Crypto Regulation and the Case for Europe

Abstract

The blockchain phenomenon has seen an extraordinary rise to prominence. The technology has grown at a revolutionary speed across many sectors and within little over a decade. It is no longer a niche technology for geeks, but a formidable innovation capable of triggering a paradigm shift, not only in finance, but within the society as a whole. While the blockchain industry has experienced an unprecedented growth, regulators struggled to keep pace with this innovation, both in terms of understanding this phenomenon and adapting or providing adequate legal and regulatory frameworks. As a result, legal and regulatory uncertainties are some of the main obstacles for blockchain innovation. This paper seeks to analyze regulators’ and policymakers’ efforts to understand and develop an adequate regulatory approach to crypto assets, tokens, and the distributed ledger technology (DLT) in Europe and illustrates the evolution of regulatory perception and recognition of this innovation. As the EU regulator remained passive for some time toward blockchain innovation except for a few inconsequential statements or reports, the EU countries tried to address this innovation individually and mostly attempted to apply existing legal framework to blockchain, with limited success. This paper gives an example of Liechtenstein as a jurisdiction that developed a comprehensive, bespoke and unique law that creates an entirely new legal architecture and principles to enable the token economy. It also outlines the EU latest initiative to create unique and bespoke regulation to govern markets in crypto assets and highlights the challenge of regulating the dynamically developing blockchain technology for the entire European region.