In the digital age in which we live, it seems that innovation is constantly racing ahead of regulation. When this happens, companies can often times get in trouble, because their innovation can cause unexpected side effects… and sometimes even benefits, which are not being monitored or regulated by the ‘appropriate’ authority. This is because innovation is a new way of doing things, and oftentimes, regulations are not up to date.

This is particularly true in the FinTech (Financial Technology) Industry. Especially with the rise of the likes of blockchains and cryptocurrencies, and the rise of a constant stream of new and innovative ideas relating to handling finances in a digital way, often times flowing right around & right through the current financial regulations of some countries.

Another problem innovative companies can sometimes have is the Public’s perception based on previous companies’ failures, who were in the same field. For example, DinarDirham has in the past been confused with eGold, a pre-blockchain fintech company which helped pioneer the idea of digital gold. eGold suffered from lack of transparency, among other things, and had a tragic perceived ending (though it did have a resurgence later). Their pioneering has helped us move forward with our success, but their failures have given a false perception to much of the public about any company dealing in digital gold. We’ve written about this dichotomy in this article.

Of course these are not the only struggles which Fintech companies and other innovative startups can face. Emulation by copyright infringement can also plague such companies. Not only can this steal customers and internet ratings, but it can also damage the good name of the company which is being emulated, particularly if the emulating company is involved in illegal activities and is caught up in a legal case.

A Couple Great Examples:
One great example of when innovation races ahead of regulations is the company called Uber. Uber (operational in 57 countries) is a mobile application which allows people to quickly find and/or order a registered Uber driver to get them to their destination. It can oftentimes be cheaper and faster than a traditional taxi. The application has opened new jobs for drivers, opened a wider market for those looking for a ride, and has created more competition for the taxi industry. On the other hand, it’s a disruptive innovation, which is also not a highly regulated company, which means that: A. there’s potentially slightly more risk for a person using Uber than using a conventional and government regulated taxi service (just be smart when traveling), and B. it’s upsetting the regulatory branches of many countries’ governments.

Here’s a few examples of what Uber has gone through by different countries’ governments.

According to blogs.loc.gov, as a result of lawsuits, Uber has been banned from France, Germany, Belgium, and Spain [among other countries and cities]. Uber has filed complaints with the European Union concerning these banishments, claiming that they violate certain articles of the European Union. Uber also has an alarming number of lawsuits within the US. The article continues to say that:

quote-regulation-01-1Investopedia.com expands this insight even further:

quote-regulation-02-1
Investopedia continues to say that governments could argue that all of the ride payment is revenue for Uber, and therefore subject to city and state taxes. Various governments have already complained that Uber passes it’s tax liabilities onto it’s drivers, who in turn often do not pay taxes from the ride fare. Uber could be forced to rise it’s prices or perhaps be banned again from various cities. Investopedia ends it’s article with the “Bottom Line”

quote-regulation-03-1
It should be noted that Uber used to only be an application for professional drivers to find extra work. It has since expanded it’s service to include everyday non-professional drivers, which may account for the fact that many of the lawsuits in place are not only from governments, but also from passengers, as well as from the drivers themselves.

*So it’s currently a toss up. On one hand, Uber is fighting to keep it’s status as a technology provider to connect drivers and passengers. The innovation provides certain benefits which were not available before, however, without some kind of governance or regulations, there is inherently new risks… and complaints for all. On the other hand, with a different model with more governance and regulations, those new risks and complaints could be significantly lowered, but the benefits of the service, and revenues of the company, could also be significantly lowered.

Another top innovation of our time who has also been under tremendous legal attacks and the subject of much debate around the world is Bitcoin (BTC). Bitcoin is widely known for being the first decentralized cryptocurrency. Decentralized, because in order to make the digital currency work as planned, the concept of the blockchain was created and implemented as an integral part of Bitcoin. A blockchain is a decentralized public ledger, essentially keeping and storing information publically, offering a high degree of assured transparency and trust. BTC is a digital currency, which allows people to make peer-to-peer online transfers without the need of a middle man, such as a bank. The advent of Bitcoin and the blockchain have sparked a flame of innovation not only in the Fintech industry, but across the board, as blockchains have a wide range of potential uses.

According to newsbtc.com, governments have conflicting thoughts concerning cryptocurrencies such as Bitcoin:quote-regulation-04-2
So ya, Bitcoin is in for a long ride. In an article entitled: “Top 10 Countries In Which Bitcoin Is Banned” by cryptocoinsnews.com [we highly recommend reading the whole article], Bitcoin has been banned [more or less] in: Bangladesh, Bolivia, China, Ecuador, Iceland, India, Russia, Sweden, Thailand, and Vietnam. With the central bank of Bolivia stating: It is illegal to use any currency that is not issued and controlled by a government or an authorized entity.” Ouch.

The legalities of Bitcoin vary by country. And regulatory actions are both fought for and against by various parties. On one hand, people like the idea of leaving a third party out of the picture… on the other hand, the third parties here – in general – really don’t like being left out of the picture, and they control the stage for the most part. One can argue that decentralization leaves room for crimes to be more easily committed, which is true, but one could also argue that centralization leaves room for bigger crimes to be committed in more subtle ways, and by different actors.

It should be noted that many countries’ governments are hopeful of the potential of Bitcoin, and have taken steps to implement the innovation. Many banks and companies in the private sector are also adapting the digital currency.

Take a look at the following articles to get a better grip on Bitcoin’s struggles around the world.

Top 10 Countries Banning Bitcoin:
https://www.cryptocoinsnews.com/top-10-countries-bitcoin-banned/

List of Bitcoin Hostile And Friendly Banks:
https://bitcointalk.org/index.php?topic=264679.0

5 Biggest Threats To Bitcoin:
http://www.coindesk.com/five-biggest-threats-facing-bitcoin/

Legality Of Bitcoin By Country:
https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country

One more great company to look at is Tesla. An article by economist.com states:
quote-regulation-05-1This at first sounds upsetting, and perhaps it should be. In this case, it seems to be individual State’s laws in the USA regulating manufacturer-owned retail stores. In an article by autonews.com, they state that:

quote-regulation-06-1In a chart in the above article, it is revealed that Tesla storefronts in the following States are banned, with displays and/or test drives allowed in some cases: Arizona, Texas, Iowa, Michigan, and West Virginia. The following States have challenged Tesla storefronts in court by legislation or regulation: Minnesota, Missouri, Ohio, North Carolina, and Massachusetts. Clearly, even this innovative car manufacturer is battling with regulations simply to sell their own products. This article by Forbes expands the list of where Tesla’s direct sales have been blocked, and explains that auto dealerships are upset at being left out of the process. They also explain who has the most political power up their sleeve. According to an article by electrek.co, written last year in March of 2016, Tesla was ready to bring their case before Federal Court, rather than the State by State battles they have been fighting for years. All the best to Tesla.

In Closing:
Innovative startups and industry disrupters are bound to face legal challenges. Sometimes this is because the new freedoms and benefits they create are more easily abused in an unregulated environment. Sometimes it’s because a company may get greedy and not take the necessary legal steps that it should. Sometimes it’s because other entities get greedy or feel threatened and decide to fight it for their own interests. And sometimes it’s because the company legitimately needs such regulations in place.


Resources:

http://www.investopedia.com/terms/f/fintech.asp

https://dinardirham.com/blog/dinardirham-vs-e-gold-on-gold-backed-digital-currencies/

https://www.uber.com/

http://www.christenseninstitute.org/key-concepts/disruptive-innovation-2/

https://blogs.loc.gov/law/2016/03/legal-challenges-for-uber-in-the-european-union-and-in-germany/

http://www.investopedia.com/articles/investing/072215/4-challenges-uber-will-face-next-years.asp

https://www.bitcoin.com/

http://www.newsbtc.com/2016/10/08/government-of-poland-debates-on-bitcoin-regulations-with-the-community/

https://www.cryptocoinsnews.com/top-10-countries-bitcoin-banned/

https://bitcointalk.org/index.php?topic=264679.0

http://www.coindesk.com/five-biggest-threats-facing-bitcoin/

https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country

http://www.economist.com/news/business/21650142-striking-number-innovative-companies-have-business-models-flout-law-shredding

http://www.autonews.com/article/20140301/RETAIL/140229855/teslas-state-by-state-battle-with-dealers

http://www.forbes.com/sites/jeffreydorfman/2014/03/22/free-markets-tesla-battles-car-dealers-over-right-to-sell-cars/#53f713140049
https://electrek.co/2016/03/28/tesla-direct-sales-federal-court/

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