologies. The new committee would be responsible for supporting innovation and competition by covering blockchain standards topics including interoperability, terminology, privacy, security and auditing. This proposal was accepted in September 2016 and a new technical committee (ISO TC 307) formed with Standards Australia appointed to manage the secretariat, and Mr Craig Dunn (who is also Chair of the Australian Government’s FinTech Advisory Group), appointed to chair the international committee. There are currently 33 member nations of ISO TC 307 including: Germany, United Kingdom, Japan, Russia, France, Singapore, China, USA and many others.

Standards Australia’s work, together with the other Australian public and private sector projects in development, will enable Australia, and Australian businesses, to design, develop and construct the international standards to support the global deployment of blockchain technologies. As the Australian Treasurer, the Hon. Scott Morrison MP, said on the release of the Roadmap, “distributed ledger technologies have the potential to re-engineer international trade in goods and services and deliver greater efficiency and security for financial transactions” and “Australia’s leadership in developing blockchain standards promotes our position as a global centre for distributed ledger technologies”.

What is in the Roadmap?

The Roadmap has been prepared by Standards Australia to assist the standard-making process in a number of ways:

  • identifying the various technical issues associated with developing, governing and utilising blockchain – related technology
  • identifying blockchain – related technology relevant to Australia and assess the need for standards to support the specific use-cases
  • prioritising the order of standards development activities that could be undertaken in the development of blockchain standards by the international standards committee
  • considering the role of standards in supporting potential future regulation of blockchain and the relationship between the law and standards
  • considering the pathways and structures that can be utilised for the creation of the new international standards.

The Roadmap is designed to also inform Standards Australia’s own technical committee on blockchain, as well as being part of the preparation for the inaugural meeting of the international committee, which is scheduled to occur in April of this year.

Standards Australia developed the Roadmap from a series of consultations held in 2016 and 2017 with expert industry, consumer, academic and government stakeholders. This included a survey which was launched in December 2016. The results of that survey are included in the Roadmap. For example, the Roadmap reveals that more than 88% of respondents suggested that either national standards, international standards or a mixture of standards and regulation are required to support an appropriate framework for blockchain related industries.

The Roadmap specifically identifies key industry sectors in which there has been growing use and application of blockchain technologies. These are:

  • financial services
  • government services
  • supply chain management (particularly for agribusiness).

The Roadmap goes further to identify specific applications of blockchain technologies. These include:

  • in the financial services sector:
    • Digital Currencies
    • Trade Finance
    • Remittances
    • Commodity Exchange
  • in the government services sector:
    • land transfers and property title registrations
    • personal identification and passport documentation
    • management of health records
    • vehicle registrations
    • welfare distribution and monitoring
    • public transport scheduling
  • in relation to the supply chain:
    • supply chain management, particularly in the agricultural supply chain
    • using blockchain for procurement.

The Roadmap also identifies some of the challenges which must be addressed in order for blockchain systems to achieve their potential and which could be addressed through the development of appropriate standards. These challenges include:

  • privacy
  • security
  • governance
  • terminology
  • interoperability
  • risk

There could be a connection between these issues and challenges and the coverage of Data 61’s forthcoming interim report (mentioned above). We have considered a number of these challenges previously including some of the things that should be considered when designing and building a blockchain system, and developing a “blockchain health-check” which should be run when creating, investing, using or regulating a blockchain application which is meant for use in “real-world” applications. For those interested in a bit more blockchain reading, this health-check is available here.

How will the standards affect the application of law and regulation to blockchain?

The Roadmap explores the relationship between blockchain standards and the law. Importantly, the Roadmap acknowledges that standards would not replace regulation but instead, would support it. This is an important point for market participants, lawyers, regulators, engineers and data scientists alike – a sound legal, regulatory and contractual framework is critical to the success of blockchain technologies. The Bank for International Settlements (BIS), in its recently published analytical framework (available here), recognises this and emphasise that a blockchain system’s legal basis (which includes the rules, procedures and contracts and general laws and regulations) must be clearly established, sound and enforceable, particularly if the system is to operate across jurisdictions. We think that strong technical standards, and a strong legal and regulatory framework, are needed to fuel innovation and growth in blockchain-related industries.

Technical standards can assist regulation and the law by providing a common benchmark which regulations, laws and contracts can refer to in setting out rights and obligations.  This is likely to be a very important function to be performed in the context of blockchain.  However, standards are not designed to replace the law, even in technically demanding areas.  This is because the complexity of many legal issues requires more than technical precision for their resolution.  An example of this, which is drawn out in the Roadmap, is in respect of “smart contracts” (an explainer is found here).  The Roadmap notes this as an example of challenges and inconsistencies in the use of terms and definitions used in connection with blockchain.  The Roadmap highlights that “code-only” smart contracts are not equivalent to legal contracts.  Similarly, BIS says that a smart contract will often not be a “contract” in the legal sense.

In our view, this potential difference can result in the adoption of “code only” solutions which inadvertently fail to manage fundamental threats or miss some protections which would be present in a well-drafted legal contract and the surrounding legal framework. BIS notes that self-executing applications may create new challenges and potentially unforeseen risks for the financial ecosystem; for example, malicious or faulty code could undermine data integrity and simultaneous automatic execution of “smart contracts” could cause adverse and unpredictable behavioural patterns. Accordingly, the creation of technical standards which clarify concepts such smart contracts should assist the application of law and regulation to blockchain applications, and, as the Roadmap states, standards for smart contracts may have a role in ensuring that a blockchain application is compatible with the law.

For further information on the need for effective smart contract architecture to blend “digital” terms which are automated through a software programme, with “analogue” strands of human input and discretion, please click here for our “DnA” white paper.

Is this all just standard?

No. The development of international blockchain standards is far from standard, and is an exciting step towards the use of blockchain technology in commercial settings. As we transition from brainstorm to pilot, collaboration, communication and standardisation is essential to grow industry, consumer and market confidence and allow this exciting technology to realise its full potential.

This Roadmap is just the start.

King & Wood Mallesons has contributed to Standard Australia’s work in blockchain. Scott Farrell is a member of the Australian Government’s FinTech Advisory Group but this communication should not be taken to be connected with that role.

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