My recent paper titled ‘Law and Regulation for a Crypto-Market: Perpetuation or Innovation?’ looks at the importance of the law in a crypto-market and recognises that the market is a legal construct and so is the crypto-market. As new concepts of law and regulation have emerged in this area, software developers have begun to work with lawyers to create smart technologies that link the different functions. Automation can increase the efficiency of the crypto-market as well as monetising new products and services that are generated by, for example, big data. Private law matters as it provides legal certainty for market transactions. Regulatory intervention is required for a market as it can enhance legal certainty, mitigate legal and market risks, and address market failure. Currently there are different types of cryptoasset on the market. There are also several possible cryptoassets that are currently being developed and could in the future enter the market. This phenomenon has created confusion. Previous research has shown that lack of either legal certainty or regulatory intervention can lead to the downfall of a sector, whether mature or developing. The fall of unstable coin markets, such as the Bitcoin market, demonstrates that both legal certainty and regulatory intervention are needed for stable market construction. Using current legal and regulatory frameworks for crypto-finance will not transform the economy or the market because they have evolved as mechanisms to support the status quo in the current financial markets. Cryptoassets keep developing alongside law and regulation. Using the existing private law concepts to engage in legal taxonomy exercises for these cryptoassets can lead to unsatisfactory results. For instance, title tokens representing goods in bulk is legally problematic. Goods in bulk are likely to be split up as they are sold, thus passing from single to multiple ownership with the implication that the tokens need to be similarly subdivided or reissued in order that the new owners can demonstrate their ownership of a component of the original bulk. Without such evidence of a property interest, the buyers may not be able to sell on their new acquisition or to make a claim in insolvency proceedings. Equally, applying the current regulatory ethos and framework to them has a significant risk of stifling financial innovation in the crypto-market. The nature of the DLT as a consensus network challenges conventional legal doctrines on contract law and the public law concept of social contract. The way the current global regulatory system has developed is the result of activity over many years by the more advanced economies, and it operates to their agenda and in their self-interest. This has led to mistrust by those who feel that ‘the establishment’ is holding back development and preventing innovation. A new type of social contract is required to define the stakeholders and their relationships with law and regulation. This new social contract should reflect the desire to cross or even transcend national boundaries, the mistrust in the current centralised and intermediated market structure, the needs of the currently excluded, and a reformed power structure of global financial regulation.
Dr Joseph Lee is Senior Lecturer in Law at Exeter Law School