International Approaches to Blockchain Technologies: The Choice Between Legal Curtailment and Expansion

• Published in: The International lawyer Vol. 56; no. 2; pp. 377 - 385
• Main Author: Pardue, Joseph
• Format: Journal Article
• Language: English
• Published: Chicago American Bar Association 22.06.2023
• Subjects: American dollar; Analysis; Blockchain; Case studies; Commodities; Crypto-currencies; Currency; Digital currencies; History; Imperialism; International finance; International organizations; Laws, regulations and rules; Management; Money; Nation states; Progressivism (United States politics); Regulation of financial institutions; Risk management; Sovereignty; Treasuries; El Salvador; United States > US; Switzerland
• ISSN: 0020-7810; 2169-6578

Among these disadvantages was the fact that these initial digital mediums maintained a "double spending" problem throughout their existence.4 It was these issues that prompted Satoshi Nakamoto-a relatively unknown entity believed to be of western origin-to introduce today's most well-known cryptocurrency, Bitcoin.5 In addition to the intrigue that arose from the creator's surreptitious identity, Bitcoin's near covert introduction to the international market provides some indication of how the new medium garnered significantly greater intrigue when compared to the interest raised by its predecessors.6 The currency was initially introduced in an academic paper titled "Bitcoin: A Peer to Peer Electronic Cash System," which also introduced the blockchain database (to be discussed below) itself.7 But this paper represented a mere idea and left readers with a hunger for more information regarding their own engagement with this new system of exchange.8 It was, in all likelihood, this hunger for information that led future investors to pay particular attention to the reference code that Nakamoto released on a third-party monetary system which allowed individuals to obtain the first units of Bitcoin.9 Additionally, to fully understand the foundation upon which Bitcoin and all cryptocurrencies are based, there must be an analysis of blockchain technology and its analogous role to that of governments in establishing credibility for mediums of exchange.10 This technology serves as the foundation upon which Bitcoin and other cryptocurrencies are traded and where these transactions are verified.· 11 Finally, the primary advantage of this platform is that it allows currencies to be exchanged without the need for a third-party bank or other institution which may be regulated by an industry that lacks trust among the system's potential patrons.12 III. The nation-state seeks to become a world leader in exemplary crypto management and, thus, serves as a starting point for this legal analysis.14 An inspection of U.S. crypto regulation also serves as a unique inquiry, as different viewpoints among agencies are found within the country.15 These differing approaches to crypto regulation are largely due to the country's many federal administrative agencies such as the Treasury's Financial Crimes Enforcement Network (FinCEN), the Federal Reserve Board, the Commodities Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC).16 To delineate these agencies' respective classifications of various blockchain-based currencies, the SEC primarily considers cryptos to be securities, the CFCT refers to the medium as a commodity, and the Treasury's FinCEN program simply uses the term "currency," thus analogizing digital coins to the U.S. dollar.17 Notably, with regard to the FinCEN's classification, the use of the term "currency" also makes cryptos subject to the Anti-Money Laundering Act of 2020, helping the United States curtail illegal criminal activity and increase confidence in the platform.18 Importantly, with these abounding disparities between Bitcoin classifications among U.S. agencies, Massachusetts District Judge Rya W. Zobel held that blockchain-based coins are "commodities," as defined by the plain language of the Commodities Exchange Act.19 This decision also allowed for greater consistency and efficiency regarding the enforcement of Bitcoin transactions, as the "commodities" classification allows agencies like the CFTC to "prosecute fraud involving virtual currency," further establishing confidence in this new medium of exchange.20 IV. A Profound Case Study Demonstrating the Risks of Crypto Leniency and Sparsely Regulated Expansion Turning next to an interesting case study of a country that has both designated Bitcoin as legal tender and garnered substantial attention from the international exchanges community, El Salvador currently accepts Bitcoin for all goods and services as if it were the U.S. dollar.21 But the decision to classify Bitcoin as a near-ubiquitous form of payment has received a considerable amount of backlash from international organizations like the International Monetary Fund (IMF).22 The principal concern of these governing bodies is that cryptocurrencies are still considered far more volatile than currencies administered by more traditional financial institutions.22 The decision further puzzled many economists as El Salvador had already adopted the U.S. dollar, one of the world's most stable currencies, as its official legal tender beginning in 2001.24 In many ways, El Salvador serves as the foremost support for the contention that cryptocurrencies may continue to struggle as they vie for a position as viable mediums of exchange in the future.25 Nonetheless, the country maintains the position that the benefits of adopting Bitcoin as legal tender will eventually outweigh or mitigate the dangers of digital currencies.26 This philosophy, and the reasoning behind it, is substantially analogized by Switzerland's explanation for classifying cryptos as legal tender, to be discussed next.27 V. Stable Proliferation of Cryptos on the Scale of a National Sovereign As city director of Lugano, Switzerland, Pietro Poretti has explained that many sovereigns seek to become "centers of excellence for blockchain development," and this goal purports to require that the Swiss support the platform's main applications.28 Additionally, Poretti seeks to draw crypto enthusiasts to Lugano, subsequently boosting the local economy and placing the region ahead of the curve with respect to this emerging future of fully electronic currencies.29 An additional understanding of Switzerland's national crypto regulatory framework is necessary to fully contemplate the international ramifications and insights that are provided by the country's policies as a whole. [...]the SFTA maintains comprehensive crypto regulations by requiring licensure for all crypto traders from the Swiss Financial Market Supervisory Authority (FINMA).33 In addition to these licensure requirements, the SFTA also monitors Initial Coin Offerings (ICOs) in ways that reflect policy objectives found in the agency's regulation of the banking, collective investment schemes, and securities trading industries, thereby demonstrating the nation's consideration of crypto alongside these established currencies and mediums of financial exchange.34 Finally, Switzerland has passed many legislative initiatives-such as the Blockchain Act and Distributed Ledger Technology Act-geared towards the propagation and subsequent monitoring of cryptos.35 While Switzerland has established itself as a frontrunner in the world of crypto exchanges, the country shows many signs of continuing to advance its new age financial endeavors.