Blockchain technology is expected to have an impact on our daily lives that some have declared as significant as the advent of the Internet, and a new report from the C.D. Howe Institute is urging regulators and policy makers to ensure the benefits are shared by the economy as a whole.

One of the basic benefits of distributed electronic ledgers at the heart of blockchain is that they remove the need for a centralized third-party intermediary in transactions including contracts and agreements. Yet some regulation is necessary, argue Thorsten Koeppl and Jeremy Kronick, authors of the C.D. Howe paper.

Koeppl, an associate professor at Queen’s University, and Kronick, a senior policy analyst at the C.D. Howe Institute, contend that principle-based regulation should be applied, in part to ensure the technology leads to appropriate cost savings for the end user.

The alternative would be redistribution of “above normal profits” amongst the former intermediaries, they say in the paper, which notes that the principle-based methodology the authors recommend was used to create rules and regulations for the Internet in the 1990s.

“Moving forward, policymakers have to be vigilant (to ensure) that blockchains are not used to reshuffle rents at the expense of users,” the authors wrote. “One way to achieve this goal is to engage in public-private partnerships to develop new systems that are stable, solve start-up problems … and foster competition by ensuring fair access to blockchain-based systems.”

While the last point is not a problem on openly distributed or public ledgers, private ledgers are also being developed where only authorized participants have direct access.

The impact of the new technology is expected be felt most acutely in financial services, retail payments and large-value transactions, and private equity markets, the authors say. Those are industries and sectors where testing and the creation of prototypes are already under way.

“While regulation should not stifle business experimentation, it is indispensable for creating a basic legal framework and putting standards into place that offer safety and stability,” Koeppl and Kronick wrote.

They added that there are areas of high importance to the economy and financial stability where it would be advisable to have government involvement, which include critical financial market infrastructure, government databases and payment systems.

Policymakers have to be vigilant (to ensure) that blockchains are not used to reshuffle rents at the expense of users

Government could act either as a facilitator for a private or public distributed ledger, or as a direct central “node” that retains the monopoly of managing the ledger entries, the authors suggest. It will be up to policymakers to determine to what degree small private networks can provide services based on blockchains, and how governments interact with these networks.

“We do not deem it feasible to move toward a truly distributed ledger based on blockchain technology in many of these areas,” they wrote. “However, some ideas from the technology can be used to improve existing systems.”

The authors suggest that a project under way involving the Bank of Canada is a good example of how governments could work in concert with the private sector on blockchain development. The central bank is exploring the creation of an interbank settlement engine that would speed up and simplify transfers between large financial institutions.

Many companies from big banks to retailers and tech giants, including Walmart and IBM, are experimenting with blockchain technology.

A basic blockchain creates digital records, and uses cryptography and peer-to-peer networks to create and distribute an online ledger among the network’s participants. It is touted as being tamper-proof, with transactions such as online purchases, shipments and land transfers easily verified without the need for a trusted third party.

A note published by U.S. law firm Skadden Arps Slate Meagher & Flom LLP this week said 2017 is expected to be “a watershed year”’ for both blockchain development and how regulators address the technology.

According to the note, the World Economic Forum has reported that more than US$1.3 billion has been invested in blockchain over the past three years, with more than 90 companies involved in trying to develop applications for the technology.