For economists, the world of Bitcoin is complex enough; for lawyers and lawmakers, it’s even more complex.
“To speak a language is to take on a world, a culture,” claimed revolutionary thinker Frantz Fanon, words that ring true when negotiating the emerging world of blockchain, whose defining language is still being determined. For economists, the world of Bitcoin is complex enough; cryptocurrency expert Jochen Möbert notes that “potentially disruptive technologies, from digitalization to biotechnology, will simply add to the list of requirements, as economists will need to understand just what is innovative about the new procedures.”
Cryptocurrency economists, he states, will need to be both software and hardware experts if they are to understand Bitcoin codes and comprehend decentralized networks and mining processes. If economists themselves will need to specialize in technology to issue accurate forecasts or to issue sound advice to investors, one can only imagine the difficult road ahead for lawyers.
Bitcoin Lies Beyond Current Legal Definitions
Bitcoin cannot neatly be defined through terms such as ‘currency’ or ‘commodity’. It cannot be valued based on factors such as interest rate or price differences between currency pairs, nor is it a commodity, like gold or other precious metals, which has a minimum value. Bitcoin has no intrinsic value; in fact, experts note that the frequent fluctuation of cryptocurrency can be attributed to the susceptibility of cryptocurrency values to market gambling. There is no way to set an objective, fair price for cryptocurrency and, as noted by Möbert, the increasing demand for Bitcoin indicates that trust in cryptocurrency is growing, which means that the effects of this technology could revolutionize our entire financial and payment systems.
Problems with Terminology
In an important paper on blockchain lexicon [Editor’s note: the link to the paper has been updated to reflect a more current version, courtesy of Prof. Walch] for lawyers, Angela Walch notes that the vocabulary used in blockchain technology is “notoriously confusing… Blockchain technology, sometimes called ‘the blockchain’ or just ‘blockchain’, is alternatively referred to as ‘distributed ledger technology’ or ‘shared ledger technology’ or ‘mutual distributed ledger technology’, or even a decentralized or distributed ‘database’. Some blockchains are public, others private, others restricted/unrestricted, and there are various parties involved in operating the databases or ledgers.”
The fluctuating terminology is bound to pose an obstacle for regulators seeking to govern the technology by law. According to Walch, challenges up ahead for lawmakers include:
- Understanding how Bitcoin is mined and secured
- The constant alteration of blockchain features to serve different needs (e.g. the creation of permissioned blockchains that involve a trusted group of transaction processors)
- Identifying variations in the technology
- Creating concrete definitions when the technology itself is in a constant state of flux
- The possibility that regulating the technology through law too early could frustrate its potential
Walch rightly advocates for training and education for lawmakers; the more familiar they are with this technology, the more likely they are to accurately define and regulate its functioning. Research will enable regulators to critically analyze blockchain and balance its advantages and disadvantages. Meanwhile, involving bodies such as the ISO could be of aid in shaping effective global standards. Above all, it is vital not to regulate the technology too early since further experimentation is required to see where it is heading. Finally, any regulations formulated should follow the spirit of the laws regulating other financial practices, which seek to protect consumers and promote financial stability.