2.1. UNDERSTANDING REGULATIONS;
2.2. THE BIRTH OF NEW REGULATIONS;
2.3. THE PURPOSE OF REGULATIONS.
‘Being caught up in a game without having a clue about the rules, may be extremely maddening and frustrating. Liberty may be so frightening and grueling, that many don’t conceal their passion for rules and regulations, since these can give a relieving feeling of security and protection’ 
2.1. UNDERSTANDING REGULATIONS
What is a regulation? Why regulate? These questions might seem easy to answer; everyone can imagine what a regulation is and why we need it. Nevertheless, the origin of regulation is more complicated than expected and before answering the main question of this research, whether self-regulation is sufficient for blockchain technology, we need to analyse the fundamental reasons why we need regulations, and from where they come.
In Steve Tombs article, ‘Understanding Regulation,’ he defines the need for regulation by stating that in its absence chaos will be sovereign. The historical record demonstrates, in fact, that the result would be the wide-scale production of death, destruction and despoliation .
As the author himself admits, this straightforward exclamation may be a bit overstated. However, regulating, suppressing and avoiding certain actions or behaviours in a particular community is typical of any society and often this stems from its own members’ decisions. The need for rules is an endogenous requirement of a community.
Indeed, the backbone of early regulations came from years of fighting, wars, and political clashes, all of which have been present since the birth of the first human community. In fact, as established by the famous Latin maxim ‘Ubi homo, ibi societas. Ubi societas, ibi jus. Ergo ubi homo, ibi jus ’, rules have been established to promote peaceful coexistence.
Additionally, as Edward W. Younkins said, ‘Whereas society is a spontaneous order, the state is a protective agent with the monopoly role of enforcing the rules of the game. Since the monopoly on coercion belongs to the government, it is imperative that this power not be misused. Under the rule of law, everyone is bound by rules, including the government’ .
Thus, it is hard to find a specific definition of what a regulation is, and there are many researchers who have tried to do so . Robert Baldwin, in his book, Understanding Regulation, has divided the types of regulation into:
– a specific set of commands – where regulation is seen as a ‘set of rules to be applied by a body devoted to this purpose;’
– deliberate state influence – where regulation is not a strict list of commands, but is rather the exercise of specific influence on business and social comportment;
– all forms of social or economic influence – where regulations influence every behaviour in a community .
Therefore, regulations are not only a set of commands, but they can be viewed as a wider spectrum of influence exercised by an era, a leader, or an idea. However, beyond the regulations in and of themselves there is another important principle, regulatory enforcement, that is to say the power with which regulations bind people or behaviour.
Nowadays, regulatory enforcement is carried out under the authority of regulatory enforcement agencies around the
world. This supervision can manifest itself in many forms: ‘non-enforcement [that] is the most frequently found
characteristic; and enforcement activity [which] tends to focus upon the smallest and weakest individuals and
organisations; and sanctions following regulatory activity are light’ .
Another form of regulation, which is often considered the strongest , is self-regulation. In fact, as the author
Braithwaite maintains, ‘State regulators won’t have the power to enforce a regulatory law as if it is something felt from inside, and not imposed from the outside.’51 Self-regulation is based on the carrot-and-stick concept. In fact, when self-regulation is unsuccessful, the next regulatory tactic is to introduce ‘enforced self-regulation’, and this presupposes that an ‘entity’ should custom-build a set of rules which will enable it to comply with law. That law will be ‘enforced’ from ‘inside’ the community, but only after ‘external’ regulators will provide for it .
There is a theory that associate regulation was born in the post-privatisation control of the utilities . However, the origin of regulation as a specific set of commands created and enforced by an authority had already been developed by the Egyptian, Indian, Greek, and Roman civilisations . In fact, in the ancient world regulation existed in the form of norms, customs, and privileges, such as standardised weights and measures for gold as an international currency, but later the enforcement of regulation was aided by the unifying Christian identity and a sense of honour regarding contracts .
Beginning in the late nineteenth century , however, the first specialist regulatory institutions were born in the UK , introducing control over several activities, such as health and employment conditions , the supply of water and gas, and the control over safety and price .
Globalisation has surely given impetus to global regulation. An example would be that in 2017 in the EU there are more than 60,000 legal acts, 44,000 court verdicts and 62,000 international standards .
Therefore, after having understood what regulation is and how it developed, now we shall turn our attention to why we regulate and thus, how governments draft new regulations.
2.2. THE BIRTH OF NEW REGULATIONS
There are several reasons why governments may regulate a particular activity or behaviour. In general, the main purpose comes down to matters regarding public safety or economic interests. The technical justification, however, remains the pursuit of public interest.
Another objective often given for regulating is avoiding ‘market failure.’ John Francis, in fact, believes that, the uncontrolled marketplace may, in some circumstances, fail to produce comportment or consequences in accordance with
the public interest and only an ‘external action’ can control it . Thus the government has no choice but to act. In the world of economics, there are other well-recognised reasons beyond that of market failure. Although several ‘regulatory activities undertaken are not correctly rationalised by market failure’ , situations where monopolies (including natural monopolies), windfall profits, information inadequacies, or anti-competitive behaviour arise, government intervention is needed. According to Prosser, the idea of setting up regulation in order to correct ‘market failure’ is not the correct approach. Regulation should be seen as ‘seeking to further social objectives, rather than as simply acting to correct market failures’ .
Thus, the aim of regulation should not be limited to regulatory laws designed to correct the market, but should rather be part of betterment and should “provide the frameworks of rights and processes that allow markets to work and to protect markets from fragmentation.’64 In some circumstances, regulation can be set early as a means to avoid market failure, and as a method of organizing social relations .
Public interest is surely the main objective behind most regulation, and to further this end there are severa approaches which can be adopted - All share a common core which explains the origin of every regulation. Indeed, there
are two different stimuli which give rise to the birth of new regulation. These are exogenous and endogenous factors: the former comes from the demand of political-social nature, and thus these are considered ‘external’ factors; the latter, instead, adapts to ‘internal’ demands such as cultural or geographical needs .
The authors Robert Baldwin, Martin Cave and Martin Lodge in their book, Understanding Regulation, consider the four main explanations for which regulation arises:
– public interest theories: as a driver in creating new regulations these are surely among the foremost and must be analysed. The concept of ‘public interest’ differs from the bureaucratic world and it is less economically and politically oriented ;
– interest group theories: this is the second most important approach to regulations. In this case, there is no longer a turning point towards a broad sphere that includes public interest, but to a specific interest group.
A perfect example would be in the economic field; in fact, the economic theory of regulation is based on the principle that enterprise can self-regulate, but only in order to improve and maximize the benefits that the group will be able to have. Obviously, these benefits will to some extent reflect wider social interests;
– ‘power of ideas’ explanations: ideas, ideologies, and beliefs can have a radical influence on public policy and regulation. Customs and traditions have a strong influence inside a community. Indeed, these habits and customs form the basis for the creation of many laws and regulations. The ideologies, therefore, can significantly influence the way regulation is born;
– institutional theories: the last piece, nowadays the most important, concerns institutionalism. Different institutional approaches, in fact, can create different formal rules in a specific field. However, the social context, as well as the policies between different actors with different goals, must always be examined.
Institutionalists, therefore, agree that institutional arrangements can have a significant impact on how regulation is developed .
The further we go into the analysis of the roots of regulation, the clearer it becomes that it is not possible to summarise briefly the process and development behind regulation . Given the multiplicity of laws arising from the most diverse causes, with different processes and timing, we cannot settle on a single theory. As we move toward an increasingly globalised world, where standardisation will become the origin of law, in the future the ‘primary’ cause of the birth of legislation might be attributed to this. However, nowadays, the different theories, habits and customs around the world are the ingredients to study and seek at the heart of any regulation.
2.3. THE PURPOSE OF REGULATIONS
Now that the causes and processes that have led to the birth of regulation and to the creation of regulations in the modern era have been explored, let us move on to the purpose of regulation and analyse the objective of technological
regulation as it may be applied to blockchain.
When being drawn up, every regulation has a principal aim which must be considered. For example, the main purpose of financial regulations is to prevent financial instability, and thus, one of its targets is to minimise or eliminate
direct losses to innocent bystanders and minimise the economic impact of a systemic financial crisis . However, there should always be a loophole, or how can we prove that there is no ‘theoretical reason or empirical evidence that regulators are any better at anticipating bubbles or business downturns than anyone else’ .
In recent years, with the uncontrolled evolution of the internet and all its applications, the main objective of governments around the world has been to protect consumers and businesses against the poor management of sensitive
information. However, this just scratches the surface of something even more complicated. In the early years of the internet, we did not need any particular regulations to create an online market, to sell or buy products or play online.
Every ‘online’ activity reflected another one already performed in the real world and, thus, already subject to regulation.
Nevertheless, the internet has evolved, and a growing number of activities done via the web and technology do not have an exact reflection in the real world. Technology is growing more independent, and the goal of these new inventions, as Ivan Illich explored in his book, Tools for Conviviality, in 1973, was to make men more self-sufficient, more liberated, more suited to satisfying their own particular goals. At first, it was important to configure apparatuses (advances, establishments, connections) for the administration of man, instruments fit for freeing human potential and inventiveness. They partitioned men into masters and slaves, experts and slaves .
If the technologies around us are designed to channel our actions toward certain limited behaviours which can be measured and then analysed, managed and transformed into future consumption forecasts, then our contractual power over these technologies is very low, and our efforts, our ‘individual response,’ the attempt to resist the manifold possibilities provided by technologies is weak or irrelevant.
Some of us will also be able to find the right personal balance between the benefits of digital technologies and the time they take from other more social activities, but these attempts will only be exceptions .
For these reasons, should we allow the evolution of technology to remain totally independent? Or should the states take an active role in that evolution and regulate its processes? Technology is not supplementary to our lives anymore.
We are becoming an essential part in its development. This independence, and growing dependence, will become the main problem facing regulators in the near future.
There is no difference between technology, artificial intelligence or robotics anymore. The three laws of robotics (also known as Asimov’s Laws), which were defined in science fiction by the author Isaac Asimov, are no longer
fantasy . The makers of regulatory frameworks should start evaluating how to regulate all the applications of new technologies invented by science every day. Nonetheless, here, the problem is not in identifying whether the reason for drafting new regulation is due to public interest theories, interest group theories, ‘power of ideas’ explanations or institutional theories , but rather how far the power of technology will reach, and try to understand whether only its applications must be regulated or whether the freedom of people to ‘create’ through technology itself should be subject to regulation.
Even Stephen Hawking has warned us about how far technology can go if it is not controlled and regulated. In fact, he said, ‘Technology has advanced at such a pace that its aggression may destroy us all by nuclear or biological war. We need to control this inherited instinct by our logic and reason ’. Artificial Intelligence will change our approach to technology, and since the world-wide networking of the web and the power of technology without borders has continued to grow, we need to establish a method of identifying threats quickly, before they have a chance to intensify .
Furthermore, Professor Hawking back in 2015 in a Reddit AMA said that ‘AI is likely to be either the best or worst thing ever to happen to humanity’  and in his interview with The Times, he suggested that ‘some form of world
government’ might be part of a plan which could prevent problems. However, he also said that a “world government” would itself create more problems.
A similar viewpoint was expressed by the Tesla CEO Elon Musk, who has already warned that humans are in danger of becoming extraneous. ‘Over time I think we will probably see a closer merger of biological intelligence and digital intelligence,’ he said, suggesting that people could merge with machines in the future, in order to keep up .
To sum up, it seems necessary to report that in July 2017 an AI chat-bot designed by Facebook started to invent its own language, and researchers immediately had to shut it down . Thus, due to the risk that we may indeed lose control over future technology, as demonstrated by the Facebook research, it would seem that time is growing short, and states should start thinking of ways to regulate, or to manage, this evolution.
TABLE OF CONTENTS
I CHAPTER – BLOCKCHAIN TECHNOLOGY AND ITS APPLICATIONS
1.1. BLOCKCHAIN: A DISTRIBUTED LEDGER TECHNOLOGY
1.2. BLOCKCHAIN FROM 1.0 TO 3.0.
1.3. A GLANCE AT THE IMMEDIATE AND DISTANT FUTURE
II CHAPTER – THE OBJECTIVES OF REGULATION
2.1. UNDERSTANDING REGULATIONS
2.2. THE BIRTH OF NEW REGULATIONS
2.3. THE PURPOSE OF REGULATIONS
III CHAPTER – CURRENT SITUATION
3.1. EARLY REGULATIONS AND ACTIONS BY STATES
3.2. CASES AND EARLY FRAMEWORKS
3.3. SHOULD THE TECHNOLOGY ITSELF BE REGULATED AS DISTINCT FROM THE APPLICATIONS?
IV CHAPTER – ANALYSIS
4.1. WHAT: IS IT THE DLT TECHNOLOGY OR THE APPLICATION WHICH MUST BE REGULATED? AND WHEN: BEFORE OR AFTER CREATION?
4.2. WHO AND HOW: DO WE NEED A SPECIFIC NATIONAL OR INTERNATIONAL ORGANISATION OR WHO SHOULD HAVE THE POWER TO DO SO?
43 Erik Pevernagie
44 Steve Tombs, ‘Understanding Regulation’ (2002) 11 Soc & Legal Stud 113.
45 Ubi Societas Ibi Jus is a legal maxim which means ‘Where there is society, there is law’.
46 E.W. Younkins, Capitalism and Commerce, Conceptual Foundations of Free Enterprise (Lexington Books 2002) 145.
47 Anthony Ogus, Regulation: Legal Form and Economic Theory, The Modern Law Review, Vol. 59, No. 1 (Jan. 1996).
48 Robert Baldwin, Martin Cave and Martin Lodge, Understanding Regulation: Theory, Strategy, and Practice (2nd edn, OUP 2014)
49 Laureen Snider, Corporate Crime: Contemporary Debates (U Toronto Press 1993).
50 Philip Booth, ‘Lessons from history show self-regulation to be the best kind of control,’ Telegraph (London, 8 August 2010) www.telegraph.co.uk/finance/comment/7933318/Lessons-from-history-show-self-regulation-to-be-the-best-kind-of-control.html accessed 15 May 2017.
51 Brent Fisse and John Braithwaite, Corporations, Crime and Accountability (CUP 1993).
52 Ian Ayres and John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (OUP 1992).
53 Robert Baldwin, Martin Cave and Martin Lodge, Understanding Regulation: Theory, Strategy, and Practice (2nd edn, OUP 2014) 4.
54 John Braithwaite and Péter Drahos, Global Business Regulation (CUP 2000).
56 Anthony I Ogus, ‘Regulation: Regulatory Law: Some Lessons from the Past’ (1992) 12 Legal Studies 1.
57 Oliver MacDonagh, ‘The Nineteenth-Century Revolution in Government: A Reappraisal’ (1958) Historical Journal 52.
58 Paul Craig, Administrative Law (5th edn, Sweet &Maxwell 2003).
59 James Foreman-Peck and Robert Millward, Public and Private Ownership of British Industry 1820–1990 (OUP 1994).
60 Eur-lex search results as of July 19, 2017 (advanced search: Domain: EU law and related documents, Subdomain: Legislation, Limit to legislation in force, Exclude corrigenda) http://eur-lex.europa.eu/advanced-search-form.html.
61 John G. Francis, The Politics of Regulation: A Comparative Perspective (Blackwell 1993).
62 T. Prosser, ‘Regulation and Social Solidarity’ (2006) 33 Journal of Law and Society 364.
63 Baldwin (n 53) 22.
64 ibid 23.
65 Clifford Shearing, ‘A Constitutive Conception of Regulation’ in P. Grabosky and J. Braithwaite (eds) Business Regulation and Australia’s Future (Australian Institute of Criminology 1993).
66 Robert Horwitz, The Irony of Regulatory Reform: The Deregulation of the American Telecommunications Industry (OUP 1989).
67 Baldwin (n 53) 41.
68 J.W. Roxbee Cox, ‘The Appeal to the Public Interest’ (1973) 3 British Journal of Political Science 229.
69 Bronwen Morgan and Karen Yeung, An Introduction to Law and Regulation: Text and Materials (CUP 2007).
70 Michael E Levine and Jennifer L Forrence, ‘Regulatory Capture, Public Interest and the Public Agenda: Towards Synthesis’ (1990)
6 Journal of Law, Economics, and Organization 167.
71 Bill Watkins, ‘What is the Purpose of Financial Regulation?’ (California Lutheran University, CERF Blog, 27 April 2010).
73 Ivan Illich, Tools for Conviviality (Harper and Row 1973)
74 Tiziano Bonini, ‘Possono esistere delle (nuove) tecnologie conviviali?’ (Doppiozero, 22 luglio 2017) www.doppiozero.com/materiali/possono-esistere-delle-nuove-tecnologie-conviviali accessed 23 June 2017.
75 Isaac Asimov, I, Robot, (Fawcett Publications 1950). The Three Laws, quoted as being from the ‘Handbook of Robotics, 56th Edition, 2058 A.D.’, are:
1. A robot may not injure a human being or, through inaction, allow a human being to come to harm;
2. A robot must obey the orders given it by human beings except where such orders would conflict with the First Law;
3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Laws.
76 See Section 2.2. The Birth of New Regulations, according to Morgan and Yeung.
77 Tom Whipple and Oliver Moody, Interview to Stephen Hawking on humanity (and Jeremy Corbyn) Times (London, 7 March 2017) www.thetimes.co.uk/edition/news/hawking-on-humanity-and-corbyn-jk88zx0w2 accessed 3 May 2017.
78 Aatif Sulleyman, ‘Without a “World Government” Technology Will Destroy Us, Says Stephen Hawking’ Independent (London, 8 March 2017) www.independent.co.uk/life-style/gadgets-and-tech/news/stephen-hawking-world-government-stop-technology-destroy-humankind-th-a7618021.html accessed 23 June 2017.
79 Andrew Griffin, ‘Stephen Hawking: Artificial Intelligence Could Wipe Out Humanity When It Gets Too Clear As Humans Will Be Like Ants’ Independent (London, 8 October 2015) www.independent.co.uk/life-style/gadgets-and-tech/news/stephen-hawking-artificial-intelligence-could-wipe-out-humanity-when-it-gets-too-clever-as-humans-a6686496.html accessed 14 June 2017.
80 Aatif Sulleyman, ‘Elon Musk: Humans Must Become Cyborgs To Avoid AI Domination’ Independent (London, 15 February 2017) www.independent.co.uk/life-style/gadgets-and-tech/news/elon-musk-humans-cyborgs-ai-domination-robots-artificial-intelligence-ex-machina-a7581036.html accessed 29 May 2017.
81 James Walker, ‘Researchers shut down AI that invented its own language’ (Digital Journal, 21 July 2017)
accessed 24 July 2017.
Il prof. Vincenzo Mastronardi è stato nominato Garante dei diritti delle vittime di reato dall'Associazione Nazionale Difensori Civici Italiani, d'intesa con Civicrazia, Coalizione di oltre quattromila Associazioni a tutela del Cittadino.