Criptovalute e blockchain, nascita, funzionamento ed evoluzione

Ancora fresca è la diffusione dell’analisi di Jim Reid (credit strategist di Deutsche Bank), intitolata The Start of the End of Fiat Money, nella quale egli sostiene che le valute fiat, cioè quelle stampate dalle varie banche centrali degli Stati, hanno ormai i giorni contati. Continua a leggere Criptovalute e blockchain, nascita, funzionamento ed evoluzione

Blockchain: is self-regulation sufficient?

It is happening in silence. Even as its arrival is being whispered about, it is laying the foundation for an inevitable future. It is the new digital revolution1 and it is based on the new technology called Blockchain.
Technological innovation has always meant structural changes with deep implications for the social, political and economic fabric of the world. In a broad sense the chapters of our history have all been written by these changes- from coal to the steam engine, from the invention of electricity to the use of petroleum. Today we are setting off into a world of virtual transfers and this revolution will perhaps be the most compelling because it will involve every sector and will dismantle the world as we know it.
Since the very first blockchain application – Bitcoin [3]- was created, many further uses of the technology have been invented and developed. Unsurprisingly, there has also been a large movement of regulators looking to find any pretext to regulate the use of this emerging technology. The result, however, has not led to a real solution to the problem posed by this technology, which is capable of changing the rules of the game.
Now that the future situation has come into view, the focus has been placed on the practical applications of the blockchain and on their inevitable social, political and economic consequences. This has opened a debate, therefore, on the need, or not, to shape ‘legal’ rules to accompany these changes. In fact, the impact will involve various sectors such as finance and politics, where the need for a central authority will be diminished. This concept was already widely accepted after the ‘phenomenon of Bitcoin’ and ‘Ethereum,’ but the establishment of regulations may have repercussions not only for the ECB [4] and the Fed but also for all those who pose as intermediaries: financial markets, banks, payment managers/handlers. All this was foreseen beforehand by Microsoft [5]. According to a report by InnoVentures [6] it is estimated that by 2022 between 15 and 20 billion dollars could be saved on average on charges on payments and money transfers in the world if the blockchain system is used instead of the traditional one. To this we must add the possible implications of the weakening of political control of the central state and its central bank. The application of the new technology could lead to a different relationship between the public administration and citizens, where the latter could assume a less passive role towards the administration and could force a wider reevaluation of the principle of res pubblica.
The impact may stretch even beyond these borders. One of the goals of this research is connected to the conceptual and ethical issues surrounding the necessity, or not, of trying to regulate this upcoming wave of innovation. Although it is true that we will be moving towards more decentralization and transparency as guaranteed by the blockchain system, the problem of understanding, as Juvenal wrote around 50 AD, quis custodiet ipsos custodies? [7] remains.
The aim of this research is twofold: on one hand, performing an analysis of the blockchain technology and of its innovative implications so as to understand why it will lead to an unstoppable alteration of society and the economy, and on the other hand, imagining how and in what way regulating the technology and the dynamics surrounding it is necessary. Should there be freedom to self-regulate or should it be directly regulated in some way?
Chapter I will concentrate on the technology called blockchain, which is simply a ‘type of database that is shared, replicated, and synchronised among the members of a network. The distributed ledger records the transactions, such as the exchange of assets or data, among the participants in the network’ [8]. Blockchain innovation may decrease the role of a figure placed between the principal parties in most financial and administrative transactions – the intermediary. By enabling individuals to exchange a one-of-a-kind bit of computerized property or information directly with others, in a protected, secure, and pre-set, fixed way, the innovation can make: advanced monetary standards that are not upheld by any administrative body; self-authorizing computerized contracts (called keen gets), whose execution does not require any human mediation; decentralized commercial centers that expect to work free from the range of direction;
decentralized correspondence platforms that will be progressively difficult to wiretap; and web-empowered resources that can be controlled, like computerized property [9]. Chapter II will enter into the ratio behind regulations in general, exploring where and why the needs of a
community caused the rise of institutions with the power to issue rules and how these can influence the natural flow of markets and socio-economic developments. In Chapter III some of the initial frameworks and plans regarding the applications of blockchain, as well as the purpose behind them, will be illustrated. Finally, Chapter IV will present an analysis which seeks to answer if, how and by whom the DLT technology will have to be regulated, and especially with what process and in what way.

Contributo di Giovanni Perani, Blockchain and Cryptocurrencies Expert at Carnelutti Law Firm, LL.M. at Singapore Management University



TABLE OF CONTENTS

INTRODUCTION

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?
CONCLUSION
BIBLIOGRAPHY



_________
1 Yochai Benkler, The Wealth Of Networks (Yale UP 2006) 62.
2 Blockchain, also known as distributed ledger technology https://en.wikipedia.org/wiki/Blockchain.
3 Lawrence Trautman, ‘Virtual Currencies; Bitcoin & What Now After Liberty Reserve, Silk Road, And Mt. Gox?’ (2014) 20 Rich JL & Tech 13.
4 Paolo Fiore, ‘Cosí Draghi per liberare la BCE pensa alla blockchain’ (Smart Money, 25 February 2016) www.smartmoney.startupitalia.eu/banche/52084-20160225-draghi-bce-blockchain accessed 8 May 2017.
5 Jemima Kelly, ‘Microsoft launches cloud-based blockchain platform with Brooklyn start-up’ (Reuters, 10 November 2015) www.reuters.com/article/us-microsoft-tech-blockchain-idUSKCN0SZ2ER20151110.
6 Oliver Wyman Survey, ‘The Fintech 2.0 Paper: rebooting financial services’ www.oliverwyman.com/content/dam/oliver-wyman/global/en/2015/jun/The_Fintech_2_0_Paper_Final_PV.pdf accessed 2 July 2017.
7 Juvenal, translation from Latin, “Who will watch the watchmen?”.
8 Solane Brakeville and Bhargav Perepa, Blockchain Basics: Introduction to Distributed Ledgers (IBM Developer Works,
9 May 2016) www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/index.html accessed 4 July 2017.



Blockchain: I Chapter, Blockchain technology and its applications

SUMMARY:
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.

‘The first generation of the digital revolution brought us the Internet of
information. The second generation – powered by blockchain technology – is
bringing us the Internet of value: a new platform to reshape the world of
business and transform the old order of human affairs for the better’
[10]

1.1. BLOCKCHAIN: A DISTRIBUTED LEDGER TECHNOLOGY
The new era of technology has begun, and underlying it there are several technologies which have in many ways revolutionised the world as we once knew it. Many people, however, are overly sensitive to these new technologies and especially to how these new technologies will transform their routines. The new technologies seem to be growing more and more complex and this increased complexity presents a socio-cultural problem. Most new technologies initially meet
resistance before they are fully understood, adopted and brought into widespread use.
In spite of the resistance which greets a seemingly complex new invention, most technologies are not as complex they appear. In fact, one of their main purposes nowadays is to make repetitive and mechanical processes easier. In addition, they may simplify complicated problems or aid in shortening the times involved in performing certain tasks.
One example of this would be the creation and introduction of digital currencies and the impact they have had on the financial and banking industries. Ever since the global financial crisis in 2008, in fact, states have been putting more and more effort into controlling financial and banking operations by introducing stricter regulations and policies. In many cases, these new changes have been met with controversy ‘as many people believe that policy makers should promote freedom and transparency by empowering the public to directly interfere and change the system for public interest’ [11].
The complexity of regulations, however, has not made the financial system an easier and safer place, and it remains controversial whether states should continue to implement and encourage policy makers or allow the free expansion of freedom and transparency with effective financial tools [12].
Here is where technology may alter the complexity of regulations and open up new opportunities to fix these problems. The use of digital currencies represents a perfect example. In fact, in a world where digital technology is increasingly making everything paperless, the creation and use of digital currencies can only be seen as an intuitive development. Bitcoin, as the first digital currency introduced into our market, was created by Satoshi Nakamoto [13] in 2009. It was the first conceptualisation of ‘blockchain’ technology and its impact has begun to be felt more widely.
Today the blockchain is used to simplify money transactions. Furthermore, financial institutes have also started to use this technology in order to enhance efficiency – for example, smart contracts, smart assets, Clearing and Settlement, Payments and Digital Identity [14].
On one hand Bitcoin has become the most well-known application of blockchain technology, and a growing number of people have started to understand it. On the other hand, blockchain technology itself is still new to most people. All this is despite the fact that it has been involved in modernising several other fields, such as property certification, intellectual property, social inequality and contracts [15].
So, what is blockchain and when was it born?
The first work on a cryptographically secured chain of blocks was done between 1991 and 1997, but it was only in 1998 that Nick Szabo introduced Bit Gold as a mechanism for a decentralised digital currency and smart contracts.
Subsequently, in the first year of the new millennium, Stefan Konst introduced a general cryptographic theory of secured chains, but the first real conceptualisation of the blockchain technology had to wait till the arrival of Bitcoin. This, however, was only the first generation of blockchain technology. In 2014 blockchain took another step forward with its
evolution, called Blockchain 2.0, and new applications of this technology were seen.
The reason for this faster16 evolution and the wider use of blockchain is due to its characteristics and simplicity; the mechanisms underpinning it are simpler than may be expected. Blockchain, in fact, is a distributed database (Distributed Ledger Technology) and it is defined by the authors of Blockchain Revolution as ‘an incorruptible digital ledger of
economic transactions that can be programmed to record not just financial transactions but virtually everything of value’ [17]. This meant that for the first time technology allowed consumers and suppliers to connect directly and perform digital transactions without need of a third party.
Sarah Underwood in the Journal Communications of the ACM18 defines blockchain technology and its impact as an ‘open, global infrastructure that allows companies and individuals making transactions to cut out the middle-man, reducing the cost of transactions and the time lapse of working through third parties.’ Furthermore, the technology is grounded on a distributed ledger structure and consensus process which permit the creation of a reliable connection between computers on the network without central control of any authority, and since it is public, it is viewable by all the network users [19].
Thus, a blockchain is nothing more than a database (or ledger) of virtually any type of recordable information, made-up of ‘blocks,’ or stored data, and ‘chained’ together to form a cohesive, unbroken record of that information [20].
The arrival of blockchain formed the foundation for the revolution which involves any value transaction, whether those transactions are based on money, goods or property. But the importance is not only limited to this. Since every transaction is recorded and distributed on a public ledger, its potential uses may be almost limitless. In fact, once we believed the revolution was simply the cryptocurrencies based on the blockchain technology. This, however, was only the first step of the journey.

1.2. BLOCKCHAIN FROM 1.0 TO 3.0
When a discovery is made in the technological world, often it will have multiple applications, and this is certainly true of blockchain. Although blockchain was used for the first time to create a particular digital currency, namely Bitcoin, and others such as Litecoin21 and Dogecoin [22], the technology has started to be used for other purposes.
It is important to note, however, that the terminology surrounding this phenomenon is not helpful and can be confusing. For example, the word ‘bitcoin’ is generally used to refer to three different concepts: the first one, is the underlying technology, the blockchain itself. The second one is the protocol, which is the software that transfers the money using the blockchain ledger. Finally, the last layer is Bitcoin, or rather the currency itself [23].
Blockchain is already the cash of internet, a digital payment system, but this is just its first application [24]. For that reason, it is frequently referred to as Blockchain 1.0. Furthermore, since a cryptocurrency can be a programmable open network for decentralised trading of all resources, the concept of Blockchain 1.0 has already been extended to Blockchain 2.0 [25]. This is seen ‘as a programmable distributed trust infrastructure.’26 As opposed to it being viewed as a process which permits only the decentralisation of money and payments, the new concept of Blockchain 2.0 increases the scope of the technology and enables the decentralisation of markets across different fields. More broadly, by providing registers for certificates, rights and obligations, Blockchain 2.0 transactions can involve other types of assets such as real estate, IPR, cars, works of art and so on [27].
Thus, the idea behind Blockchain 2.0 is to use the decentralised transaction ledger to register, confirm and transfer all the processes by which contracts are made and assets transferred, creating so-called smart contracts.
Smart contracts are another application of decentralised public ledger technology. They can also be viewed as self-executing transactions, or as ‘automated programs that transfer digital assets within the blockchain upon certain triggering conditions’ [28]. However, smart contracts are not a completely new concept [29] and they are defined as ‘computer protocols that embed the terms and conditions of a contract’ [30]. The blockchain technology, in fact, enables parties to enter into contracts and mitigates the risk of entering into a contract without the need for a third party. Trust is created and maintained by the simple fact that the blockchain technology is a database which cannot be tampered with and all transactions, once established, should be carried out with a minimum or no risk to either party, and therein lies its power.
In Harvard Business Review, Patrick Murck said, ‘The power of blockchain technology is that it can algorithmically enforce private agreements and community principles at a global scale by shifting the cost of trust and coordination to the network. This is what allows blockchains to create new markets where they couldn’t exist before, whether for political or for economic reasons. To do this, we have to be able to trust the blockchain, and to trust that no one controls it’ [31].
Thus, for the first-time technology allows parties to connect directly to each other, eliminating the need for a third party, such as a subject, a state or ‘trust.’ Patrick Murck also said, ‘Blockchain networks tend to support principles, like open access and permissionless use, that should be familiar to proponents of the early internet. To protect this vision
from political pressure and regulatory interference, blockchain networks rely on a decentralised infrastructure that can’t be controlled by any one person or group. Unlike political regulation, blockchain governance is not emergent from the community. Rather, it is ex ante, encoded in the protocols and processes as an integral part of the original network
architecture. To be a part of a community supporting a blockchain is to accept the rules of the network as they were originally established’ [32]. Furthermore, in any blockchain transaction the parties don’t have to trust the counter-party to achieve their duties, since the web guarantees this through automated, standardised processes.
So, we can finally define the blockchain-based smart contracts by using the definition provided by Richard Genda Brown in ‘A simple model for smart contracts.’ He states that the smart contract is ‘a piece of code, deployed to the shared, replicated ledger, which can maintain its own state, control its own assets and which responds to the arrival of external information or the receipt of assets’ [33].
Financial services and public records, as well as crowdfunding and smart property, can be migrated to the Blockchain 2.0 technology. Thus, the idea of Blockchain 2.0 is not applicable only for smart contracts, but it is really to be seen as a platform for many other applications.
Not only is blockchain technology revolutionising and reinventing every category of economic and financial services, but it is having a great impact on the idea of central authority. It creates a decentralised model for organising activities and effectively removes the need for a central authority to supervise or monitor these transactions. Indeed, Blockchain 1.0 and 2.0 focus on providing benefits such as economic efficiency and cost savings, both of which spring
directly from interaction in decentralised network models without the need for intermediaries. The revolution does not stop there, however. The next step is Blockchain 3.0. With the interconnections created by the web, all humans are part of the same network, creating a global process that was previously unimaginable.
Blockchain 3.0 is the unleashed potential of the technology application in every form imaginable, ‘in particular to allow for increasingly automated resource allocation of physical-world assets and also human assets’ [34]. We are speaking about blockchain beyond currency, markets, and economics.
Furthermore, in her book, Melanie Swan says that every system in life comes down to economics to some degree, thus blockchain could be applicable too. For that reason, the wider view of Blockchain 3.0 could be used in any field such as in facilitating big data’s predictive task automation. The idea is to use Blockchain 1.0 and 2.0 technology to change the ratio behind other tasks. Blockchain 3.0 aids in revolutionising the organisational model we used to know,
‘perhaps, all models of human activity could be coordinated with blockchain technology to some degree, or at a minimum reinvented with blockchain concepts’ [35].

1.3. A GLANCE AT THE IMMEDIATE AND DISTANT FUTURE
The new millennium has seen new applications of technology change the traditional concept of financial firms: the so-called Fin-tech (financial technology) firms provide a wide and varied array of services which rely on technology and which have brought about change. Bill Gates, 20 years ago, opined that ‘Banking is essential, banks are not’ [36]. In our
near future, technology may take the place of banking, for example. It is already doing so in ways that were unimagined only a few decades ago. Peer-to-peer lending and crowdfunding, for example, have become possible due to the technology of the internet and the interconnections which come directly from it.
Blockchain is and will be a fundamental part of this process of decentralisation. This is already occurring with e-money or cryptocurrencies. The transition into widespread use of virtual currencies is still at its dawn and blockchain is now moving out of the cyber universe and interacting more often with the real world. In fact, this is creating difficulty for
the institutions and governing bodies which have until recently been the regulators of all financial transactions.
Fundamental issues such as an exact definition of virtual currencies have proven to be elusive and difficult to pin down. The Central Bank of Canada defines the decentralised e-money based on blockchain technology as e-money which is ‘stored and flows through a peer-to-peer computer network that directly links users, much like a chat room. No single user controls the network’ [37]. The ECB report on virtual currencies 38, on the other hand, defined e-money based on its
interaction with fiat money and the real economy, and so its value is calculated based only on the interaction with real money – that produced and controlled by states and banks. According to the ECB report, cryptocurrencies are commodities, and not real currencies. However, it is the market that dictates their prices and values.
Finding a precise definition of e-currencies is only part of the problem, especially since it only touches on the first layer of Blockchain technology, that is to say Blockchain 1.0. The other matter is finding a common approach toward this new technology. Although it is becoming more and more accepted by states and banks, there are some countries in which Bitcoin is considered illegal, such as in Bolivia, Ecuador, Kyrgyzstan and Bangladesh [39].
Therefore, there is another problem which should be evaluated: whether states will be open to the growing array of the applications of the blockchain technology. Furthermore, the Blockchain 2.0 revolution is approaching. In fact at the inaugural Smart Contracts Symposium held at Microsoft’s New York City headquarters, many blockchain experts ‘discussed the myriad of ways that smart contracts are poised to disrupt the status quo in 2017 and beyond’ [40].
Therefore, it is clear that interactions between technology companies stand to benefit from the application of blockchain or distributed ledger technology and this opens up a new era of opportunities. The market and regulatory agencies will contribute even more in the next year to increasing the benefits which consumers will have [41]. Moreover, ‘leading the trend by transforming business model and taking steps to apply Blockchain technology in financial activities would be a tactical preparation for a sustainable development of corporations in general’ [42].
The market and people are ready for this revolution. Technology will be part of our ‘new world,’ but every process, every step along this path must be taken into a web that controls part of our freedom, the states.
How is blockchain viewed by regulators and states? Have regulations or laws which circumscribe blockchain technology already been put in place? Before analysing these issues, we must understand what is a regulation and why we need to regulate.

Contributo di Giovanni Perani, Blockchain and Cryptocurrencies Expert at Carnelutti Law Firm, LL.M. at Singapore Management University



TABLE OF CONTENTS

INTRODUCTION
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?
CONCLUSION
BIBLIOGRAPHY



_________
10 Don Tapscott, Canadian business executive.
11 Quoc Khanh Nguyen, ‘Blockchain – A Financial Technology for Future Sustainable Development’ (3rd International Conference on Green Technology and Sustainable Development (GTSD), Kaohsiung, November 2016) 1. 12 ibid.
13 Bitcoin were invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto. Satoshi Nakamoto was also involved, during the Bitcoin implementation, in the first blockchain database. L.S., ‘Virtual Friend Fires Employee’ (Naked Law, 1 May 2009) www.economist.com/blogs/economist-explains/2015/11/economist-explains-1 accessed 30 June 2017.
14 Chris Skinner, ‘The five major use cases for financial blockchains’ (Brave NewCoin, 11 March 2016) www.bravenewcoin.com/news/the-five-major-use-cases-for-financial-blockchains accessed 1 August 2017.
15 Don Tapscott and Alex Tapscott, Blockchain Revolution (1st edn, Portfolio Penguin 2016).
16 Mark Buitenhek, ‘Understanding and applying Blockchain technology in banking: Evolution or revolution?’ (2016) 1 J of Digital Banking 111-119.
17 Tapscott and Tapscott (n 15).
18 Communication of the Association for Computing Machinery (ACM) was established in 1957. It is a monthly journal where articles focus on practical implications of advances in information technology.
19 Sarah Underwood, ‘Blockchain Beyond Bitcoin’ (2016) 59 Communications of the ACM 15.
20 Definition of Blockchain in the Clyde & Co LLP survey, June 2016.
21 Litecoin https://litecoin.org/it.
22 Dogecoin http://dogecoin.com.
23 Melanie Swan, Blockchain, Blueprint for a New Economy (1st edn, O’Reilly 2015).
24 Annah Levine and Andreas Antonopoulos, ‘Let’s talk Bitcoin! #149 Price and popularity’ (podcast, Let’s Talk Bitcoin, 30 September 2014) http://letstalkbitcoin.com/blog/post/lets-talk-bit-coin-149-price-and-popularity.
25 Swan (n 23) 5.
26 Tim Swanson, ‘Blockchain 2.0. Let a Thousand Chains Blossom’ (Let’s talk Bitcoin, 8 April 2014) www.letstalkbitcoin.com/blockchain-2-0-let-a-thousand-chains-blossom.
27 Martin von Haller Gronbaek, ’Blockchain 2.0, smart contracts and challenges’ (Bird&Bird Article, 16 June 2016) www.twobirds.com/en/news/articles/2016/uk/blockchain-2-0–smart-contracts-and-challenges accessed 20 June 2017.
28 Joshua Fairfield, ‘Smart Contracts, Bitcoin Bots, and Consumer Protection’ 71 (Wash & Lee L Rev Online 36 2014) http://scholarlycommons.law.wlu.edu/wlulr-online/vol71/iss2/3/ accessed 7 May 2017.
29 Nick Szabo, ‘Formalizing and Securing Relationships on Public Networks’ (First Monday, 1 September 1997) www.firstmonday.org/ojs/index.php/fm/article/view/548 accessed 6 August 2017.
30 Von Haller Gronbaek (n 27).
31 Patrick Murck, ‘Who Controls the Blockchain?’ (Harvard Business Review, 19 April 2017) www.hbr.org/2017/04/who-controls-the-blockchain accessed 5 July 2017.
32 ibid.
33 Richard Gendal Brown, ‘A simple model for smart contracts’ (Richard Gendal Brown, 10 February 2015) www.gendal.me/2015/02/10/a-simple-model-for-smart-contracts accessed 24 June 2017.
34 Swan (n 23) 29.
35 ibid.
36 For further information and reports by SVB about the investment trends in Fintech, please go to http://www.svb.com/News/Company-News/ 2015-Fintech-Report–Investment-Trends-in-Fintech/?site=uk.
37 Bank of Canada, ‘Decentralized E-Money (Bitcoin)’ (Backgrounders, April 2014) www.bankofcanada.ca/wp-content/uploads/2014/04/Decentralize-E-Money.pdf.
38 European Central Bank, ‘Virtual currency schemes – a further analysis, Eurosystem Report’ (February 2015) www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemesen.pdf.
39 Wikipedia, Blockchain https://en.wikipedia.org/wiki/Blockchain.
40 Rob Marvin, ‘Blockchain in 2017: The Year of Smart Contracts’ (PCmag, 12 December 2016) www.pcmag.com/article/350088/blockchain-in-2017-the-year-of-smart-contracts accessed 4 July 2017.
41 Nguyen (n 11) 53.
42 ibid.



Blockchain: II Chapter, The objectives of regulation

SUMMARY:
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’ [43]

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 [44].
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 [45]’, 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’ [46].
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 [47]. 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 [48].
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’ [49].
Another form of regulation, which is often considered the strongest [50], 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 [52].
There is a theory that associate regulation was born in the post-privatisation control of the utilities [53]. 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 [54]. 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 [55].
Beginning in the late nineteenth century [56], however, the first specialist regulatory institutions were born in the UK [57], introducing control over several activities, such as health and employment conditions [58], the supply of water and gas, and the control over safety and price [59].
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 [60].
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 [61]. 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’ [62], 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’ [63].
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 [65].
Public interest is surely the main objective behind most regulation, and to further this end there are severa approaches which can be adopted [66]- 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 [67].
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 [68];
– 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 [69].
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 [70]. 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 [71]. 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’ [72].
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 [73].
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 [74].
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 [75]. 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 [76], 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 [77]’. 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 [78].
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’ [79] 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 [80].
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 [81]. 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.

Contributo di Giovanni Perani, Blockchain and Cryptocurrencies Expert at Carnelutti Law Firm, LL.M. at Singapore Management University



TABLE OF CONTENTS

INTRODUCTION
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?
CONCLUSION
BIBLIOGRAPHY



_________
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)
3.
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).
55 ibid.
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).
72 ibid.
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)
www.digitaljournal.com/tech-and-science/technology/a-step-closer-to-skynet-ai-invents-a-language-humans-can-t-read/article/498142
accessed 24 July 2017.



Blockchain: III Chapter, The current situation

SUMMARY:
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’
[82]

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 [83] or as commodities), different issues may arise, including that of taxation [84].
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 [85]. 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 [86]’. 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 [87]’. Even more important, now that the market capitalisation of cryptocurrencies stands
at around 116 billion USD [88].
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 [89]. Another example would be the action taken by the New York Department of Financial Services (NYDFS), which has released a Bit-License regulatory framework [90] 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 [91]’. 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 [92]’.

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 [93].
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) [94]. 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 [96]’. [97]
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 [98]. 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 [100].
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 [101]. A few examples would be, Viacoin, a new
‘notary’ platform where it is possible to time-stamp, transfer and verify ownership of documents [102]; Storjcoin, which unlike Bitcoin, is a decentralised cloud storage system [103]; and, finally, Litecoin, a platform similar to Bitcoin with quicker transaction confirmations for high-volume merchants [104]. 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 [105]’, 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
APPLICATIONS?
‘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 [106].’
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 [108], 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 [109].
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 [110].
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?

Contributo di Giovanni Perani, Blockchain and Cryptocurrencies Expert at Carnelutti Law Firm, LL.M. at Singapore Management University



TABLE OF CONTENTS

INTRODUCTION
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?
CONCLUSION
BIBLIOGRAPHY



_________
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)
www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf.
86 European Central Bank, ‘Virtual currency schemes – a further analysis, Eurosystem Report’ (February 2015) 23
www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemesen.pdf.
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 [2015] 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
Guidance].
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.
101 ibid.
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.