In an article entitled "Blockchains and Cybercurrencies Demanding a New Legislative Framework published earlier this week in the journal Law and Digital Economy", Stephan Breu poses crucial questions about how lawmakers will have to think about regulating the system economic decentralized technologies like the distributed ledger.
Breu offers that blockchain operates "completely independent of the physical location of the legal entities involved", which creates a unique situation for governments whose jurisdiction is traditionally regarded as centered within and beyond their borders. Breu mentions the all too real example of a transaction between two entities in separate countries using data stored in a third party.
The question here comes down to which jurisdiction undergoes the transaction? Breu contrasts two competing regulatory approaches that are emerging self-regulation in the style of Switzerland and the top-down regulation of the government in the style of Gibraltar.
Breu indicates Switzerland as an example of self-regulation, in which the Swiss crypt valley Association (CVA) published a code of conduct for ICO. The code includes, among other things, a requirement for corporate transparency, the avoidance of discrimination and mutual respect for property rights.
In contrast to this model, Breu describes the regulatory framework of the Distributed Ledger Commission technology of the Gibraltar Financial Services Commission, one of the first legal frameworks developed at the state level created to regulate the blockchain. This framework has similar objectives to the CVA agreement, but is more geared towards consumer protection.
One of the questions implicit in the document is what these legal structures truly correspond to, given the very nature of the blockchain described. Both the CVA and the Gibraltar nation can only impose restrictions on their guidelines, especially given the international and private nature of blockchain companies. The most severe restriction that the CVA can impose is an expulsion from the private group of copmanies, and Gibraltar can only impose a "soft regulation", operating as a local gatekeeper on what is really a transnational technology.
Breu mentions that in fact "it is very difficult to establish a more difficult regime as understood in the traditional regulation of markets, especially because the concept of legal entities is almost impossible to maintain with blockchain applications."
Breu offers that this it will be a growing problem for the authorities as blockchain technology expands from financial transactions to services such as licensing, archiving of medical and legal data, and other areas where governments can traditionally exercise control as access brokers.
With this in mind, Breu argues that authorities need to be proactive in building models that allow both industry and regulators to access data as much as possible, they need to build international legal models that allow for flexibility and international cooperation to implement sanctions and limits, and will ultimately have to support in a crucial way and allow self-regulation of the sector.