Skip to main content Accessibility help
×
Home
Hostname: page-component-55597f9d44-mm7gn Total loading time: 0.945 Render date: 2022-08-17T18:02:08.442Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "useNewApi": true } hasContentIssue true

Blockchains: Regulating the Unknown

Published online by Cambridge University Press:  06 March 2019

Abstract

HTML view is not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

This Article, which takes into account developments up until summer 2017, evaluates the early days of regulatory engagement with blockchain technology. My analysis unfolds in three parts. First, I provide a cursory overview of the technology itself to highlight considerable uncertainties concerning its future. Regulators asked to engage with distributed ledgers are thus compelled to regulate the unknown. Second, I will introduce a typology of regulatory strategies adopted to date and highlight their respective advantages and shortcomings. Third, I will outline a number of guiding principles regulators should follow in respect of blockchain technology. I will make the argument that despite the technology's uncertain future, early regulatory engagement is warranted as a young technology is a malleable technology. As technology develops, law has to adapt. As a consequence, I put forward a number of regulatory techniques, including a process of polycentric co-regulation that relies on the regulatory potential of (blockchain) software and the adoption of a so-called “28th regime” at the EU level which may help navigate the uncertainties of blockchain development and regulation.

Type
Law & the new Economy
Copyright
Copyright © 2018 by German Law Journal, Inc. 

References

1 Blockchain technology is sometimes also referred to as Distributed Ledger Technology or Shared Ledger Technology. While these notions remain in flux and some consider them to designate different forms of technology, I will refer to them interchangeably for the sake of simplicity.Google Scholar

2 Amy Cortese, Blockchain Technology Ushers in “The Internet of Value”, Cisco (Feb. 10, 2016), https://newsroom.cisco.com/feature-content?articleId=1741667.Google Scholar

3 More generally, this is true of a large majority of start-ups, which does not, however, have to be seen as a negative score given that even unsuccessful start-ups give rise to a healthy ecosystem and train talent that can ultimately join or launch successful projects.Google Scholar

4 Where not otherwise specified, the term regulators is used generically to refer to any lawmakers and regulators across jurisdictions, whether they operate a transnational, supranational, national, or subnational level.Google Scholar

5 For a more detailed account, see Michèle Finck, Blockchain Regulation and Governance in Europe (forthcoming, Cambridge University Press 2018).Google Scholar

6 A much more detailed engagement with these themes is provided in Michèle Finck, Blockchain Regulation and Governance in Europe (forthcoming, Cambridge University Press 2018).Google Scholar

7 For instance, it remains unsettled whether a blockchain is the same as a distributed ledger. On this, see further Angela Walch, The Path of the Blockchain Lexicon (and the Law), 36 Rev. of Banking and Fin. L. (forthcoming), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2940335 [hereafter “Walch, The Path of the Blockchain Lexicon”] (noting that a lack of settled terminology burdens discussions between regulators and industry as well as between jurisdictions).Google Scholar

8 Aaron Wright & Primavera De Filippi, Decentralized Blockchain Technology and the Rise of Lex Cryptographia, 1, 2 (2015) [hereafter “De Filippi & Wright, Lex Cryptographia”].Google Scholar

9 See Walch, The Path of the Blockchain Lexicon, supra note 7, at 16.Google Scholar

10 Consensus remains an unstable and evolving characteristic of blockchains with various blockchains relying on divergent mechanisms that each have advantages and disadvantages.Google Scholar

11 See generally Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System, https://bitcoin.org/bitcoin.pdf.Google Scholar

12 For an overview of early applications of the technology, see infra Section I. below.Google Scholar

13 Kevin Werbach, Trust but Verify: Why the Blockchain Needs the Law, Berkeley Tech. L.J. 1, 4 (forthcoming 2018).Google Scholar

14 William Mougayar, The Business Blockchain xxiv (Wiley ed., 2016).Google Scholar

15 See The Trust Machine: The Promise of the Blockchain, The Economist (Oct. 31, 2015) https://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how-economy-works-trust-machine.Google Scholar

16 Werbach, Kevin D., Trustless Trust 5 (2016).Google Scholar

17 For the origins of the expression, see Hoffman, Reid, The Future of the Bitcoin Ecosystem and “Trustless Trust”—Why I Invested in Blockstream, LinkedIn (Nov. 17, 2014), https://www.linkedin.com/pulse/20141117154558-1213-the-future-of-the-bitcoin-ecosystem-and-trustless-trust-why-i-invested-in-blockstream. See also Werbach, Trust but Verify, supra note 13.Google Scholar

18 For example, see Implement Your First IoT and Blockchain Project, IBM, https://www.ibm.com/internet-of-things/platform/private-blockchain/ (last visited May 14, 2018).Google Scholar

19 See Song, Jimmy, Bitcoin Cash: What You Need to Know, Medium (July 24, 2017), https://medium.com/@jimmysong/bitcoin-cash-what-you-need-to-know-c25df28995cf.Google Scholar

20 Susan Athey, 5 Ways Digital Currency Will Change the World, World Econ. Forum Agenda (Jan. 22, 2015).Google Scholar

21 See Ray, James, A Next-Generation Smart Contract and Decentralized Application Platform, Github (May 8, 2018), https://github.com/ethereum/wiki/wiki/White-Paper.Google Scholar

22 See Popper, Nathaniel, S.E.C. Issues Warning on Initial Coin Offerings, NY Times (July 25, 2017), https://www.nytimes.com/2017/07/25/business/sec-issues-warning-on-initial-coin-offerings.html.Google Scholar

23 See Higgins, Stan, Singapore Central Bank: Token Sales May Be Subject to Securities Laws, CoinDesk (Aug. 1, 2017) https://www.coindesk.com/singapore-central-bank-token-sales-may-be-subject-to-securities-laws/.Google Scholar

24 Note, however, this distinction between full and lightweight nodes.Google Scholar

25 No blockchain has been hacked to date.Google Scholar

26 See Brown, Richard G., Introducing R3 Corda: A Distributed Ledger Designed for Financial Services, R3 (Apr. 5, 2016), http://www.r3cev.com/blog/2016/4/4/introducing-r3-corda-a-distributed-ledger-designed-for-financial-services.Google Scholar

27 For an overview of this blockchain, see https://www.ethereum.org/.Google Scholar

28 This function is fulfilled by online oracles.Google Scholar

29 See Werbach, Kevin & Cornell, Nicolas, Contracts Ex Machina, Duke L.J. (forthcoming).Google Scholar

30 De Filippi &Wright, Lex Cryptographia, supra note 8, at 27.Google Scholar

31 Current examples include Storj, La'Zooz, and OpenBazaar.Google Scholar

32 De Filippi &Wright, Lex Cryptographia, supra note 8, at 39.Google Scholar

33 Bitnation, https://bitnation.co/main/ (last visited May 14, 2018).Google Scholar

34 Matt Hancock & Ed Vaizey, Distributed Ledger Technology: Beyond Block Chain, Gov't Off. for Sci. 5 (Jan. 19, 2016), https://www.gov.uk/government/news/distributed-ledger-technology-beyond-blockchain.Google Scholar

35 Id. at 14.Google Scholar

36 Eur. Parl. Res. (2016/2007(INI)) art. 1 (2016).Google Scholar

37 IBS Testing of BC for Mahindra Group.Google Scholar

38 See BitPesa, https://www.bitpesa.co/ (last visited May 14, 2018).Google Scholar

39 See id.; Bitspark, https://bitspark.io/ (last visited May 14, 2018).Google Scholar

40 See Everledger, https://www.everledger.io/ (last visited May 14, 2018).Google Scholar

41 See Provenance, https://www.provenance.org/ (last visited May 14, 2018).Google Scholar

43 See Implement Your First IoT and Blockchain Project, IBM, https://www.ibm.com/internet-of-things/platform/private-blockchain/ (last visited May 9, 2018).Google Scholar

44 Brave, https://brave.com/about.html (last visited May 14, 2018).Google Scholar

45 See Shin, Laura, Republic of Georgia To Pilot Land Titling on Blockchain With Economist Hernando De Soto, BitFury, Forbes (Apr. 21, 2016), www.forbes.com/sites/laurashin/2016/04/21/republic-of-georgia-to-pilot-land-titling-on-blockchain-with-economist-hernando-de-soto-bitfury/#2421bdfe6550.Google Scholar

46 See also Security and Safety, e-Estonia, https://e-estonia.com/solutions/security-and-safety/ksi-blockchain/ (last visited May 14, 2018).Google Scholar

47 On the sharing economy, see further Handbook.Google Scholar

48 See OpenBazaar, https://www.openbazaar.org/ (last visited May 14, 2018).Google Scholar

49 See City, Arcade, https://arcade.city/ (last visited May 14, 2018); La'Zooz, http://lazooz.org/ (last visited May 14, 2018).Google Scholar

50 Hancock & Vaizey, supra note 34, at 65.Google Scholar

51 See lyke Aru, Blackchain Voting May Lead to Liquid Democracy Globally in 20 Years, Cointelegraph (Apr. 6, 2017), https://cointelegraph.com/news/blockchain-voting-may-lead-to-liquid-democracy-globally-in-20-years.Google Scholar

52 Ascribe, https://www.ascribe.io/ (last visited May 14, 2018).Google Scholar

53 See Mycelia, http://myceliaformusic.org/ (last visited May 14, 2018).Google Scholar

54 See Wallach, D.A., Bitcoin for Rockstars: How Cryptocurrency Can Revolutionize the Music Industry, Wired (Dec. 10, 2014), https://www.wired.com/2014/12/bitcoin-for-rockstars/.Google Scholar

55 Another indication of the speed with which this domain evolves is the increasing number of patents filed in relation to blockchain technology, including by established institutional actors. See Zhao, Wolfie, Bank of America Files for 3 New Blockchain Patents, CoinDesk (Aug. 1, 2017), https://www.coindesk.com/bank-america-files-3-new-blockchain-patents/.Google Scholar

56 See A European Agenda for the Collaborative Economy, COM (2016) 356 final (June 2, 2016).Google Scholar

57 Luke Parker, European Commission “Actively Monitoring” Blockchain Developments, Brave New Coin (Feb. 17, 2017), https://bravenewcoin.com/news/european-commission-actively-monitoring-blockchain-developments/.Google Scholar

58 See Tian, Chuan, European Commission Hosts Blockchain Summit with Industry Focus, CoinDesk (July 18, 2017) http://www.coindesk.com/european-commission-hosts-blockchain-workshop-industry-focus/.Google Scholar

59 These strategies are introduced below.Google Scholar

60 See Greenberg, Andy, Silk Road Creator Ross Ulbricht Loses Life Sentence Appeal, Wired (May 31, 2017), https://www.wired.com/2017/05/silk-road-creator-ross-ulbricht-loses-life-sentence-appeal/.Google Scholar

61 See IRS Virtual Currency Guidance: Virtual Currency is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply, IRS (Mar. 25, 2014), https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance.Google Scholar

62 An ICO is a means to raise capital for a new cryptocurrency venture.Google Scholar

63 See Investor Bulletin: Initial Coin Offerings, SEchttps://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings (last visited May 14, 2018).Google Scholar

64 See C-434/15 Asociación Profesional Elite Taxi v. Uber Systems Spain (Dec. 20, 2017), http://curia.europa.eu/.Google Scholar

65 The terminology is a play on the term development sandbox that denotes a safe environment for developers to work on software.Google Scholar

66 See generally Regulatory Sandbox, Authority, Financial Conduct, (Feb. 14, 2018), https://www.fca.org.uk/firms/regulatory-sandbox (last visited May 14, 2018).Google Scholar

68 See FINMA Reduces Obstacles to FinTech, FINMA (Mar. 17, 2016), https://www.finma.ch/en/news/2016/03/20160317-mm-fintech/.Google Scholar

69 FinTech Regulatory Sandbox, Monetary Authority of Singapore, http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/FinTech-Regulatory-Sandbox.aspx (last visited May 11, 2018).Google Scholar

70 See The Canadian Securities Administrators Launches a Regulatory Sandbox Initiative, Canadian Securities Administrators (Feb. 23, 2017), https://nssc.novascotia.ca/sites/default/files/docs/Feb.%2023,%202017%20CSA%20RegSandbox-press%20release-Final.pdf.Google Scholar

71 See Higgins, Stan, Australian Finance Regulator Unveils Blockchain Research Effort, CoinDesk (Mar. 17, 2017), https://www.coindesk.com/australian-finance-regulator-launches-blockchain-research-effort/.Google Scholar

72 See also Walch, The Path of the Blockchain Lexicon, supra note 7.Google Scholar

73 See Higgins, Stan, Arizona Governor Signs Blockchain Bill into Law, CoinDesk (Mar. 31, 2017), https://www.coindesk.com/arizona-governor-signs-blockchain-bill-law/.Google Scholar

74 See Russia is Creating a Regulatory Framework to Legalize ICOs, Altcoin Today (July 20, 2017), http://www.altcointoday.com/russia-legalize-icos/.Google Scholar

75 See Higgins, Stan, Vermont is Close to Passing a Law That Would Make Blockchain Records Admissible in Court, CoinDesk (May 17, 2016), http://www.coindesk.com/vermont-blockchain-timestamps-approval/.Google Scholar

76 See Ngo, Diana, France Issues New Ruling for Mini-Bonds Trading on Blockchain Platforms, BTCMANAGER (May 12, 2016), https://btcmanager.com/france-issues-new-ruling-for-mini-bonds-trading-on-blockchain-platforms/.Google Scholar

77 Stan Higgins, Delaware Introduces Bill to Legally Recognize Blockchain Stocks, CoinDesk (May 9, 2017), http://www.coindesk.com/delaware-introduces-bill-legally-recognize-blockchain-stocks/.Google Scholar

78 See N.Y. Comp. Codes R. & Regs. tit. 23 § 200.1 et seq., http://www.dfs.ny.gov/legal/regulations/adoptions/dfsp200t.pdf.Google Scholar

79 See Michael del Castillo, Bitcoin Exchange Coinbase Receives New York BitLicense, CoinDesk (Jan. 17, 2017), http://www.coindesk.com/bitcoin-exchange-coinbase-receives-bitlicense/.Google Scholar

80 See Perez, Yessi Bello, The Real Cost of Applying for a New York BitLicense, CoinDesk (Aug. 13, 2015), http://www.coindesk.com/real-cost-applying-new-york-bitlicense.Google Scholar

82 See Moses, Lyria Bennett, Agents of Change: How the Law “Copes” with Technological Change, 20 Griffith L. Rev. 763 (2011).Google Scholar

83 See Environmental Management, ISO, ISO/TC 207 (last visited May 15, 2018).Google Scholar

84 See Gertrude Chavez-Dreyfuss, Ukraine Launches Big Blockchain Deal with Tech Firm Bitfury, Reuters (Apr. 13, 2017), https://www.reuters.com/article/us-ukraine-bitfury-blockchain-idUSKBN17F0N2.Google Scholar

85 See Keane, Jonathan, Sweden Moves to Next Stage with Blockchain Land Registry, CoinDesk (Mar. 30, 2017), https://www.coindesk.com/sweden-moves-next-stage-blockchain-land-registry/.Google Scholar

86 See Marshall, Jonathon, Estonia Prescribes Blockchain for Healthcare Data Security, PWC Blogs (Mar. 16, 2017), http://pwc.blogs.com/health_matters/2017/03/estonia-prescribes-blockchain-for-healthcare-data-security.html.Google Scholar

88 See Lohade, Nikhil, Dubai Aims to be a City Built on Blockchain, Wall St. J. (Apr. 24, 2017), https://www.wsj.com/articles/dubai-aims-to-be-a-city-built-on-blockchain-1493086080. See also Global Blockchain Council, Foundation, Dubai Future, http://www.dubaifuture.gov.ae/our-initiatives/global-blockchain-council/ (last visited May 11, 2018).Google Scholar

89 See Werbach, Kevin, The Song Remains the Same: What Cyberlaw Might Teach the Next Internet Economy, Fla. L. Rev. 1 (forthcoming, 2018) [hereinafter “Werbach, The Song Remains the Same”].Google Scholar

90 See Barlow, John Perry, A Declaration of the Independence of Cyberspace, Elec. Frontier Found. (Feb. 8, 1996), https://www.eff.org/cyberspace-independence.Google Scholar

91 See Werbach, The Song Remains the Same, supra note 89, at 63.Google Scholar

92 See Michèle Finck & Sofia Ranchordas, Sharing and the City, 49 Vand. J. of Transnat'l L. 1299 (2016).Google Scholar

93 See Team, Uber, Insurance Aligned, Uber (Mar. 24, 2015), https://newsroom.uber.com/introducing-the-tnc-insurance-compromise-model-bill/ (describing the TNC Insurance Compromise Model Bill).Google Scholar

94 Werbach, The Song Remains the Same, supra note 89, at 1.Google Scholar

95 See also Gabinson, Garry A., Policy Considerations for the Blockchain Public and Private Applications, 19 SMU Sci. & Tech. L. Rev. 327 (2016).Google Scholar

96 Holly Powley & Keith Stanton, The Future of Banking Regulation, Univ. of Bristol L. Sch. Blog (Apr. 24, 2017), https://legalresearch.blogs.bris.ac.uk/2017/04/the-future-of-banking-regulation/.Google Scholar

97 See also Fenwick, Mark, Wulf Kaal & Erik Vermeulen, Regulation Tomorrow: What Happens When Technology is Faster Than the Law? (Univ. of St. Thomas (Minnesota) Legal Studies Lex Research Topics in Corp. L. & Econ. Working Paper No. 2016–8, 2016).Google Scholar

98 See Henley, Jon, Uber to Shut Down Denmark Operation Over New Taxi Laws, Guardian (Mar. 28, 2017), https://www.theguardian.com/technology/2017/mar/28/uber-to-shutdown-denmark-operation-over-new-taxi-laws.Google Scholar

99 See Johnson, David & Post, David, Law and Borders: The Rise of Law in Cyberspace, 48 Stanford L. Rev. 1367 (1996).Google Scholar

100 See Keane, Jonathan, The State of ICO Regulation? New Report Outlines Legal Status in 6 Nations, CoinDesk (July 13, 2017), http://www.coindesk.com/state-ico-regulation-new-report-outlines-legal-status-6-nations/.Google Scholar

101 See also Michèle Finck, Blockchain Regulation and Governance in Europe (forthcoming, Cambridge University Press 2018).Google Scholar

102 See Id. Google Scholar

103 See Id. Google Scholar

104 Christopher Marsden, Internet Co-Regulation 46 (Cambridge University Press 2011).Google Scholar

105 For a more critical take on the decentralized nature of these entities, see Walch, Angela, The Fiduciaries of Public Blockchains (working paper on file with author).Google Scholar

106 It is worth noting that this is also the rationale behind blockchain-based prediction markets such as Augur. See Augur, https://augur.net/.Google Scholar

107 See Callon, Michel, Pierre Lascoumes &;Yannick Barthe, Acting in an Uncertain World (MIT Press 2009). It is also important to stress that where such cooperation does not go as planned the regulator is always free to withdraw from such efforts and regulate in a traditional top-down manner.Google Scholar

108 For a discussion of these techniques, see Sofia Ranchordás, Innovation Experimentalism in the Age of the Sharing Economy, 19 Lewis & Clark L. Rev. 871 (2015).Google Scholar

109 See Hancock & Vaizey, supra note 34, at 11.Google Scholar

110 For an overview of this instrument, see Opinion of the European Economic and Social Committee, The 28th Regime – an Alternative Allowing Less Lawmaking at Community Level, INT /499 (2010).Google Scholar

111 See Maupin, Julie, Mapping the Global Legal Landscape of Blockchain and other Distributed Ledger Technologies, (SSRN Working Paper, 2017), https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1101957 [hereinafter “Maupin, Mapping the Global Legal Landscape of Blockchain”].Google Scholar

112 Blockchain's permanence of records can however also be considered to add a significant advantage to regulators from a detection perspective as unlike paper and online records, those on blockchain cannot be erased.Google Scholar

113 See ICANN, https://www.icann.org/ (last visited May 13, 2018).Google Scholar

114 Werbach, The Song Remains the Same, supra note 89.Google Scholar

115 See Namecoin, http://bit.namecoin.info/ (last visited May 14, 2018).Google Scholar

116 See Ward, Mike, Change is Coming: How the Blockchain Will Transform the Domain Name Business, Cointelegraph (Apr. 23, 2015), https://cointelegraph.com/news/change-is-coming-how-the-blockchain-will-transform-the-domain-name-business.Google Scholar

117 See Peter van Valkenburg, The ULC's Model Act for Digital Currency Businesses Has Passed, Coin Center (July 19, 2017), https://coincenter.org/entry/the-ulc-s-model-act-for-digital-currency-businesses-has-passed-here-s-why-its-good-for-bitcoin.Google Scholar

118 See Perez C., Technological Revolutions and Techno-Economic Paradigms (Tallinn Univ. of Tech., Tech. Gov't and Econ. Dynamics, Working Papers, 2009).Google Scholar

You have Access
19
Cited by

Save article to Kindle

To save this article to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Blockchains: Regulating the Unknown
Available formats
×

Save article to Dropbox

To save this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about saving content to Dropbox.

Blockchains: Regulating the Unknown
Available formats
×

Save article to Google Drive

To save this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about saving content to Google Drive.

Blockchains: Regulating the Unknown
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *