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Blockchains: Regulating the Unknown

  • Michèle Finck


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.

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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.

2 Amy Cortese, Blockchain Technology Ushers in “The Internet of Value”, Cisco (Feb. 10, 2016),

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.

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.

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

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).

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), [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).

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

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

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

11 See generally Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System,

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

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

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

15 See The Trust Machine: The Promise of the Blockchain, The Economist (Oct. 31, 2015)

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

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), See also Werbach, Trust but Verify, supra note 13.

18 For example, see Implement Your First IoT and Blockchain Project, IBM, (last visited May 14, 2018).

19 See Song, Jimmy, Bitcoin Cash: What You Need to Know, Medium (July 24, 2017),

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

21 See Ray, James, A Next-Generation Smart Contract and Decentralized Application Platform, Github (May 8, 2018),

22 See Popper, Nathaniel, S.E.C. Issues Warning on Initial Coin Offerings, NY Times (July 25, 2017),

23 See Higgins, Stan, Singapore Central Bank: Token Sales May Be Subject to Securities Laws, CoinDesk (Aug. 1, 2017)

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

25 No blockchain has been hacked to date.

26 See Brown, Richard G., Introducing R3 Corda: A Distributed Ledger Designed for Financial Services, R3 (Apr. 5, 2016),

27 For an overview of this blockchain, see

28 This function is fulfilled by online oracles.

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

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

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

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

33 Bitnation, (last visited May 14, 2018).

34 Matt Hancock & Ed Vaizey, Distributed Ledger Technology: Beyond Block Chain, Gov't Off. for Sci. 5 (Jan. 19, 2016),

35 Id. at 14.

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

37 IBS Testing of BC for Mahindra Group.

38 See BitPesa, (last visited May 14, 2018).

39 See id.; Bitspark, (last visited May 14, 2018).

40 See Everledger, (last visited May 14, 2018).

41 See Provenance, (last visited May 14, 2018).

43 See Implement Your First IoT and Blockchain Project, IBM, (last visited May 9, 2018).

44 Brave, (last visited May 14, 2018).

45 See Shin, Laura, Republic of Georgia To Pilot Land Titling on Blockchain With Economist Hernando De Soto, BitFury, Forbes (Apr. 21, 2016),

46 See also Security and Safety, e-Estonia, (last visited May 14, 2018).

47 On the sharing economy, see further Handbook.

48 See OpenBazaar, (last visited May 14, 2018).

49 See City, Arcade, (last visited May 14, 2018); La'Zooz, (last visited May 14, 2018).

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

51 See lyke Aru, Blackchain Voting May Lead to Liquid Democracy Globally in 20 Years, Cointelegraph (Apr. 6, 2017),

52 Ascribe, (last visited May 14, 2018).

53 See Mycelia, (last visited May 14, 2018).

54 See Wallach, D.A., Bitcoin for Rockstars: How Cryptocurrency Can Revolutionize the Music Industry, Wired (Dec. 10, 2014),

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),

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

57 Luke Parker, European Commission “Actively Monitoring” Blockchain Developments, Brave New Coin (Feb. 17, 2017),

58 See Tian, Chuan, European Commission Hosts Blockchain Summit with Industry Focus, CoinDesk (July 18, 2017)

59 These strategies are introduced below.

60 See Greenberg, Andy, Silk Road Creator Ross Ulbricht Loses Life Sentence Appeal, Wired (May 31, 2017),

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),

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

63 See Investor Bulletin: Initial Coin Offerings, SEc (last visited May 14, 2018).

64 See C-434/15 Asociación Profesional Elite Taxi v. Uber Systems Spain (Dec. 20, 2017),

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

66 See generally Regulatory Sandbox, Authority, Financial Conduct, (Feb. 14, 2018), (last visited May 14, 2018).

67 Id.

68 See FINMA Reduces Obstacles to FinTech, FINMA (Mar. 17, 2016),

69 FinTech Regulatory Sandbox, Monetary Authority of Singapore, (last visited May 11, 2018).

70 See The Canadian Securities Administrators Launches a Regulatory Sandbox Initiative, Canadian Securities Administrators (Feb. 23, 2017),,%202017%20CSA%20RegSandbox-press%20release-Final.pdf.

71 See Higgins, Stan, Australian Finance Regulator Unveils Blockchain Research Effort, CoinDesk (Mar. 17, 2017),

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

73 See Higgins, Stan, Arizona Governor Signs Blockchain Bill into Law, CoinDesk (Mar. 31, 2017),

74 See Russia is Creating a Regulatory Framework to Legalize ICOs, Altcoin Today (July 20, 2017),

75 See Higgins, Stan, Vermont is Close to Passing a Law That Would Make Blockchain Records Admissible in Court, CoinDesk (May 17, 2016),

76 See Ngo, Diana, France Issues New Ruling for Mini-Bonds Trading on Blockchain Platforms, BTCMANAGER (May 12, 2016),

77 Stan Higgins, Delaware Introduces Bill to Legally Recognize Blockchain Stocks, CoinDesk (May 9, 2017),

78 See N.Y. Comp. Codes R. & Regs. tit. 23 § 200.1 et seq.,

79 See Michael del Castillo, Bitcoin Exchange Coinbase Receives New York BitLicense, CoinDesk (Jan. 17, 2017),

80 See Perez, Yessi Bello, The Real Cost of Applying for a New York BitLicense, CoinDesk (Aug. 13, 2015),

81 Elec. Frontier Foundation, Opinion Letter (Aug. 11, 2016),

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

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

84 See Gertrude Chavez-Dreyfuss, Ukraine Launches Big Blockchain Deal with Tech Firm Bitfury, Reuters (Apr. 13, 2017),

85 See Keane, Jonathan, Sweden Moves to Next Stage with Blockchain Land Registry, CoinDesk (Mar. 30, 2017),

86 See Marshall, Jonathon, Estonia Prescribes Blockchain for Healthcare Data Security, PWC Blogs (Mar. 16, 2017),

88 See Lohade, Nikhil, Dubai Aims to be a City Built on Blockchain, Wall St. J. (Apr. 24, 2017), See also Global Blockchain Council, Foundation, Dubai Future, (last visited May 11, 2018).

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”].

90 See Barlow, John Perry, A Declaration of the Independence of Cyberspace, Elec. Frontier Found. (Feb. 8, 1996),

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

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

93 See Team, Uber, Insurance Aligned, Uber (Mar. 24, 2015), (describing the TNC Insurance Compromise Model Bill).

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

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

96 Holly Powley & Keith Stanton, The Future of Banking Regulation, Univ. of Bristol L. Sch. Blog (Apr. 24, 2017),

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).

98 See Henley, Jon, Uber to Shut Down Denmark Operation Over New Taxi Laws, Guardian (Mar. 28, 2017),

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

100 See Keane, Jonathan, The State of ICO Regulation? New Report Outlines Legal Status in 6 Nations, CoinDesk (July 13, 2017),

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

102 See Id.

103 See Id.

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

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).

106 It is worth noting that this is also the rationale behind blockchain-based prediction markets such as Augur. See Augur,

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.

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).

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

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).

111 See Maupin, Julie, Mapping the Global Legal Landscape of Blockchain and other Distributed Ledger Technologies, (SSRN Working Paper, 2017), [hereinafter “Maupin, Mapping the Global Legal Landscape of Blockchain”].

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.

113 See ICANN, (last visited May 13, 2018).

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

115 See Namecoin, (last visited May 14, 2018).

116 See Ward, Mike, Change is Coming: How the Blockchain Will Transform the Domain Name Business, Cointelegraph (Apr. 23, 2015),

117 See Peter van Valkenburg, The ULC's Model Act for Digital Currency Businesses Has Passed, Coin Center (July 19, 2017),

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

* Michèle Finck is a Senior Research Fellow at the Max Planck Institute for Innovation and Competition and a Lecturer in EU Law at Keble College, University of Oxford. This article accounts for developments up until summer 2017.

Blockchains: Regulating the Unknown

  • Michèle Finck


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