Introduction
- Humankind is living in an era of rapid technological progress, an era which seems to be stretching thin the ability of our political, institutional, legal, and economic constructs to integrate new products and protocols and adapt, for the benefit and prosperity of all.
- The European Union (EU) is among those political and economic constructs faced with the need to integrate and leverage new, emerging technologies such as “AI”, “blockchain” and others, for the benefit of the European citizens.
- Blockchain technologies are in this respect particularly challenging, as they entail economic, social, and political innovation in addition to technological innovation.
- In Part 1, I present blockchain technologies and posit that their most innovative aspects, political and economic in nature rather than technological, defy the existing institutional architecture. I argue that three elements are essential when considering blockchain innovation:
•First, using the word “blockchain” is useful in as much as it means “that which abstracts the determinants of Bitcoin’s and other crypto-assets success”.
•Second, such a blockchain system fosters large scale cooperation and cooperative behaviour through uncoerced means, by using an economic mechanism design where incentives are aligned between the participants.
•Third, with predictability and cooperative behaviour defined as “the cement of society”1 , a blockchain system improves the predictability of its users’ behaviour through an automated community consensus mechanism. This consensus mechanism in turn improves governance by alleviating some drawbacks of decentralized decision-making. - The third element is especially interesting as it opens an alternative to state-centred political systems and institutions. As a matter of fact, the intellectual roots of Bitcoin and other crypto-assets have been traced back to “The Crypto Anarchist Manifesto”2 published in 1988 by Timothy (Tim) May, a computer scientist and professional. The first text quoted by the Bitcoin paper, Wei Dai’s “b-money” explains: “in a crypto-anarchy the government is […] permanently unnecessary”3 . Indeed Satoshi Nakamoto, the author of the Bitcoin paper writes: “the main benefits are lost if a trusted third party is still required […]. We propose a solution […] using a peer-to-peer network.”4
- If we accept that “blockchain” means “the features at the root of Bitcoin’s and other crypto-assets’ success”, it is understandable that blockchains have been qualified “an institutional technology”5, thus possibly spurring an institutional evolution.
- Faced with this challenge, the EU has been among the first political actors on the global scene to attempt to reach its aims, set out in the Treaties6, through a comprehensive regulation for the most popular and conspicuous applications of blockchain technologies, the “crypto assets”7 .
- Part 2 begins by looking at the case for regulation and is afterwards dedicated to a critical reading of the “Markets in Crypto Assets” (“MiCA”) regulation in a dynamic context, highlighting relevant differences between the initial Commission Proposal from September 2020 and the final version adopted in the European Parliament plenary in April 2023 and endorsed by the Council in May 2023. It thus indirectly sheds light on the EU legislative process.
- The “Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937” has been published in the Official Journal on 9th June 2023 and has entered into force on 30th June 2023. The official version fixes the dates of application of its provisions: 30 June 2024 for ARTs and EMTs (see Part 2 below) and 30 December 2024 for crypto-assets other than ARTs and EMTs and for crypto-asset services providers.
- The Regulation 2023/1114 (MiCA) strikes in several respects:
•First, MiCA takes a totally opposed approach to the spirit in which other globally successful actors, like the United States of America and the United Kingdom regulate new technologies in general and crypto-assets in particular.
•Second, the proposed measures appear markedly at odds with the stated aims of the regulation, to the point of belying those aims.
•Third, as we are going to argue, the legal provisions seem to miss the most promising avenues for innovation in blockchain technologies and crypto assets, expressly blocking them, for a legal and regulatory outcome that appears close to the one chosen by yet another economically-successful actor, China. - By applying the analytical framework provided in the works of Douglass North8 and Oliver Williamson9, I reach the conclusion that, as concerns the objectives of the Treaties and the strategic priorities of the EU executive, the approach behind the MiCA regulation is intellectually controversial.
- Analysing its provisions in depth, I’ll show that the most likely outcome of MiCA by far will be to suppress innovation while also failing to protect European consumers.
- Given that blockchain and crypto-assets are so disruptive, can our modern, state-centred societies integrate and coexist with them? In Part 3, I chose to explore “best case” scenarios through which MiCA could nevertheless reach, at least partly, some of its stated objectives.
- I begin by looking at the controversial aspects of blockchain technologies and crypto-assets in order to illuminate the biggest contribution of the Regulation: legitimising a new asset class and allowing a path for these disruptive new financial products to enter mainstream.
- With legislators and regulators seemingly “captured” by the incumbents in order to block economic and institutional innovation and avoid change and disruption, I turn to exploring the three main directions from which positive developments could possibly spring:
•“Incumbent innovation” would see the big actors of the traditional financial world seize the opportunity and leverage the technology in order to increase their market penetration.
•In the wake of a robust presence of “institutional actors”, smaller European business could benefit from the technology and the legal framework in order to create consortia and unlock new business opportunities. Nimble European start-ups could be “crowded-in” and employ “regulatory creativity” in order to avoid being smothered by the burdens of the regulation.
•MiCA effectively transforms 420 million European consumers in a legitimate addressable market for third-country companies that would come in the Union through “reverse solicitation” at first, until they have grown to a size and a level of profitability that allows them to sustain the regulatory burden. This is the most likely scenario, which has played out previously in each wave of technological innovation and has made Europe into the “corporate also-ran” that it is today. - I conclude by stepping back and considering what GDPR, MiCA and the upcoming AI regulation tell about the ability of the European Union, as a legal and political construct, to steer a path through the digital revolution.
- This exploration is broad and unbounded in its purpose. It does not limit itself to the field of law but surveys the topic from social, economic, and political angles as well. It doesn’t confine the area of exploration to Europe but takes a global approach. And it doesn’t limit its sources to academic papers published in peer-reviewed journals but, in true “decentralized”10 spirit, it complements scholarly work with sources which have received the validation of the larger public, such as widely acclaimed books and reflection pieces in magazines with millions of subscribers.
[1] J. Elster, “The Cement of Society – a study of social order”, Cambridge University Press, 1989, p.1
[7] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937
[8] D. C. North, “Institutions, Institutional Change and Economic Performance”, Cambridge University Press, 1990
[9] O. E. Williamson “The Economic Institutions of Capitalism”, Macmillan, 1985
[2] T. May, “The Crypto Anarchist Manifesto”, https://groups.csail.mit.edu/mac/classes/6.805/articles/crypto/cypherpunks/may-crypto-manifesto.html, 1988
[3] W. Dai, "b-money", http://www.weidai.com/bmoney.txt, 1998.
[4] S. Nakamoto “Bitcoin: A peer-to-peer Electronic Cash System”, 2008, available at https://bitcoin.org/bitcoin.pdf
[5] S. Davidson, P. De Filippi, and J. Potts, “Blockchains and the economic institutions of capitalism”, (2017). Journal of Institutional Economics, Vol. 14, Issue 4, 2017, available at SSRN: https://ssrn.com/abstract=3221527
[6] “Treaty on European Union” (TEU) and “Treaty on the Functioning of the European Union” (TFEU), Official Journal of the European Union, consolidated versions available at EUR-Lex: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12012M/TXT
[10] See e.g. D. North, op. cit., p 81 and V. Buterin, “The Meaning of Decentralization”, 2017, available at https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274
Are you aware that the English word man directly derives from the Latin word human?
There is no such thing as 'humankind'.
The very first word put me off so much, I need a coffee before I can go on reading.
Hmm, interesting, so mankind it is.
Yes, it's a bit of a put-off, I agree, but Sun Tzu explains that it's never a good idea to wage two wars at the seame time. Why make more enemies ?
The Blockchain is getting more popular and also spreading everyday so it is bringing about evolution just like being in a new world
Innovation step as for me will be the one that will help the Blockchain to get to that which need to be gotten to in the future