3.1. EARLY REGULATIONS AND ACTIONS BY STATES;
MOST SIGNIFICANT CASES;
SHOULD TECHNOLOGY ITSELF BE REGULATED AS DISTINCT FROM APPLICATION?
‘In that sense, technological innovations are similar to legislative acts of
political foundings that establish a framework for public order that will endure
over many generations… The issues that divide or unite people in society are
settled not only in the institutions and practices of politics proper, but also,
and less obviously, in tangible arrangements of steel and concrete, wires and
semiconductors, nuts and bolts’ 
3.1. EARLY REGULATIONS AND ACTIONS BY STATES
Given the importance of the growing role of blockchain technology in the new millennium, and its acceptance in the economic system, we shall now examine another core element. Its first application, cryptocurrencies, are increasingly
utilised in the monetary economy, but what role do regulations play for them? Even though we are still not in a position to give firm answers about the future of blockchain technology itself, in recent years several regulators have started to
turn their attention to virtual and cryptocurrencies. With the different interpretations of cryptocurrencies (which are, for example, recognised as private money  or as commodities), different issues may arise, including that of taxation .
In Europe, shortly after centralised virtual currencies and decentralised cryptocurrencies were introduced in 2012, the ECB began considering the implications they would have for monetary policy. Due to the independent structure
which underpinned it, not a lot of importance was initially attached to it . Virtual currencies, in fact, did not pose a risk to financial stability according to the ECB. However, in the following year, virtual cryptocurrencies had a different regulatory response, but they were still not recognised as a currency, ‘Euro-system central banks do not recognise that these concepts would belong to the world of money or currency as used in economic literature, nor is virtual currency money, currency or a currency from a legal perspective ’. Subsequently, in 2015 the ECB changed its approach and stated its intention to monitor possible threats to monetary policy and financial stability due to the growing ‘mainstream acceptance’ of virtual currencies ’. Even more important, now that the market capitalisation of cryptocurrencies stands
at around 116 billion USD .
Thus, in Europe there is not a joint, shared approach to the regulation of these virtual cryptocurrencies. For example, in Sweden virtual currency must be registered with the financial authorities, whereas in France and in Germany
certain bitcoin activities must be subject to authorisation. Clearly a unified approach from the beginning would also help in the development of a future regulatory framework. Most of the early actions governments have taken thus far regarding decentralised cryptocurrencies concern the problem of AML (Anti-Money Laundering). The UK government, for example, has introduced various steps to deal with the AML problem and the aim of these measures is to ensure that law enforcement bodies have the means to fight criminal activity in the digital currency space . Another example would be the action taken by the New York Department of Financial Services (NYDFS), which has released a Bit-License regulatory framework  with the goal of controlling, administering, or issuing a virtual currency. It states that any individual or corporation engaged in the
aforementioned activities is required to obtain a license to do so.
Outside of the EU and US, there are few regulatory or policy interventions which regulate activities regarding blockchain and more specifically cryptocurrencies. Certainly, some actions have been taken to limit and warn against price volatility due to its nature as a non-state-backed currency. China, for example, is very strict on this, forbidding the use of cryptocurrencies by financial institutions. Japan, instead, states that ‘due to their intangible nature and reliance on
third parties, bitcoins are effectively not subject to ownership, and therefore are not covered by existing regulation ’. Unlike China and Japan, the Australian approach is more open-minded. In fact, the Australian Senate ‘put forward recommendations to treat Bitcoin as money, as treating Bitcoin as a tradeable commodity would have created a double taxation effect ’.
3.2. CASES AND EARLY FRAMEWORKS
As for blockchain technology and all its applications, it is too early to analyse the approaches the courts around the world have taken so far. However, under EU law, the European Court of Justice has already had the opportunity to give its opinion regarding AML/CFT in October 2015 in Skatteverket v. David Hedqvist .
In the Hedqvist case, the issue regarded whether a professional must pay value added tax (VAT) while doing business that exchanges Bitcoin for traditional fiat currency (and vice versa) . This was just one of the most important
cases where Bitcoin was the subject of the case and it affirmed that a trade of Bitcoin for conventional money is a supply of services. Thus, the court held that a trade of Bitcoin fell inside the exception in Article 135(1)(e) of the VAT Mandate.
This exempts exchanges ‘concerning cash, monetary certificates and coins utilised as lawful delicate’ from VAT.
However, the issue refers to VAT, and thus, to taxes and not the technology itself.
As we can see, the action taken by the Swedish government is focused on tax issues, and even if nowadays there are no existing regulations for virtual currencies, there are instead some guidance and frameworks issued by US governmental bodies, such as FinCEN, the Internal Revenue Service (IRS), SEC, CFTC, and the Consumer Financial Protection Bureau (CFPB).
Let’s examine some of these frameworks and proposals, even though they address the issues surrounding virtual currencies:
1. FinCEN Guidance, Rulings, and Enforcement. Under the Bank Secrecy Act (BSA)95 banks and other financial institutions must be subject to some registration and record keeping requirements for controlling and developing AML and customer identification programs. In March 2013, all these rules were extended to cover participants who transact in ‘convertible virtual currencies ’. 
2. CFTC Jurisdiction over Bitcoin Derivatives and Market Manipulation Oversight. The CFTC has jurisdiction over derivatives contracts related to interests not traditionally thought of as commodities . Regarding blockchain, the
CFTC established that virtual cryptocurrencies are ‘properly defined as commodities,’99 and in September 2014, the CFTC oversaw the launch of the bitcoin swap execution facility (SEF).
Potential applications of blockchain technology, as we have seen in the first chapter, are diverse and multiple; they are not restricted to money transfers and payments. The conceptual basis behind Bitcoin, and in a more marked way behind the concept of blockchain, involves the transfer of ‘value’ however it is defined. Like a digital envelope, these containers can carry ‘coins’ across the network; but they can also transmit richer forms of information, holding promise
for many compelling applications beyond Bitcoin .
Setting Bitcoin aside, in fact, we find that blockchain developers can create their own coin by setting different rules with different purposes, according to a desired set of economic properties . A few examples would be, Viacoin, a new
‘notary’ platform where it is possible to time-stamp, transfer and verify ownership of documents ; Storjcoin, which unlike Bitcoin, is a decentralised cloud storage system ; and, finally, Litecoin, a platform similar to Bitcoin with quicker transaction confirmations for high-volume merchants . These platforms, among others, will also need some sort of guidance in the future.
Everything is set for the future, the senior operations officer, Mariana Dahan, at the World Bank in charge of the 2030 development agenda and United Nations relations, says, ‘We believe blockchain is a major breakthrough and has
great potential. It will make an impact on, and bring value to, any transaction that requires trust, a social resource that is all too often in short supply ’, but we are already at the time of this revolution, and this technology and its effects are not controllable with the older regulations which have been thus far applied to other situations. We need to create a policy platform which can provide a solid foundation for further work. First and foremost, we must understand whether the technology itself should be regulated or not.
3.3. SHOULD THE TECHNOLOGY ITSELF BE REGULATED AS DISTINCT FROM THE
‘The buzz surrounding Bitcoin has reached a fever pitch. Yet in academic legal discussions, disproportionate emphasis is placed on bitcoins (that is, virtual currency), and little mention is made of blockchain technology—the true innovation behind the Bitcoin protocol. Simply put, blockchain technology solves an elusive networking problem by enabling “trustless” transactions: value exchanges over computer networks that can be verified, monitored, and enforced without central institutions (for example, banks). This has broad implications for how we transact over electronic networks .’
Finally, in a recent regulatory response, a new trend of thought has developed, where the UK government has ‘identified that more promising perspectives of virtual currencies may actually lie in the technology they use, i.e. the distributed ledger technologies.’107 The UK government, following the recommendations in the HM Treasury survey , has set out a range of proposals to unlock the potential of companies exploring the innovative uses of blockchain
technology for advanced cash transactions. These companies will have leeway to act and will not be subject to strict regulation.
Even if it is floating in the air, it is still early to say that 2017 is the year of Blockchain, interpreted as the broader concept of technology, not as its principal applications of ‘coin’ and of all the cryptocurrencies that we have already seen. The data from a survey performed by IBM say that globally only 15% of transactions in the enterprise market have started to use the technology and this fifteen percent are principally banks and financial institutions. Many others, however, are ready to adopt the blockchain technology but the majority (51%) are waiting for 2018. The remainder are in fact delaying until 2020 .
But why is it that blockchain technology is not yet mature? According to Aldo Peter Lo Castro, Head of Research & Development of the company ICT Aliaslab UK, the reason lies in several factors: a coherent, unambiguous definition of blockchain is still lacking; a standard for this technology has not been defined yet; the blockchain, in addition, is perceived as a risk factor because it is disruptive to past business and operating models. To these reasons one must add
the fact that there is an absence of concrete use cases that would clarify what the effective advantages to business blockchain technology represents. Furthermore, there is the theme of governance, in particular, in the public use of
blockchain: it is fundamental to know to whom the shared data belongs and whose responsibility it is when the technology is used incorrectly.
Therefore, a technical standard for blockchain would permit the clarity that is lacking. There has been a call to find an unambiguous definition of the nature of blockchain as well as to set measures which guarantee proper governance and
safety. The first to respond to this call was Standards Australia, which at the beginning of 2016 requested the creation of a technical commission to define a standard. In Beijing on 10 September 2016 the standard ISO TC 307 was created .
There was also a meeting that saw the participation of 17 countries and 2 external organisations: the European Community and SWIFT. In April of this year the first full meeting was held in Sydney and the first teams were created to work on establishing such standards.
What we are trying to understand is who should decide what goes into the protocols, as a regulatory device, of this technology. Can we link a regulation to the technology itself? Who has the power to do so? Should it be put in the hands of a public agency or should the creator’s freedom of choice drive it? Furthermore, should you apply a prior regulation which will limit that freedom?
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?
82 Langdon Winner, ‘Do Artifacts Have Politics?’ in The Whale And The Reactor: A Search For Limits In An Age Of High Technology (U Chicago Press 1986) 19.
83 The German Finance ministry has recognised the Bitcoin as a unit of account, and so as a type of private money. http://www.spiegel.de/international/business/germany-declares-bitcoins-to-be-a-unit-of-account-a-917525.html.
84 Gareth Peters, Efstathios Panayi and Ariane Chapelle, ‘Trends in crypto-currencies and blockchain technologies: A monetary theory
and regulation perspective’ (2015) 3 Journal of Financial Perspectives (EY Global Financial Services Institute Winter) 37.
85 European Central Bank, ‘Virtual currency schemes – a further analysis, Eurosystem Report’ (October 2012)
86 European Central Bank, ‘Virtual currency schemes – a further analysis, Eurosystem Report’ (February 2015) 23
87 Peters (n 84) 37.
88 Value as of 7 August 2017 at https://coinmarketcap.com.
89 Tom Rees, ‘Regulating Bitcoin: how new frameworks could be a catalyst for cryptocurrencies’ Telegraph (London, 16 April 2017)
www.telegraph.co.uk/business/2017/04/16/regulating-bitcoin-new-frameworks-could-catalyst-cryptocurrencies accessed 6 May 2017.
90 New York State Department Of Financial Services, Title 23, Department Of Financial Services – Chapter I. Regulations Of The
Superintendent Of Financial Services Part 200. Virtual Currencies. (2015) www.dfs.ny.gov/legal/regulations/adoptions/dfsp200t.pdf.
91 Kyodo, ‘Bitcoins lost in Mt. Gox debacle “not subject to ownership” claims: Tokyo court’ The Japan Times (Tokyo, 6 August 2015) www.japantimes.co.jp/news/2015/08/06/national/crime-legal/bitcoins-lost-in-mt-gox-debacle-not-subject-to-ownership-claims-tokyo-court-rules accessed 23 may 2017.
92 Byron Kaye, ‘Australian inquiry says digital currencies are real money’ (Reuters, 5 August 2015) www.reuters.com/article/us-australia-bitcoin-idUSKCN0QA0TS20150805 accessed 23 May 2017.
93 Case C-264/14 Skatteverket v. David Hedqvist  EU:C:2015:718.
94 Jesse H. Rigsby, ‘Virtual Currency, Blockchain Technology, and EU Law: The “Next Internet” in AML/CFT Regulation’s Shadow (Master’s thesis, Lund University Spring 2016) 39.
95 Bank Secrecy Act, Pub L 91-508, 84 Stat 1114 (USA).
96 US Department of the Treasury, Financial Crimes Enforcement Network, Guidance on Application Of Fincen’s Regulations To
Persons Administering, Exchanging or Using Virtual Currencies Fin-2013-G001 (2013) http://Perma.Cc/5xaf-Pafc [Hereinafter Fincen
97 Trevor I. Kiviat, ‘Beyond Bitcoin: Issues In Regulating Blockchain Transactions’ (2015) 65 Duke LJ 569.
98 Robert L. McDonald, Derivatives Markets (2nd edn, Northwestern UP 2006).
99 Coinflip Inc, ‘Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, Making Findings and Imposing Remedial Sanctions at 3’ (CFTC Docket No. 15-29, 17 September 2015) www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf accessed 2 June 2017.
100 Tim Swanson, Great Chain of Numbers: A Guide To Smart Contracts, Smart Property And Trustless Asset Management (self-
published 2014) https://s3-us-west2.amazonaws.com/chainbook/Great+Chain+of+Numbers+A+Guide+to+Smart+Contracts,+Smart+Property+and+Trustless+Asset+Management+-+Tim+Swanson.pdf accessed 26 May 2017.
102 Viacoin http://Viacoin.Org [Http://Perma.Cc/Agt6-6ehp].
103 Storj http://Www.Storj.Io [Http://Perma.Cc/Wd67-Fv5l].
104 Litecoin http://Www.Litecoin.Org [Http://Perma.Cc/Svys-9den].
105 Underwood (n 19).
106 Kiviat (n 97) 569.
107 Peters (n 84) 37.
108 See www.gov.uk/government/consultations/digital-currencies-call-for-information/digital-currencies-call-for-information.
109 IBM Survey, ‘Blockchain Adoption Moving Rapidly in Banking and Financial Markets: Some 65 Percent of Surveyed Banks Expect to be in Production in Three Years’ (28 Sep 2016) www-03.ibm.com/press/us/en/pressrelease/50617.wss accessed 12 may 2017.
110 ISO/TC 307, ‘Blockchain and distributed ledger technologies’ www.iso.org/committee/6266604.html.