The Law of Blockchain.pdf

Washington Law Review Volume 95 Number 3 10-2020 The Law of Blockchain Georgios Dimitropoulos HBKU College of Law, [email protected] Follow this and additional works at: https://digitalcommons.law.uw.edu/wlr Part of the Science and Technology Law Commons Recommended Citation Georgios D...

Washington Law Review Volume 95 Number 3 10-2020 The Law of Blockchain Georgios Dimitropoulos HBKU College of Law, [email protected] Follow this and additional works at: https://digitalcommons.law.uw.edu/wlr Part of the Science and Technology Law Commons Recommended Citation Georgios Dimitropoulos, The Law of Blockchain, 95 Wash. L. Rev. 1117 (2020). Available at: https://digitalcommons.law.uw.edu/wlr/vol95/iss3/3 This Article is brought to you for free and open access by the Law Reviews and Journals at UW Law Digital Commons. It has been accepted for inclusion in Washington Law Review by an authorized editor of UW Law Digital Commons. For more information, please contact [email protected]. Dimitropoulos (Do Not Delete) 10/5/2020 3:54 PM THE LAW OF BLOCKCHAIN Georgios Dimitropoulos* Abstract: Blockchain technology is a new general-purpose technology that poses significant challenges to the existing state of law, economy, and society. Blockchain has one feature that makes it even more distinctive than other disruptive technologies: it is, by nature and design, global and transnational. Moreover, blockchain operates based on its own rules and principles that have a law-like quality. What may be called the lex cryptographia of blockchain has been designed based on a rational choice vision of human behavior. Blockchain adopts a framing derived from neoclassical economics, and instantiates it in a new machinery that implements rational choice paradigms using blockchain in a semi-automatic way, across all spheres of life, and without regard to borders. Accordingly, a global law and cryptoeconomics movement is now emerging owing to the spread of blockchain. This Article suggests that such a rational choice paradigm is an insufficient foundation for the future development of blockchain. It seeks to develop a new understanding of blockchain and its regulation through code according to the emerging la and political econom framework. Blockchain is much more than a machine that enables the automation of transactions according to a rational choice framework. Blockchain should instead be understood as a technological infrastructure. Acknowledging the infrastructural dimension of blockchain technology may help identify a new role for the law in its interaction with blockchain, as well as for government in its interaction with the new technology. More precisel , identif ing blockchain as an infrastructural commons helps us recogni e that la and regulation should not be relegated to the role of merely facilitating the operation of the invisible hand of the market by and within blockchain, but should rather acquire more active roles, such as safeguarding access on non-discriminatory terms to users, on a model with net neutralit and other public utilit safeguards. The Article closes b proposing a la and political econom frame ork for blockchain that is based on principles of publicness, trust, and interoperability. Keywords: cryptoasset; Bitcoin; blockchain; Ethereum; infrastructure; law and cryptoeconomics; law and political economy * Associate Professor of Law, Hamad Bin Khalifa University (HBKU) College of Law; Research Associate, University College London Centre for Law, Economics and Society (UCL CLES), and University College London Centre for Blockchain Technologies (UCL CBT) [e-mail: [email protected]]. The author would like to thank Stefan Eich, David Singh Grewal, Philipp Hacker, and Ioannis Lianos, as well as the participants at the Blockchain and the Constitution of a New Financial Order: Legal and Political Challenges conference at UCL, the The Future of EU Private Law conference at King s College London, and the Lawyering in the Digital Age conference organized by Radboud University for their comments on drafts at different phases of the project. The usual disclaimer applies. 1117 Dimitropoulos (Do Not Delete) 1118 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 INTRODUCTION .............................................................................. 1119 I. BLOCKCHAIN AS (LEGAL) CODE .................................... 1126 A. The Rise of Blockchain .................................................... 1127 1. Technological Features of Blockchain Technology ................................................................. 1127 2. Applications of Blockchain Technology .................... 1131 a. Cryptocurrencies and Other Cryptoassets ............ 1131 b. Private Uses.......................................................... 1135 c. Government Uses ................................................. 1137 B. Code, Law, and the Lex Cryptographia............................ 1141 C. The Response of the Law of the Physical World: From Indifference to Recognition to Control to Adoption ........................................................................... 1143 II. BLOCKCHAIN AS INFRASTRUCTURE ............................. 1151 A. (Global) Law and Cryptoeconomics ................................ 1151 1. From Cryptoeconomics to Law and Cryptoeconomics ........................................................ 1151 2. Economic Incentives in the Blockchain Cryptographic Environment ....................................... 1155 B. A Spaceless World?.......................................................... 1157 1. A Spaceless Society? .................................................. 1158 2. A Spaceless Economy? ............................................... 1161 C. The Infrastructural Dimension of Blockchain .................. 1163 1. The Notion of Infrastructure ....................................... 1163 2. The Infrastructural Nature of Blockchain Technology: From Utopia to Heterotopia ........... 1166 a. Types of Infrastructural Dimensions of Blockchain ........................................................... 1167 i. Physical Manifestations ................................. 1167 ii. Effects on Individuals and Society ................ 1169 b. Blockchain as Non-Physical Infrastructure .......... 1170 3. Blockchain as a Global Infrastructure ........................ 1171 III. TOWARDS A LAW AND POLITICAL ECONOMY FRAMEWORK OF BLOCKCHAIN ...................................... 1172 A. Blockchains as Infrastructural Commons ......................... 1173 B. The Political Economy of Lex Cryptographia.................. 1177 C. The Political Economy of Blockchain .............................. 1179 1. Explaining Regulatory Backlash ................................ 1180 2. Ordinary Law and Lex Cryptographia: Three Phases of Development .............................................. 1186 3. Government Intervention: Publicness, Trust, Interoperability ........................................................... 1188 CONCLUSION .................................................................................. 1191 Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1119 INTRODUCTION New technologies are testing legal systems and society at large. Advances in artificial intelligence (AI), biotechnology, and blockchain technology are changing existing social patterns and putting pressure on the legal status quo. While much discussed, blockchain is relatively little understood. As this Article describes, blockchain is a digital ledger that operates on a decentralized peer-to-peer digital network of computers and facilitates online transaction of many kinds. Blockchain has one feature that makes it even more distinctive than any other disruptive innovation: it is by nature and design a global, transnational technology.1 It was developed explicitly to circumvent national borders and established institutions. Blockchain facilitates the transmission of data and economic value independent of the geographical location of the participants in the blockchain net ork ( the nodes ). New technologies have historically had a transformational impact on the economy. Capital accounting in the form of the double-entry bookkeeping system is considered to be one of the most important foundations of modern capitalism.2 Blockchain is arguably the most significant development in accounting since double-entry bookkeeping. Containerization, or the use of standard shipping containers, is said to have revolutionized international trade and facilitated globalization in the way we know it today.3 Blockchain looks likel to become the soft are equivalent of the shipping container in its facilitation of international trade.4 The potential influence of blockchain on contemporary society, economy, and law becomes even more apparent considering the various areas in which blockchain is used.5 The first and still most important 1. Primavera De Filippi & Samer Hassan, Blockchain Technology as a Regulatory Technology: From Code is Law to Law is Code, FIRST MONDAY (Dec. 5, 2016), https://firstmonday.org/ojs/index.php/fm/article/download/7113/5657 [https://perma.cc/T24L4CH3]; MICH LE FINCK, BLOCKCHAIN REGULATION AND GOVERNANCE IN EUROPE 58 (2018). 2. MAX WEBER, ECONOMY AND SOCIETY 93 95 (Guenther Roth & Claus Wittich eds., 1968); see also Bruce G. Carruthers & Wendy Nelson Espeland, Accounting for Rationality: Double-Entry Bookkeeping and the Rhetoric of Economic Rationality, 97 AM. J. SOCIO. 31 (1991). 3. See Daniel M. Bernhofen et al., Estimating the Effects of the Container Revolution on World Trade, 98 J. INT L ECON. 36 (2016). 4. In the same way that the shipping container provided the hardware for international trade, Blockchain may become the software for the further facilitation of international trade. See EMMANUELLE GANNE, CAN BLOCKCHAIN REVOLUTIONIZE INTERNATIONAL TRADE? 44 (2018). 5. See generally Joshua A.T. Fairfield, BitProperty, 88 S. CAL. L. REV. 805 (2015); Joshua Dimitropoulos (Do Not Delete) 1120 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 application of blockchain is the facilitation of cryptocurrencies and other cryptoassets.6 Bitcoin and the cryptocurrency movement emerged during the global financial crisis of 2008.7 Bitcoin was an effort to bypass the mainstream global financial system.8 At the same time, cryptoassets and blockchain are undoubtedly the product of globalization a fundamentally global technology designed to bypass national and physical boundaries, they are both causes and consequences of globalization. Since the creation of Bitcoin, the importance of cryptocurrencies has steadily increased. The price of Bitcoin first exceeded the price of an ounce of gold on March 3, 2017.9 Cryptocurrencies have exponentially multiplied since,10 and a separate categor of cr ptoassets has been developed. Cryptoassets are expected to become mainstream assets in the near future.11 The explosion of the cryptocurrency market has predictably led to a regulatory backlash, a reaction by governments around the world to protect national interests and re-embed money into national jurisdictions.12 The regulatory response has taken multiple forms, and Fairfield, Smart Contracts, Bitcoin Bots, and Consumer Protection, 71 WASH. & LEE L. REV. ONLINE 35 (2014); David Yermack, Corporate Governance and Blockchains, 21 REV. FIN. 7 (2017); Carla L. Reyes, Conceptualizing Cryptolaw, 96 NEB. L. REV. 384 (2017); Kevin Werbach & Nicolas Cornell, Contracts Ex Machina, 67 DUKE L.J. 313 (2017); Robinson Randolph, The New Digital Wild West: Regulating the Explosion of Initial Coin Offerings, 85 TENN. L. REV. 897 (2018); Jonathan Rohr & Aaron Wright, Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public Capital Markets (Cardozo Legal Stud., Research Paper No. 527, Univ. of Tenn. Legal Stud., Research Paper No. 338, 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3048104 [https://perma.cc/UV52-F987]. 6. See generally FIN. CONDUCT AUTH., GUIDANCE ON CRYPTOASSETS (2019), https://www.fca.org.uk/publication/consultation/cp19-03.pdf [https://perma.cc/R3E9-LPYT]; CRYPTOASSETS: LEGAL, REGULATORY, AND MONETARY PERSPECTIVES (Chris Brummer ed., 2019); FIN. STABILITY BD., CRYPTOASSETS: WORK UNDERWAY, REGULATORY APPROACHES AND POTENTIAL GAPS (2019), https://www.fsb.org/wp-content/uploads/P310519.pdf [https://perma.cc/VGP6-THP6]; Syren Johnstone, Taxonomies of Digital Assets: Recursive or Progressive?, 2 STAN. J. BLOCKCHAIN L. & POL Y 78 (2019). 7. SATOSHI NAKAMOTO, BITCOIN, BITCOIN: A PEER-TO-PEER ELECTRONIC CASH SYSTEM (2008), https://bitcoin.org/bitcoin.pdf [https://perma.cc/V766-N32V]. 8. Id. at 1. 9. The price closed at $1,268 while a troy ounce of gold stood at $1,233. Rishi Iyengar, Bitcoin Price Exceeds Gold for First Time Ever, CNN BUS. (Mar. 3, 2017), https://money.cnn.com/2017/03/03/investing/bitcoin-gold-price-value/index.html [https://perma.cc/R8VL-PWV4]. 10. The website CoinMarketCap lists more than 2,371 cryptocurrencies. See All Cryptocurrencies, COINMARKETCAP, https://coinmarketcap.com/all/views/all [https://perma.cc/G4MD-ZA6S]. 11. See generally Crypto-Assets: Implications for Financial Stability, Monetary Policy, and Payments and Market Infrastructures, ECB Occasional Paper Series, Eur. Cent. Bank, No. 223 (May 2019). 12. Georgios Dimitropoulos, Global Currencies and Domestic Regulation: Embedding through Enabling?, in REGULATING BLOCKCHAIN: TECHNO-SOCIAL AND LEGAL CHALLENGES 112 (Philipp Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1121 largely depends on how the relevant legal actors perceive the threat posed by cryptoassets and their underlying technology.13 Blockchain technology as such and related blockchain markets are becoming more important as well.14 Blockchain technology is a generalpurpose technology that can be used to achieve multiple goals; while it was initially developed as Bitcoin blockchain to by-pass commercial Hacker et al. eds., 2019) [hereinafter REGULATING BLOCKCHAIN]. 13. Accordingly, the literature on the legal aspects of cryptocurrencies and other cryptoassets has been expanding. See Reuben Grinberg, Bitcoin: An Innovative Alternative Digital Currency, 4 HASTINGS SCI. & TECH. L.J. 159 (2012); Tracey A. Anderson, Bitcoin Is it Just a Fad? History, Current Status and Future of the Cyber-Currency Revolution, 29 J. INT L BANKING L. & REGUL. 428 (2014); Alexandre Mallard et al., The Paradoxes of Distributed Trust: Peer-to-Peer Architecture and User Confidence in Bitcoin, J. PEER PROD., 2014; PRIMAVERA DE FILIPPI & AARON WRIGHT, BLOCKCHAIN AND THE LAW: THE RULE OF CODE (2018); BLOCKCHAIN & CRYPTOCURRENCY REGULATION (Josias Dewey ed., 1st ed. 2019), https://www.acc.com/sites/default/files/resources/vl/membersonly/Article/1489775_1.pdf [https://perma.cc/RJ2Q-RGNH]; REGULATING BLOCKCHAIN, supra note 12. The issue of the regulation of cryptocurrencies has been prominent in the literature, again with a focus on Bitcoin. See Joshua J. Doguet, Comment, The Nature of the Form: Legal and Regulatory Issues Surrounding the Bitcoin Digital Currency System, 73 LA. L. REV. 1119 (2013); Andres Guadamuz, Virtual Currency and Virtual Property Revisited, TECHNOLLAMA (Feb. 11, 2013), http://bit.ly/1MaeW4N [https://perma.cc/6KZQ-MHXA]; Primavera De Filippi, Bitcoin: A Regulatory Nightmare to a Libertarian Dream, INTERNET POL Y REV., May 23, 2014; GLOB. LEGAL RSCH. DIRECTORATE STAFF, LAW LIBR. OF CONG., REGULATION OF BITCOIN IN SELECTED JURISDICTIONS (2014), https://www.loc.gov/law/help/bitcoin-survey/regulation-of-bitcoin.pdf [https://perma.cc/5G94-EU94]; Stephen T. Middlebrook & Sarah Jane Hughes, Regulating Cryptocurrencies in the United States: Current Issues and Future Directions, 40 WM. MITCHELL L. REV. 813 (2014); Jerry Brito et al., Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets, and Gambling, 16 COLUM. SCI. & TECH. L. REV. 144 (2014); Nicholas A. Plassaras, Comment, Regulating Digital Currencies: Bringing Bitcoin Within the Reach of the IMF, 14 CHI. J. INT L L. 377 (2013); Kevin V. Tu & Michael W. Meredith, Rethinking Virtual Currency Regulation in the Bitcoin Age, 90 WASH. L. REV. 271 (2015); Omri Marian, A Conceptual Framework for the Regulation of Cryptocurrencies, 82 U. CHI. L. REV. 53 (2015); Andres Guadamuz & Chris Marsden, Blockchains and Bitcoin: Regulatory Responses to Cryptocurrencies, FIRST MONDAY (Dec. 14, 2015), https://firstmonday.org/ojs/index.php/fm/article/view/6198/5163 [https://perma.cc/6QDWM4ZC]; Michael Abramowicz, Cryptocurrency-Based Law, 58 ARIZ. L. REV. 359 (2016); Michèle Finck, Blockchains: Regulating the Unknown, 19 GERMAN L.J. 665 (2018); JEFFREY H. MATSUURA, DIGITAL CURRENCY: AN INTERNATIONAL LEGAL AND REGULATORY COMPLIANCE GUIDE (2018). The views in legal commentary range from scholars against, in favor, and in favor of minimal regulation. Compare Nikolei M. Kaplanov, Nerdy Money: Bitcoin, the Private Digital Currency, and the Case Against Its Regulation, 25 LOY. CONSUMER L. REV. 111 (2012), and Joe Myers, Joseph Stiglitz: Bitcoin Ought to Be Outlawed, WORLD ECON. F. (Nov. 30, 2017), https://www.weforum.org/agenda/2017/11/joseph-stiglitz-bitcoin-ought-to-be-outlawed/ [https://perma.cc/7N3V-VWBE], with Daniela Sonderegger, A Regulatory and Economic Perplexity: Bitcoin Needs Just a Bit of Regulation, 47 WASH. U. J.L. & POL Y 175 (2015). 14. Blockchain Market Worth $39.7 Billion by 2025, MARKETSANDMARKETS, https://www.marketsandmarkets.com/PressReleases/blockchain-technology.asp [https://perma.cc/468K-4RCA] ( [S]i e is e pected to gro from USD 3.0 billion in 2020 to USD 39.7 billion by 2025 . . . . ). Dimitropoulos (Do Not Delete) 1122 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 financial institutions and central banks, it was later welcomed by various private commercial actors as well as public bodies. Both the private sector and the government already have or are in the process of adopting the technology. The adoption of blockchain, particularly by governments, does not come without challenges. According to de Filippi and Wright, blockchains accelerate the shift of po er from legal rules and regulations administered by government authorities to code-based rules and protocols governed by decentralized blockchain-based net orks. 15 It has been suggested, moreover, that blockchain and other distributed ledgers are the strongest challenge e er posed to the monopol of the state o er the promulgation, formation, keeping and verification of institutions and the public record. 16 This is because trust in blockchain may be in the position to replace trust in and through the government.17 According to Satoshi Nakamoto, the pseudonymous developer of Bitcoin, blockchain technology can lead to a society where self-enforcing rules will supplant traditional laws.18 As one of the developers of the Ethereum blockchain puts it, blockchain creates a ne kind of legal s stem. 19 Drawing on the notion of lex informatica,20 scholars today even speak of the development of a lex cryptographia within blockchain.21 But blockchain may prove to be even more than that not just a case in which code is law, but also a new application of law as code.22 15. DE FILIPPI & WRIGHT, supra note 13, at 7. 16. Brendan Marke To ler, Anarchy, Blockchain and Utopia: A Theory of PoliticalSocioeconomic Systems Organised Using Blockchain, 1 J. BRIT. BLOCKCHAIN ASS N 13, 13 (2018), https://ssrn.com/abstract=3095343 [https://perma.cc/2TC8-3AW4]. 17. See generally KEVIN WERBACH, THE BLOCKCHAIN AND THE NEW ARCHITECTURE OF TRUST (2018). 18. See NAKAMOTO, supra note 7. 19. Andy, The Future of the Blockchain: Interview with Ethereum Co-founder Gavin Wood, SIMPLEWEB (Sept. 18, 2017), https://simpleweb.co.uk/the-future-of-the-blockchain-interview-withethereum-co-founder-gavin-wood/ [https://perma.cc/NVN3-9DRC]. 20. Joel R. Reidenberg, Lex Informatica: The Formulation of Information Policy Rules Through Technology, 76 TEX. L. REV. 553 (1998). This terminology reflects the supposedly autonomous merchant la of the Middle Ages, the lex mercatoria. Id. at 553. 21. Aaron Wright & Primavera De Filippi, Decentralized Blockchain Technology and the Rise of Lex Cryptographia (Mar. 10, 2015) (unpublished manuscript) (on file with SSRN), https://ssrn.com/abstract=2580664 [https://perma.cc/GHP3-MUWG]. 22. See De Filippi & Hassan, supra note 1; Karen Yeung, Regulation by Blockchain: The Emerging Battle for Supremacy Between the Code of Law and Code as Law, 82 MOD. L. REV. 207 (2018); Carla L. Reyes, Moving Beyond Bitcoin to an Endogenous Theory of Decentralized Ledger Technology Regulation: An Initial Proposal, 61 VILL. L. REV. 191 (2016); Carla L. Reyes, Conceptualizing Cryptolaw, 96 NEB. L. REV. 384 (2017); see also infra section I.B. See generally LAWRENCE LESSIG, CODE AND OTHER LAWS OF CYBERSPACE (1999) (on the idea of code as law). Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1123 Governments all over the world are accordingly revealing an uneasiness with the rise of blockchain and its accompanying functionalities.23 While the initial focus of regulators and scholars alike has been mostly on cryptocurrencies, the focus is starting to shift towards the technology supporting cryptocurrencies.24 The law of blockchain is shaped by the nature of the technology, its uses, as well as the efforts at various levels of governance to regulate it. The Article identifies two layers of interaction between traditional law and blockchain: the law within blockchain, which has been termed lex cryptographia, and the law of the interaction between the real world and the online world.25 The most pressing issue for legal scholars working in the area of blockchain as well as law and technology more broadly is the role of the law in its interaction with new technologies. In the 20th century, 23. This concern was showcased in the reaction of Members of Congress and other U.S. officials during a Senate Banking Committee hearing on Facebook s planned blockchain-backed currency, Libra. See Jack Kelly, Facebook s Libra Comes Under Fire in Senate Hearing Here s Why Congress Is Terrified, FORBES (July 16, 2019), https://www.forbes.com/sites/jackkelly/2019/07/16/facebooks-libra-comes-under-fire-in-senatehearing-heres-why-congress-is-terrified/#45f2537736b4 [https://perma.cc/A4M4-QLVA]. There seems to be a change in the perception of the need for the federal government to intervene in the sphere of blockchain technology and cryptoassets, not in a restricting but rather enabling manner. See infra section I.C (on the various types of interventions adopted by regulators around the world, including at the federal and the state level in the United States). A proposal has been even put on the table for the introduction of a U.S. digital dollar. The COVID-19 pandemic crisis must have played a role in this change of heart. See generally Jason Brett, Congress Has Now Introduced 32 Crypto and Blockchain Bills, FORBES (Apr. 28, 2020), https://www.forbes.com/sites/jasonbrett/2020/04/28/congress-has-introduced-32-crypto-andblockchain-bills-for-consideration-in-2019-2020/#3b64e34f1d61 [https://perma.cc/9VVF-GDGY]. On the other side of the Atlantic, the French Finance Minister, Bruno Le Maire, called Libra a threat to national so ereignt . See Bruno Le Maire, Facebook s Libra Is a Threat to National Sovereignt , FIN. TIMES (Oct. 17, 2019), https://www.ft.com/content/bf2f588e-ef63-11e9-a55a-30afa498db1b [https://perma.cc/D67C-CX9B]. 24. Various types of laws come into play for the regulation of blockchain, most importantly, data protection laws, and particularly within the European Union, the General Data Protection Regulation (GDPR). See 2016 O.J. (L 679) (on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing 1995 O.J. (L 281) (GDPR)); infra section I.C. 25. I have called this else here blockchain la . See Georgios Dimitropoulos, Blockchain Law: Between Public and Private, Transnational and Domestic, in THE FUTURE OF EUROPEAN PRIVATE LAW (Takis Tridimas & Mateja Durovic eds., forthcoming 2020); cf. also Stéphane Blemus, Law and Blockchain: A Legal Perspective on Current Regulatory Trends Worldwide, REVUE TRIMESTRIELLE DE DROIT FINANCIER [REV. TRIM. DR. FIN.] , no. 4, 2017, at 1; Reyes, supra note 5; Usha Rodrigues, Law and the Blockchain, 104 IOWA L. REV. 679 (2018); João Pedro Quintais et al., Blockchain and the Law: A Critical Evaluation, 2 STAN. J. BLOCKCHAIN L. & POL Y 86 (2019). See generally THE STATE OF PLAY: LAW, GAMES, AND VIRTUAL WORLDS (Jack M. Balkin & Beth Simone Noveck eds., 2006); Mark Taylor & Matteo Matteucci, Virtual Worlds, 15 COMPUT. & TELECOMM. L. REV. 124 (2009) (on law in the virtual world). Dimitropoulos (Do Not Delete) 1124 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 rational choice theor s focus on using incenti es to direct human behavior has influenced lawmaking.26 Accordingly, the law may only be required to structure incentives for technology so that technology develops in accordance with policy objectives.27 Importantly, blockchain is also a regulatory technology, as it guides the behavior of individuals operating in the blockchain network. This behavior-steering result is achie ed through the use of hat has been called cr pto-economics. 28 Blockchain technology embeds cryptoeconomic principles facilitating its internal operations and uses, based largely on rational choice theory.29 It allows for the application of the rational choice paradigm in a semiautomatic way and on a global scale. Regulators and scholars working in this area need to be mindful of this capacity for several reasons. It is now well understood that rational choice theory does not always describe human agency with accuracy: Developments in the social sciences such as behavioral economics have proven this point repeatedly.30 Accordingly, governments may have to intervene to protect blockchain participants and affected third parties.31 Overall, we need a new framework for understanding and regulating blockchain technology. Blockchain is much more than a mechanism that assumes that individuals are rational, and allows for the automation of transactions. Blockchain can be understood as a technological infrastructure.32 Acknowledging the infrastructural dimension of blockchain technology 26. See generally Thomas S. Ulen, Rational Choice and the Economic Analysis of Law, 19 LAW & SOC. INQUIRY 487 (1994). 27. See FINCK, supra note 1, at 118. 28. See generally Rainer Böhme et al., Bitcoin: Economics, Technology, and Governance, 29 J. ECON. PERSPS. 213 (2015); Sinclair Davidson et al., Economics of Blockchain (Mar. 9, 2016) (unpublished manuscript) (on file with SSRN) [hereinafter Davidson et al., Economics of Blockchain], https://ssrn.com/abstract=2744751 [https://perma.cc/SZ73-B9HD]; Sinclair Davidson et al., Disrupting Governance: The New Institutional Economics of Distributed Ledger Technology (July 22, 2016) (unpublished manuscript) (on file with SSRN), https://ssrn.com/abstract=2811995 [https://perma.cc/J7AE-CZ9J]; Roman Beck et al., Governance in the Blockchain Economy: A Framework and Research Agenda, 19 J. ASS N FOR INFO. SYS. 1020 (2018); CHRIS BERG ET AL., UNDERSTANDING THE BLOCKCHAIN ECONOMY: AN INTRODUCTION TO INSTITUTIONAL CRYPTOECONOMICS (2019); see also Cryptoeconomics Lab, MIT, https://ce.mit.edu/ [https://perma.cc/JQA9-WCD6]. 29. See infra section II.A. 30. See Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998) (on the application of behavioral economics in the law). 31. See infra section III.C.1 (on the risks posed by cryptoassets and blockchain technology overall). 32. See also Angela Walch, The Bitcoin Blockchain as Financial Market Infrastructure: A Consideration of Operational Risk, 18 N.Y.U. J. LEGIS. & PUB. POL Y 837 (2015); see also DE FILIPPI & WRIGHT, supra note 13; FINCK, supra note 1, at 66 (noting that blockchains ha e an e traordinar potential to form a regulator infrastructure go erning humans and machines ). Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1125 may help identify a new role for the law in its interaction with blockchain, as well as for government in its interaction with the technology. More precisely, this Article presents the argument that blockchain should be understood as an infrastructural commons. Accordingl , la and regulation should not be relegated to the role of facilitating the operation of the invisible hand of the market by and within blockchain, but should pursue more interventionary tasks, such as safeguarding access on nondiscriminator terms to potential users on the model of net neutralit . 33 The Article discusses the political economy of blockchain at two levels: at the le el of the societal econom of the lex cryptographia, and the interaction between blockchain technology and the lex cryptographia of the digital world, on the one side, and the ordinary law of the physical world, on the other. It presents three phases of such interaction: the anarcho-libertarian phase, the mainstreaming phase, and the maturity phase. The phases present a different mix between public and private, transnational and domestic laws and values. A law shaping the interaction between lex cryptographia and the mainstream legal system is in the process of being developed, and the Article suggests that it should feature the following three characteristics and values: enabling public and permissionless blockchains; allowing for trust in blockchain to operate with the support of governmental trust; and bridging the gaps and creating interoperability between the public and the private, as well as the physical and the non-physical world. The Article proceeds as follows: Part I discusses the rise of blockchain and cryptoassets in recent years, as well as the consequences that their 33. The notion of infrastructure is directly linked to the idea of the commons. See BRETT M. FRISCHMANN, INFRASTRUCTURE: THE SOCIAL VALUE OF SHARED RESOURCES 1 9, 10 21, 59 72 (2012). Infrastructure is becoming more important as a conceptual category for the analysis of all areas of law. See id.; Benedict Kingsbury, Infrastructure and InfraReg: On Rousing the International Law Wi ards of Is, 8 CAMBRIDGE INT L L.J. 171 (2019) (putting forward the idea of developing a conceptual frame ork for the understanding and anal sis of international la in terms of thinking infrastructurall ); see also InfraReg, INST. FOR INT L L. & JUST., https://www.iilj.org/infrareg/ [https://perma.cc/J9DE-SE67]; Claire Schupmann, Blockchain as an Emerging Cross-Border Payments Infrastructure (Inst. for Int l L. & Just., Emerging Scholars Paper No. 28, 2017). In a similar vein, legal scholarship is rediscovering the importance of space in governance. See Sarah Blandy & David Sibley, Law, Boundaries and the Production of Space, 19 SOC. & LEGAL STUD. 275 (2010); Luigi Nuzzo, Spatial and Temporal Dimensions of Legal History: International Law, Foreign Policy, and the Construction of a Legal Order, in THE TRANSFORMATION OF FOREIGN POLICY: DRAWING AND MANAGING BOUNDARIES FROM ANTIQUITY TO THE PRESENT (Gunther Hellmann et al. eds., 2016); Ran Hirschl & Ayelet Shachar, Spatial Statism, 17 INT L J. CONST. L. 387 (2019) (as well as the other articles of the special issue). Primavera De Filippi discusses the related issue of commons-based peer production and its relationship to commons-based cr ptocurrencies. See Primavera De Filippi, Translating CommonsBased Peer Production Values into Metrics: Toward Commons-Based Cryptocurrencies, in THE HANDBOOK OF DIGITAL CURRENCIES 463, 474 79 (David Lee ed., 2015). Dimitropoulos (Do Not Delete) 1126 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 development has had on the legal system. The uses of blockchain have exponentially grown from cryptocurrencies to the mainstreaming of cryptoassets to the adoption of the technology by private sector and government. The process of recognition, control, and adoption is largely influenced b ho the legal order of the ph sical (i.e., non-digital) world understands blockchain and cryptoassets, whether as money, commodity, or technology. Part II delves into the underlying regulatory techniques that blockchain has adopted to steer the behavior of blockchain participants. Blockchain rules invariably use incentive structures for the coordination of behavior in the cryptoenvironment that derive from rational choice economics. The result is a new law and economics of blockchain. But blockchain is much more than a mechanism for the automatic execution of transactions through the incentivization of individual behavior. It is an infrastructure that operates at a global scale facilitating a great variety of actions in all aspects of life. Part III presents the interaction bet een the ordinar ph sical legal order, and blockchain technology, and proposes a new framework for the lex cryptographia as well as the interaction between the law of the analog and the digital cr pto orld dra ing on the emerging la and political econom mo ement.34 Specifically, this Article argues that a reformed la of blockchain should have the following three aims: enabling public and permissionless blockchains; allowing for trust in blockchain to operate with the support of governmental trust; and bridging the gaps by creating interoperability between the public and the private, as well as the physical and digital world. I. BLOCKCHAIN AS (LEGAL) CODE Blockchain is a new technology that shares some of the features of other disrupti e technologies, hile being distinctl a global technolog of technologies in that it facilitates interactions across borders. The first section of this Part discusses the technological features underlying the rise of blockchain in the private and public sector. The Part then proceeds to discuss the nature of blockchain as a special case of code as la as well as la as code. The final section of this Part closes ith an e amination 34. Jedediah Britton-Purdy et al., Building a Law and Political Economy Framework: Beyond the Twentieth-Century Synthesis, 129 YALE L.J. 1784 (2020) (presenting a framework for identifying and critiquing the way the law has been understood since the twentieth century, as well as offering a new law-and-political-economy approach to legal scholarship). The law and political economy framework for blockchain is fine-tuned through the Polan ian concept of embeddedness. See KARL POLANYI, THE GREAT TRANSFORMATION: THE POLITICAL AND ECONOMIC ORIGINS OF OUR TIME (1944). The first mention of the idea of embeddedness of economic institutions into social relations is in Karl Polan i s The Great Transformation. Id. at 60. Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1127 of the various ways in which legal orders have responded to the rise of the cryptoworld. A. The Rise of Blockchain 1. Technological Features of Blockchain Technology Blockchain technology is much-discussed but little understood. The co-founder of Ethereum, one of the most successful blockchains, uses an apt definition of blockchain: A blockchain is a magic computer that anyone can upload programs to and leave the programs to self-execute, where the current and all previous states of every program are always publicly visible, and which carries a very strong cryptoeconomically secured guarantee that programs running on the chain will continue to execute in exactly the way that the blockchain protocol specifies.35 This definition presents blockchain as a magical apparatus with the capacity to create new economic and social institutions a statement that obscures more than it illuminates. This section breaks down some of the features of blockchain technology with less hyperbole.36 At the most visible level, a blockchain is a digital ledger that operates on a decentralized peer-to-peer net ork of computers ( nodes ).37 Blockchain technology is a relatively new technology, which relies on previous innovations, primarily Distributed Ledger Technology (DLT) and cryptography. A blockchain is a digital database, which takes shape as a sequence of blocks in the form of a chain. Drawing on DLT, the ledger is not centrall managed, but rather distributed, meaning it is shared among all participants of the network. In addition, the ledger records transactions among parties in a secure and permanent way through means 35. Vitalik Buterin, Visions, Part 1: The Value of Blockchain Technology, ETHEREUM BLOG (Apr. 13, 2015), https://blog.ethereum.org/2015/04/13/visions-part-1-the-value-of-blockchain-technology/ [https://perma.cc/JV8Y-28MB]. 36. There are various accounts on the function and operation of blockchain. This is due to the fact that the different blockchain ecosystems operate sometimes based on different rule-sets that deviate from the Bitcoin blockchain. See generally ANDREAS M. ANTONOPOULOS, MASTERING BITCOIN (2d ed. 2017). 37. There are of course other technological innovations that use peer-to-peer networks, such as filesharing websites like Napster or BitTorrent. See generally Srikanta Pradhan et al., Blockchain Based Security Framework for P2P Filesharing System, 2018 IEEE INT L CONF. ON ADVANCED NETWORKS & TELECOMMS. SYS., May 2019, https://ieeexplore.ieee.org/abstract/document/8710078 [https://perma.cc/4ZKU-VXRD] (discussing peer-to-peer networks and how blockchain can be used to improve security on peer-to-peer networks). Dimitropoulos (Do Not Delete) 1128 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 of cryptography. DLT has made possible the connection of blocks of information as an online distributed database. Blockchain uses cryptography to link the blocks with a view to making it impossible to exchange transaction data. In a blockchain, users submit their transactions for example, the transfer of Bitcoins or Ethers or uploading of medical files to the network. The transactions are recorded pseudonymously, as blockchain participants can remain and operate through pseudonyms.38 Pseudonymity is guaranteed through multiple encryption and cryptographic techniques such as hashing functions that create information pseudonyms and ke generators (or ke gens ). Ke gens create cr ptographic ke s that are strings of numbers and letters with the use of very advanced mathematics involving prime numbers. There are two sets of keys that are used in all transactions: public and pri ate. Public ke s are allets, or addresses publicly visible to all nodes; private keys are used as digital signatures for the conduct of transactions and are therefore to be kept secret.39 The transactions are added to new blocks by miners that propose the new blocks. Before a block can be added to the chain, a cryptographic puzzle must be solved, creating the block. Miners are special nodes that place transactions in a block by successfully solving a Proof of Work (PoW) or other problems. PoW is a system that requires some work from the miner, usually processing power by a computer. Producing a PoW is a random process with low probability, so normally a lot of trial and error is required for a valid PoW to be generated. When it comes to Bitcoins, for example, a hash is what serves as a PoW. A hash is another string of numbers and letters. A hash function is a cryptographic mathematical function that transforms a variable number of characters into a string with a fixed number of characters. Even small changes in the original string create a completely new hash. Hashing is thus a cryptographic tool that allows the pseudonymization of the information included in the relevant transaction.40 The node that solves the puzzle shares the solution with all the other computers in the network. All nodes in the network verify the PoW, and 38. Most cryptocurrencies are not completely anonymous. See EDWARD V. MURPHY ET AL., CONG. RSCH. SERV., R43339, BITCOIN: QUESTIONS, ANSWERS, AND ANALYSIS OF LEGAL ISSUES 3 (2015), http://fas.org/sgp/crs/misc/R43339.pdf [https://perma.cc/6WDM-MLAN]. 39. See How Blockchain Technology Works: Guide for Beginners, COINTELEGRAPH, https://cointelegraph.com/bitcoin-for-beginners/how-blockchain-technology-works-guide-forbeginners [https://perma.cc/3EZG-5ZGZ]. 40. Id. Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1129 if found to be correct and approved by an electronic consensus, a block is added to the chain. If a miner produces a block that is approved by an electronic consensus, then the miner is rewarded with coins or tokens. The block reward is not the only incentive for miners to keep running their hardware. Miners also get transaction fees that users pay. Even though the fees are usually voluntary on the part of the sender, miners will always prioritize transfers with higher transaction fees. That is why the blockchain econom has been characteri ed as a fee econom . 41 After a successful transfer which goes through a process of successful mining and verification a new block is created as part of the ledger. The ledger is decentralized and distributed across a network of computers. Blocks are linked together in a chronological order forming a continuous line, i.e., a chain of blocks hence, blockchain. A block contains a timestamp, a reference to the previous block in the form of the hash of that block, the transactions and the computational problem that had to be solved before the block went on the chain and the hash of the last block. This complex process purports to do away with intermediaries and replace trust in them with trust in the digital decentralized cryptographic s stem, a trustless trust achie ed through peer-to-peer interaction.42 Blockchain technolog is trustless in that it does not require third part verification. Instead, it uses a consensus mechanism with cryptoeconomic incentives to transcribe a transaction in the distributed database. Blockchain technology thus has certain attributes that differentiate it from other new innovations. It can be used for the registration and transfer of data of all types such as information as well as assets; it is decentralized; it is tamper-proof; it is transnational. The first defining feature of blockchain is decentralization. Blockchain relies on a decentralized peer-to-peer network. Each participant maintains a copy of a shared ledger of digitally signed transactions. Moreover, all copies are maintained in synchronization when a transaction takes place through a protocol in the form of PoW or Proof of Stake (PoS).43 In addition, a blockchain electronic ledger is tamper-proof, in the sense that transactions 41. See infra section II.A. 42. See Kevin Werbach, Trust, But Verify: Why the Blockchain Needs the Law, 33 BERKELEY TECH. L.J. 487, 497 98 (2018) (citing Reid Hoffman, Reid Hoffman: Why the Blockchain Matters, WIRED (May 15, 2015), https://www.wired.co.uk/article/bitcoin-reid-hoffman [https://perma.cc/VU4U-LV5M]) (on the notion of trustless trust ); see also Primavera de Filippi, Blockchain Technology and Decentralized Governance: The Pitfalls of a Trustless Dream (2019) (unpublished manuscript) (on file with HAL), https://hal.archives-ouvertes.fr/hal02445179/document [https://perma.cc/5XL9-F7QP]. 43. See infra section II.A (for a definition of Proof of Stake (PoS) as well as a discussion about the differences between PoW and PoS). Dimitropoulos (Do Not Delete) 1130 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 in blockchain are generally irreversible, which makes blockchain almost immutable.44 There are two main types of blockchain: public and private.45 For public blockchains, there is no specific entity that manages the digital platform. In the case of private blockchains, the ledger is controlled by a single entity or managed by a consortium of companies. There are moreover permissionless and permissioned blockchains.46 Permissionless blockchains are accessible by everyone, while for permissioned blockchains restrictions can be imposed on who can access and change the blocks. Private or consortium blockchains use such restricted access protocols. Two of the most important blockchains, Bitcoin and Ethereum, are public permissionless blockchains. They can be accessed and used by any person with access to a computer anywhere in the world. The software Bitcoin uses, for example, is completely open source and available for anyone to download, modify, and create their own version, which then becomes a new cryptocurrency regime.47 There are also hybrid public-private blockchains, in which nodes with private access can see all the information in particular blockchains, while the others cannot, or the other way around.48 Blockchain is rapidly evolving from a technology for information to a technology for value transfer to a broader technolog for decentrali ation. 49 Blockchain is nowadays understood as a new general-purpose technolog . 50 Blockchain is characterized by its malleability, as it can be used in multiple organizational and social contexts. Public permissionless blockchains, in particular, are a generalpurpose technology that can be used to achieve multiple goals. Blockchains promise to constitute a profound paradigm shift regarding 44. See FINCK, supra note 1, at 30 (using the term tamper-e ident ). The reason that it is preferable to speak of a tamper-proof quality of blockchain ledgers rather than immutability is that blockchain is susceptible to the so-called 51% attack. Parties that control at least 51% of the erification po er on blockchain, such as 51% computing power, can generally tamper with transactions. See Walch, supra note 32, at 861 65. 45. See, e.g., Karl Wüst & Arthur Gervais, Do You Need a Blockchain?, CRYPTO VALLEY CONF. ON BLOCKCHAIN TECH., 2018, at 45, https://ieeexplore.ieee.org/document/8525392 [https://perma.cc/885K-9TKF] (on the differentiations between public and private, as well as permissionless and permissioned blockchains). 46. Id. 47. This availability has led to an explosion of altcoins. See infra section I.A.2.a. 48. See Wüst & Gervais, supra note 45, at 48. 49. Davidson et al., Economics of Blockchain, supra note 28, at 6. 50. See generally Timothy F. Bresnahan & M. Trajtenberg, General Purpose Technologies Engines of Growth?, 65 J. ECONOMETRICS 83 (1995). Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1131 data collection, sharing and processing and to trigger related revisions of socio-economic and political arrangements that depend on data-sharing and transaction.51 In a broader sense, blockchain technolog is being lauded as transformative for every human practice that uses recordkeeping (so, all of them). 52 2. Applications of Blockchain Technology Cryptocurrencies and the broader category of cryptoassets helped spearhead blockchain technology, but blockchain technology is much more than a technology for cryptoassets. Blockchain technology can help transfer any type of data and information, not restricted to the transfer of digitized value. Blockchains are a general-purpose technology particularly in their public permissionless form with a very wide range of applications. Blockchains can replace paper documents with digital ones stored in a tamper-proof ledger. Businesses in almost all industries are exploring ways to take advantage of these features of blockchain. In addition, governments are also trying to stay on top of these developments and explore the opportunities that blockchain technology may provide for the distribution and transformation of government services. This section discusses some current applications of blockchain technology in the private and the public sectors. a. Cryptocurrencies and Other Cryptoassets Cryptoassets are digital assets in which cryptographic techniques are used to regulate the generation of units of an asset and to verify the transfer of those units between parties in a decentralized way i.e., without a central party via a blockchain.53 The original developers of cryptoassets were Financial Technology (FinTech) companies. Most cryptoasset class categories have moved from FinTech startups to mainstream financial institutions, as well as big tech companies. A decade after the emergence of Bitcoin, a boom in both number and type of cryptoassets has taken place. Among these, Initial Coin Offerings (ICOs) 51. FINCK, supra note 1, at 1. 52. Angela Walch, In Code(rs) We Trust, Software Developers as Fiduciaries in Public Blockchains, in REGULATING BLOCKCHAIN: TECHNO-SOCIAL AND LEGAL CHALLENGES 58, 58 59 (Philipp Hacker et al. eds., 2019). 53. FIN. STABILITY BD., CRYPTO-ASSET MARKETS: POTENTIAL CHANNELS FOR FUTURE FINANCIAL STABILITY IMPLICATIONS (2018), https://www.fsb.org/wp-content/uploads/P101018.pdf [https://perma.cc/9YUH-X3P3]; ORG. FOR ECON. COOP. & DEV., CRYPTOASSETS IN ASIA: CONSUMER ATTITUDES, BEHAVIOURS AND EXPERIENCES 10 (2019). Dimitropoulos (Do Not Delete) 1132 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 or token sales first started to appear in 2013.54 Since then, the number of ICOs has grown exponentially. ICOs are financial ventures based on cryptocurrencies. They emerged as a way of raising capital and as a solution for entrepreneurs looking to attract funding for their startups.55 According to the Organisation for Economic Co-operation and Development (OECD), ICOs consist of the creation of digital tokens by start-up companies . . . and their distribution to investors in exchange for fiat currenc or, in most cases, mainstream cr ptocurrencies. 56 Cryptoassets are tokens that have a value in the digital world. There are three main categories of cryptoassets. First, there are payment tokens, i.e., digital means of payment or exchange, often referred to as cryptocurrencies, although cryptocurrencies are nowadays only one type of cryptoasset. Second, there are utility tokens that grant digital access to specific digital platforms and services. And third, there are security tokens, i.e., asset-backed tokens representing ownership interests in property.57 The most popular category is payment tokens, or cryptocurrencies. Cryptocurrencies are not necessarily identical to virtual currencies. Virtual currencies ha e been defined as a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to mone . 58 The term cr ptocurrenc is used to refer to an irtual currency that relies on peer-to-peer cryptography for the validation of alue transfers. The term altcoin is also er often used in this conte t, mostl to describe irtual currencies e cept for the dollar of 54. See generally Shaanan Cohney et al., Coin-Operated Capitalism, 119 COLUM. L. REV. 591 (2019). 55. See Sabrina Howell et al., Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales, VOX EU (July 23, 2018), https://voxeu.org/article/financing-growth-cryptocurrency-tokensales [https://perma.cc/CPG2-LGKE]. 56. ORG. FOR ECON. COOP. & DEV., INITIAL COIN OFFERINGS (ICOS) FOR SME FINANCING 9 (2019), www.oecd.org/finance/initial-coin-offerings-for-sme-financing.htm [https://perma.cc/US7ZH6Q5]. 57. APOLLINE BLANDIN ET AL., CAMBRIDGE CTR. FOR ALT. FIN., GLOBAL CRYPTOASSET REGULATORY LANDSCAPE STUDY (2018), https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternativefinance/downloads/2019-04-ccaf-global-cryptoasset-regulatory-landscape-study.pdf [https://perma.cc/X9FL-D232]. The Swiss Financial Market Supervisory Authority (FINMA) has also made a distinction between payment tokens, utility tokens, and asset tokens. See FINMA, GUIDELINES FOR ENQUIRIES REGARDING THE REGULATORY FRAMEWORK FOR INITIAL COIN OFFERINGS (2018). 58. EUR. CENT. BANK, VIRTUAL CURRENCY SCHEMES A FURTHER ANALYSIS (2015). Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1133 cryptocurrencies, Bitcoin.59 There are no limits to the number of altcoins that can be developed and released.60 Stablecoins are one of the latest developments in the field of cryptoassets. In contrast with the first generation of cryptoassets, the value of a stablecoin is pegged to one or more external sources such as fiat currency or commodities. Stablecoins may be public or private. One e ample of a pri ate stablecoin is Libra, the planned blockchain-based currency of Facebook. Libra is designed as a stablecoin with a steady value 100% backed by a basket of securities and fiat currencies such as the dollar, euro, pound and yen.61 Libra will be run by the Libra Association, an independent, not-for-profit membership organization, headquartered in Geneva, and supported by private companies, such as Facebook, Uber, and Vodafone, as well as non-profit organizations.62 At the same time, some central banks for example, in China, Sweden and Switzerland have started to explore the possibility of developing their own version of stablecoins, so-called Central Bank Digital Currencies (CBDCs).63 Domestic legal orders have had great difficulty in grappling with cryptocurrencies and other cryptoassets. Being decentralized and global in nature, they cannot be identified as legal tender in the same way as national currencies. In the United States, only the U.S. dollar is legal 59. For a definition of Bitcoin, see Guadamuz & Marsden, supra note 13, at 2.2 ( Bitcoin is a nonfiat cr ptographic electronic pa ment s stem that purports to be the orld s first cr ptocurrenc . In other words, it is a peer-to-peer, client-based, completely distributed currency that does not depend on centralised [sic] issuing bodies (a so ereign ) to operate. The alue is created b users, and the operation is distributed using an open source client that can be installed on any computer or mobile de ice. ). 60. [T]he Internet of money will be less concerned with creating one coin to rule them all, than it ill be about finding one rule to coin them all. See GRANT K. NIVEN ET AL., WORLD GOV T SUMMIT & ERNST & YOUNG, THE FUTURE OF MONEY: BACK TO THE FUTURE THE INTERNET OF MONEY 7 (2017). In practice, there are only a few real alternatives that implement minor or major changes to the Bitcoin software; these are known as forks. See Adam Hayes, The Decision to Produce Altcoins: Miners Arbitrage in Cryptocurrency Markets (Mar. 17, 2015) (unpublished manuscript) (on file with SSRN), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2579448 [https://perma.cc/VAK4ESR2]. 61. LIBRA ASS N MEMBERS, LIBRA WHITE PAPER V2.0 (2020), https://libra.org/en-US/whitepaper/#cover-letter [https://perma.cc/JB26-P32W]. 62. Id. PayPal, Stripe, eBay, Visa and Mastercard left the association in the last couple of months, despite having originally joined the association. Hannah Murphy & Kiran Stacey, Mastercard, Visa, eBay and Stripe Quit Facebook s Libra, FIN. TIMES (Oct. 11, 2019), https://www.ft.com/content/a3e952dc-ec5c-11e9-85f4-d00e5018f061 [https://perma.cc/D7FTEXS8]. 63. See Emilios Avgouleas & Sir William Blair, The Concept of Money in the 4th Industrial Revolution A Legal and Economic Analysis, SING. J. LEGAL STUD. (2020). Dimitropoulos (Do Not Delete) 1134 10/5/2020 3:54 PM WASHINGTON LAW REVIEW [Vol. 95:1117 tender;64 accordingly, only the Mint and the Federal Reserve can produce coins and currency. Different jurisdictions take different views on the legal nature of cryptocurrencies, sometimes treating them as money, sometimes treating them as commodities.65 Others identify their nature by focusing on their background technology.66 Various regulators around the world treat cryptocurrency as money. According to Financial Crimes Enforcement Network (FinCen) in the United States, cryptocurrencies and other virtual currencies are mediums of exchange that operate like a currency without having all the features of real currency, above all the legal tender status; in particular, con ertible virtual currencies have an equivalent value in real currency, or may act as a substitute for real currency.67 Similar views are held elsewhere as well. The German Federal Financial Supervisory Authority (Bundesamt f r Finanzdienstleistungen) took a similar approach as FinCen in a communication on Bitcoins in December 2013. According to this communication, Bitcoins are legally binding financial instruments in the form of units of account that are similar to foreign currencies.68 Her Majest s Re enue and Customs (HMRC) in the United Kingdom also treats cryptocurrencies as money for tax purposes.69 In an important decision concerning the nature of Bitcoin and other cryptocurrencies in the E.U. legal order, the Court of Justice of the European Union (CJEU) both implicitly and explicitly recognizes cryptocurrencies also for tax, namely value-added tax, purposes as some form of money.70 64. 31 U.S.C. § 5103. 65. See REGULATING BLOCKCHAIN, supra note 12; see also Noah Vardi, Bit by Bit: Assessing the Legal Nature of Virtual Currencies, in BITCOIN AND MOBILE PAYMENTS: CONSTRUCTING A EUROPEAN UNION FRAMEWORK 55 (Gabriella Gimigliano ed., 2016). 66. See infra section I.C. 67. DEP T OF TREASURY, FIN. CRIMES ENF T NETWORK, FIN-2013-G001, APPLICATION OF FINCEN S REGULATIONS TO PERSONS ADMINISTERING, EXCHANGING, OR USING VIRTUAL CURRENCIES (2013) [hereinafter FINCEN], https://www.fincen.gov/sites/default/files/shared/FIN2013-G001.pdf [https://perma.cc/K6GT-38JP]. This definition brings cryptocurrencies very close to actual money but does not really equate them. The U.S. anti-money laundering regime applies to any alue that substitutes for currenc . Id. at 3; see 31 C.F.R. § 1010.100(ff)(5)(i)(A) (2019). 68. Jens Münzer, Bitcoins: Aufsichtliche Bewertung und Risiken für Nutzer, BAFIN (Dec. 19, 2013), https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Fachartikel/2014/fa_bj_1401_bitcoins.h tml [https://perma.cc/WSL3-3Y5G]. 69. HER MAJESTY S REVENUE & CUSTOMS, REVENUE AND CUSTOMS BRIEF 9: BITCOIN AND OTHER CRYPTOCURRENCIES (2014), https://www.gov.uk/government/publications/revenue-andcustoms-brief-9-2014-bitcoin-and-other-cryptocurrencies [https://perma.cc/7NMR-R957]. 70. Högsta förvaltningsrättens beslut [HFD] [Supreme Administrative Court Decision] 2015 case no. C-264/14, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62014CJ0264 [https://perma.cc/ZSV3-Q6WM] (Swed.). The CJEU uses the terms traditional currenc for national currencies such as the S edish cro n, and the term non-traditional currenc for cryptocurrencies. According to the Court, non-traditional currencies are currencies other than those Dimitropoulos_UPDATED Paginated_jci(Do Not Delete) 2020] THE LAW OF BLOCKCHAIN 10/5/2020 3:54 PM 1135 Other jurisdictions and regulators follow a different approach in identifying cryptocurrencies as commodities.71 In the United States, the regulatory agency responsible for commodities regulation, the Commodity Futures Trade Commission (CFTC), has classified cryptocurrencies as commodities for the purposes of the Commodity Exchange Act of 1936.72 The People s Bank of China (PBOC), together ith four other regulators, has issued a Notice on Precautions Against the Risks of Bitcoins, 73 denying that cryptocurrencies are money and classified them as irtual commodities. 74 But cryptocurrencies, even when identified as money or commodities, are more than just that. Some regulatory actors have opted to focus on the underlying technology of cryptocurrencies. As will be highlighted later in this Article,75 jurisdictions that focus on the underlying technology have adopted a more favorable and enabling approach to cryptocurrencies on the whole. b. Private Uses In the private sector, blockchain technology is increasingly being used to support smart contracts. 76 A smart co