Regulating the Crypto Economy. By Iris H.-Y. Chiu

Abstract

The crypto economy refers to economic activities that take place on the blockchain, which is a consensus protocol that creates an append-only log recorded in a ledger constructed by participants and secured with cryptography.1 The transactions recorded on the ledger are verifiable in a permanent manner. Blockchains can be permissioned or permissionless. Unlike permissioned blockchains, permissionless blockchains do not have a central authority to control or amend the entries to the ledger. Currently, the main uses or applications of the permissionless blockchain are bitcoins and Ethereum, the latter being a decentralized platform that enables the creation of smart contracts and decentralized applications (called Dapps).2 However, despite the rise of enterprise activities on the blockchains in the last decade, the regulators have largely focused on the financialization of the crypto economy, as evidenced by the raft of regulations dealing with crypto-currency or initial coin offerings (ICOs) globally. For instance, the USA, Singapore, and Switzerland regulate ICOs by requiring that certain types of offering of tokens will have to comply with the country’s securities regulation, while other countries, such as South Korea, have outright banned ICOs.3